Special customer requests at Igesund paperboard (Workington)

Abstract: Iggesund Paperboard Limited works in an increasingly competitive and cost-focused industry. The production is very customised and besides the different product variants some customers also have special requests, which mean activities that fall out of the normal process. The contribution system does not identify the additional costs that depend on the special customer requests. The purpose with the project was to identify and when possible quantify these costs, which should give the Finance Department more accurate information. The results should also be a basis to update the models in the contribution system. After a mapping of the finishing process and a detailed study of the contribution system, we started to study the special instructions. These are documented as spin (special instruction) codes or special felids in the order program. After a number of interviews we were able to decide which special instructions that added activities. The interviews clarified that many of the special instructions did not add any significant activities. Hence, we concentrated on those that did. We decided only to cost estimate those special instructions that added similar activities for each request. The Activity-Based Costing method was in these cases followed, and besides data from the interviews production data, mainly for the last 12 months, were used. For special instructions, that did not trigger the same activities each time, or had their main influence in other parts of the mill, we did a descriptive analysis. The tabbing cost for the last year was about £5300, yet 30 percent of the tabbing customers represented approximately £4200. The cost per tonne depens on tabbing span as well as calliper. A determining factor is also whether the order is automatically or manually tabbed. The total cost for the last 12 months for pack face down requests was about £6200 with one customer responsible for almost a third of the cost. Since the cost per pallet is constantly about £1.5, the order cost could easily be allocated to the contribution system. Many orders, including standard quantity tolerances, are re-sheeted due to rejected board. Consequently, the estimated annual cost for re.-sheeting, £620000 should not be derived completely to the customer tolerances. However, as the tolerance span declines the share to be re-sheeted increases. Our recommendation is therefore to be more restrictive with allowing new customer tolerances. Since a lot of the re-sheeting could be derived to bad paperboard quality we also suggest that initiative should be taken to improve the quality earlier in the manufacturing process. The guillotine cost for salvage solutions for bad board was approximately £73000 the last 12 months. To lower this cost we recommend, in accordance with above, to improve the paperboard quality earlier in the process. The other guillotine costs that are not currently reported to the contribution system are waste costs for trim. The total cost for the last year was about £28000, where a few customers stand for most of the costs. Reporting the waste cost to the contribution system requires the value of the board and a calculation for the wasted paperboard, which is added in the planning system. Foil and film customers have very high quality demands and therefore the inspection rate for such orders increases. Hence, the inspections in the finishing process decrease and unsatisfied board might be despatched. Our suggestion is to solve this problem immediately by making other Quality Controllers capable to replace the Shift Quality Controller, We also suggest a further investigation of the costs for foil and film customers. New special requests from customers, should be cost estimated on a more regular basis. A proposal is to include the Accounts Section when deciding whether a new special instruction should be accepted or not.