 |  | Compressed Earth Block - Volume I. Manual of production (GTZ, 1995, 104 p.) | ||
 |  | Production management and economics | ||
|  | Management | ||
| | Calculating costs | ||
| | Marketing | ||
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GENERAL OBSERVATIONS
Management is indispensable to improve and achieve the smooth working of the production unit. It enables one to take decisions in the light of the analysis of data collected in the course of various control and recording operations. It concerns above all stocks and cash flow, but also user satisfaction and therefore marketing.
STOCK MANAGEMENT
Raw materials
Stocks represent tied up capital. The extent to which capital is tied up will depend on the nature and length of the manufacturing cycle, notably the duration of the curing stage, which should be as short as possible, without being detrimental to the quality of the blocks.
For example, choosing lime as a stabilizer can prove less viable than cement, even if it costs less, since it demands a minimum curing time of 56 days instead of 28 days for cement. The time lapse between each delivery of raw materials should be examined. If it is too long, large quantities will have to be purchased in advance, causing capital to be tied up for a long time. If on the other hand it is too short, even a slight delay could result in out-ofstocks, bringing the brickworks to a standstill; reserve stocks are needed to avoid this occurring. In addition, purchasing in large quantities often allows discounts on unit prices.
One must find and set a balance between these different constraints by carefully observing supplies, consumption and stock levels, which should be inventoried at least once a month to check on any shortfalls (inaccurate records, wrong amounts of material used, losses, theft etc.).
Equipment and tools
The state of equipment and tools should be known to avoid the risk of production being forced to close. Merely a broken shovel handle can be enough to halt the brickworks. A sufficiently large, but not excessive, stock of tools and spare parts should be allowed for. A monthly inventory is also crucial.
Blocks ready for use
To avoid capital being tied up in stocks for too long, blocks should be moved on (building site or direct sales) as soon as possible after curing. This must be studied before starting production. If blocks are intended for direct sales, it is useful to have stocks of blocks ready for use and available for immediate sale, but one must be aware that this represents a capital cost. This approach can be considered if there is sufficient capital and if client demand requires it, as it can be an additional selling point. A production unit working purely on firm orders is the ideal solution from the point of view of stock control, but this is possible only with small production units, where amortisations and the cost of not producing are low. Otherwise a major marketing effort is crucial to maintain a certain sales or site stability.
CASH FLOW MANAGEMENT
Money needed for production (purchase of raw materials, equipment, power, wages, etc.) will only be reimbursed when blocks are paid for, whether they are sold as such or put into use in buildings. This money that has to be <advanced> is known as a cash flow provision, a stock of available money which may therefore incur charges (e.g. loans). To reduce charges, the most accurate estimate possible of the amount needed for a given period (week or maybe month) must be made and the degree of flexibility must be evaluated: fixed dates for payments and receipts or not.
In most cases, this means negotiating with various contacts (suppliers, banks, clients, the state...). The outcome will often depend on the economic and technical viability of the production unit and the quality of the relationships it has with outside partners.
USER SATISFACTION
Three factors are critical: availability, quality and price.
- Availability will depend on the delay between ordering and taking delivery of the blocks. Too long a delay may put off the users and make them turn to other materials. But, as we have seen, a very short delay implies the financial capacity to hold large stocks of blocks. The best solution is to foster loyal clients, but diversification of activities can also provide a solution. For example, a producer who is also a builder, can broaden his market and one activity may be able to make up for slack periods in the other.- Quality, as we have seen, is determined by the users' needs which must be known and constantly re-evaluated for an optimum solution.
Users must also be reassured and have the reliability and performance of the products demonstrated to them. For example, thanks to the stamp of an approved quality control organisation, but also with the help of the reputation of the brickworks.
- Price is also a determining factor. It should be fixed in the light of the local market and suited to the price the buyer is prepared to pay. Either the profit margin can be reduced, which may be good marketing policy - by selling cheaper, one sells more. Or one can try to reduce production costs, which presupposes that the working of the brickworks is being constantly analyzed, by examining the cost of raw materials, of labour, amortisations, and charges. This sometimes means redesigning manufacturing methods, the nature of the organisation, equipment, cash flow etc.
Improving productivity is often the best way to reduce production costs and can often be achieved through better working conditions (shelter from direct sun and dust, safety, adequate wages or profit sharing, etc.).
