The main goal of any commercial institution is to maximize profits. This means the need to reduce costs. The utilization rate of materials is an indicator that allows us to assess the rationality of the latter, their need to obtain the final result. If a company spends too many resources in vain, then it cannot be successful. Profit maximization is possible in a competitive environment only by minimizing costs.
Production as a process
Determining the utilization of materials allows us to assess whether the output is efficient and rational. Then, if the indicator does not satisfy us, we should try to make a difference. However, this is completely impossible if you do not have an idea about the production process. Therefore, to begin with, consider it on the example of the engineering industry. It is convenient for analysis, since the production process at most enterprises in this area is similar.
At the first stage, workpieces are created from raw materials and materials. Already here we may run into costs. The more raw materials are wasted, the stronger the utilization of materials will deviate from unity. The second stage is associated with the processing of blanks and giving them the desired configuration. Naturally, this is also costly. Moreover, they depend on the effectiveness of the initial stage. At the third stage, preliminary and direct assembly of products is already taking place.
Production factors
The products can be characterized both in physical units and in value terms. Everyone understands that a firm can continue to operate when its income exceeds costs. However, what are the latter related to? Consider a three-factor model. In order to produce products, we need tools. These are our fixed assets. The rationality and efficiency of production depends on how we use them: intensively or extensively. Characterizes the effectiveness of these factors, capital productivity. The inverse of this indicator is also used.
Also, for the production of goods, objects of labor are needed. These are our revolving funds. That's just them and characterizes the utilization of materials. Efficiency is indicated by the indicator already mentioned in the description of fixed assets. This is material output. Finally, labor is an important factor in production. It can also be used extensively and intensively. And this affects our costs. An indicator of the effectiveness of the workforce is the productivity of the staff and the complexity of the products. These are also inverse indicators.
Material utilization
The formula of this indicator characterizes the factor of working capital. Also, the use of objects of labor reflects the output of finished products. The latter indicator, as a rule, is used in industries where primary processing of raw materials occurs.
In the manufacturing industry, the coefficient of utilization of materials is more often calculated. They reflect what percentage of raw materials should be contained in the finished product, and how everything looks in reality. There are two types of utilization factors.
Planned
The first type of indicator, as the name implies, is predictive. It is used in planning future activities and building development strategies. The formula is as follows: KPL = Mch / Mn. The following conventions are used in it: Kpl is the planned utilization rate, Mch is the net weight of the product, Mn is the consumption of materials according to established standards. As can be seen from the formula, it weakly reflects the real situation. The norm is set for a hypothetical situation. In fact, we may face much greater than planned costs.
Actual
This indicator is more realistic characterizes the use of objects of labor. We introduce the notation. Let Кф is the actual utilization coefficient, Мch is the net West product, as in the previous case, and Мф is the material actually used up. Then the formula will look like this: Kf = Mch / Mf.
It is easy to see that in both cases the coefficient can take values from 0 to 1. However, it cannot be equal to unity in reality. Always some part of the material is wasted, but not contained in the finished product. But it is important to understand that part of it can be reused or recycled, that the coefficient in question does not take into account. Therefore, the production process always needs to be analyzed comprehensively, and not just focus on numbers.
Material consumption rate
This is another important indicator that characterizes the conditions in the industry. We introduce the notation. Let C be the rate of consumption of material, and Kf the number of units of actual output. For the formula, we will also need the actual coefficient of use of materials - Mf. Let Ned be the consumption rate per unit of output. Then C = (Mf / Kf * Ned) * 100%.
Performance Improvement Factors
Rational use of materials allows the company to maximize profits. However, much depends on the situation in the industry as a whole.
The following factors influence the consumption rate of materials:
- Improving the technology of the production process. If the enterprise and the industry are developing, then over time, less and less rejects per unit of output are obtained. And this means that the material begins to be used more rationally, and costs are reduced.
- Improving the technical preparation of the production process. Here we are talking about improving the design of parts, the choice of blanks and material.
- Improving the organization of the production process. This may include the development of cooperation between departments, the deepening of specialization, and the improvement of planning processes.
