Elena Kundiy, Custom Development Manager at BIA Teсhnologies, talks about the investment volume needed for the implementation of MES into meat processing, the time needed for the investments to pay off, and the benefits for the company.
What is MES in meat processing? It is an important tool for the improvement of production efficiency that allows the meat processors to plan the processes and achieve necessary results. MES is a complex system for production management at the shop floor. It automates the operational week-day planning, production accounting at the workshop level and the control of the manufacturing process of the finished and semi-finished products. The implementation of this system provides tangible benefits to the company, such as a stable quality of products, loss control, and the possibility of prompt making of proper management decisions in production.
However, in order to benefit from the work with MES, first, you need to invest into the implementation of this system.
MES implementation costs
There is a formula to calculate the return on investment. It looks like that:
ROI = (investment income — investment amount) / investment amount × 100%
If the investment amount is the cost of MES implementation project in the company, then it is easy to determine, while it’s not so easy to determine the income from MES investment.
For example, in order to determine the income, you can take the difference between the company’s profits within a certain period of time prior to MES installation and after the implementation of this system. However, this approach does not take into account other factors of the company’s profitability changes. There can be changes in the prices of raw materials or in the customer market behaviour. That’s why a two-stage evaluation system should be used for the determination of return on investment: isolate the benefits of MES implementation as a whole and at certain production areas, and then assess their influence on the company’s profitability.
This model can help us roughly determine the return on investment into MES, as well as the payback period of this system’s implementation project.
What benefits does the company get from MES implementation?
The main advantage of MES is that this production management system provides reliable data on the production operations in real time. In other words, thanks to MES, the managers obtain full information for proper management decision-making at the right time.
MES implementation provides the following benefits to meat processing companies:
• Quality control at all production stages
MES records the data of the primary inspection, laboratory analysis of raw materials, defects in the batches of the finished and semi-finished products. Thanks to that information, the company can reject certain batches that haven’t passed the quality control, which will allow them to avoid rejections and complaints. As a result, the product quality will be stable, and the customer loyalty will increase. This, in turn, will contribute to the company’s profit increase.
• Shelf life control of the raw materials and semi-finished products
The system controls the expiration of the shelf life of all stored batches of raw materials and semi-finished products, and their release for manufacture according to FEFO (the first batch to be released is the one with the shortest shelf life). Avoiding the possibility of using expired batches of raw materials or semi-finished products leads to reducing the number of rejections, and, thus, the production costs.
• Traceability from the batches of products to the batches of raw materials
MES directly provides the data for the production veterinary accompanying documents to the Federal Government Information System “Mercury”. This helps to prevent any potential penalties by the state authorities and production suspension, which leads to the reduction of possible losses. In addition, in case of any incident with the finished products, the company can identify the cause of it and take the necessary measures, so it doesn’t happen again.
• Operational raw material cost price
The raw material cost price and its changes in all operations is calculated every day for each batch of all types of products. MES allows you to see the differences in the cost price of individual batches of the same product, and understand the reasons behind those differences using the traceability option. Adequate knowledge of the raw material cost price helps optimize the formulations, establish correct prices and properly manage the product range, which ultimately affects the growth of profit of the company.
• Production objective performance control in real time
MES uses an operative production planning which allows the company to flexibly build a high quality production plan and quickly re-plan in case of any unexpected incidents. These measures reduce the consequences of failure to implement the plan.
• Rejection control in all production areas (linking the rejections to the batches of raw materials, finished and semi-finished products)
Taking into account the traceability and the recording of the performance indicators of the production operations, the company can promptly identify the cause of the rejections and take the necessary actions, which will allow them to reduce the number of rejections in the future. Furthermore, the rejected batches can be used as a process feedstock, which will also have a beneficial effect on the cost price.
• Loss control in all storage and processing operations
There are losses during the storage of the batches of raw materials, finished and semi-finished products. If when leaving the storage area, the losses are greater than normal, the company can identify the reasons behind this using the traceability option. In case of detection of excessive losses after any production operations (for example, hanging-heat treatment-cooling), their causes can also be identified, and necessary measures can be taken, which will result in a cost price reduction because of the decrease in the loss rate.
How will the profit change after MES implementation?
Now that we determined the main benefits of MES implementation, we can find out how the profit will change if we use MES in quantitative terms. To do so, we need to:
1. Check the statistics of the incidents related to those issues.
There will be plenty of data on poor quality raw materials, rejections or excessive losses. Finding information on other issues, however, will need more effort.
2. Assess the damage from the incidents, the data for which we managed to find. We also have to calculate the approximate damage from the incidents, the information on which we could not find.
3. Calculate the part of the profit that covered the damages from the mentioned issues.
This part can be roughly considered as an amount by which the profit from using MES has increased. Now, by using the formula mentioned at the beginning of this article, we can calculate ROI (a financial ratio showing the level of profitability or unprofitability of the business) and the payback period.
Let’s look at an example of MES payback period assessment for a medium-sized company:
The company produces 20 tonnes of cooked and cooked smoked sausages daily. Its annual production volume is 7,300 tonnes. If we assume that the average cost of one kilogram of these products is 300 rubles, then the total cost of the yearly produced products is 2,190 mln rubles.
By using MES, we will be able to decrease the total losses and rejections in all production areas by 0.5%. Thus, the company will produce not 7,300, but 7,336.5 tonnes. With the same cost of one kilogram, the total cost will be 2,200.95 mln rubles, which is by 10.95 mln rubles more. The average cost of MES implementation at a company is 10 mln rubles. Hence, all else being equal, the production management system implementation will pay off in a year.
Elena Kundiy
Source: sfera.fm