PRODUCTION COSTS
Calculating production costs is vital; it should be done at the setting-up stage of the project and periodically checked. Costs include the production unit's fixed and variable costs.
Fixed costs are independent of productivity, but are linked to the unit production configuration. They include:
- Financial charges (interests on loans): these are linked to initial investments (preparatory market and feasibility surveys, land or production site purchase, equipment purchase, cash flow provision for initial expenses: stocks, wages, equipment.)- Amortisation: This should enable initial investments to be recouped. It is calculated on the expected life or the loan reimbursement term of the production unit which may be 3, 5 to 10 years.
- Management costs: these include salaries, social security contributions and supplies which are independent of production.
- Administrative costs, which include state and local taxes.
- Infrastructure costs, including rents, insurance, repairs.
Variable costs are linked to productivity but independent of the nature of the production line and include:
- the production labour-force (wages, social security contributions, etc.);
- raw materials (soil, sand, cement, water, etc.) and power;
- equipment and services linked to production (tools, works and transportation);
- possibly taxes on the products (VAT, etc.).
FIGURE
UNIT COST
For a given production figure, fixed and variable costs are added together and the total divided by the number of blocks produced, giving the unit cost. This enables the price of the blocks to be set at a sensible level, by adding a profit margin to the unit cost.
SENSITIVITY ANALYSIS
It is useful to calculate the effect of changes in costs (fixed or variable) or in productivity on the unit cost. This prevents one being caught unaware if costs increase or if productivity falls. It can also give one a good idea on the best manufacturing method, organisation and amount of materials to use with regards to variations in unit cost.
FIGURE
The above curve illustrates the reduction in unit production costs with increased productivity. The costs of raw materials and stabilizer remain identical: 1 currency unit per block gives 1000 currency units per 1000 blocks, as proportions stay the same. Labour and overheads per block, however, fall as productivity increases. Overheads (interest payments, rent, taxes) and salaries (if these are independent of productivity) will stay the same whether any blocks are being produced or not. For example, if overheads and salaries are 1000 currency units per day, the cost per block will be 1000 currency units if only one block is produced, but 1 currency unit if 1000 blocks are produced. Experience shows, however, that from a certain point onwards, the cost of production per block hardly falls at all and it is this optimum level of production which should ideally be achieved.
FIGURE
GENERAL OBSERVATIONS
The marketing and dissemination of CEBs will grow on account of user satisfaction.
This means actively seeking to inform and watching for changes in the market, but also helping with the design and the construction of CEB buildings, as well as supporting efforts to make the material better known to the public.
INFORMATION
CEBs are often poorly understood. Potential users must therefore be informed not only about sales related aspects (costs, delivery times,) but also about their building potential (performances, thermal comfort, low cost, appearance). Ordinary supporting materials (leaflets, technical data sheets, video-cassettes, various media etc.) can be used. But to begin with the best approach is generally through demonstration by puffing up buildings illustrating the particular use of CEBs and their building merits. These first physical examples are often crucial, as the public will tend to associate CEBs with buildings it has seen. They must therefore illustrate as clearly as possible the potential and limitations of the material, and at the same time give an indication that they can aspire to the people's needs.
ADVICE AND ASSISTANCE
Generally, it is not enough to produce good blocks, one must also ensure that they are correctly used according to specific working practices. If the producer is also the builder, this is less of a problem to the extent that he has the right skills. When blocks are sold directly, the producer may be in a position to advise or assist his clients on construction. Otherwise, the latter may reject the material and give it a bad name, which will reflect poorly on the producer. He should be able to help with design and execution, either through links with architects, engineers and entrepreneurs whom he can recommend to his clients, or by having technical documents (manuals, master plans,) available, perhaps linked to training courses locally or regionally.
RECOGNITION OF CEBS
The building sector is not all easily convinced by the appearance of a new material. It needs to be reassured by demonstration of the material's reliability and the professional competence of producers using it. Putting up demonstration buildings is an eloquent statement, but will often have to be complemented by putting quality control procedures into place through official organisations, which may lead to relevant enterprises being qualified and the preparation of necessary standards documents.
For a producer or builder, recognition of CEBs can have many advantages: opening up public markets, favourable credit rates, grants, partnerships, etc. For official services, the advantages are also certain: reduced imports, job creation, training specialized labour, cheap building solutions, cultural continuity, etc.
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