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Optimizing indirect production cost to improve overall plant performance.

Article Excerpt
Indirect production costs--that is, the cost of using, sourcing, and purchasing all the materials, parts, supplies, labor, and services required to support or sustain operation of a plant or equipment, but is not directly included in the product--are receiving increased attention from senior managers in almost all industries, especially metals. Rising raw materials and power costs are forcing metal producers and processors to find new ways to reduce cost, improve performance, and increase profitability.

But, most companies attack indirect cost without realizing the total impact of specific reductions. Deferring maintenance, for example, or cutting costs on standard operating procedures can expedite a much larger capital expenditure by increasing equipment and/or performance degradation and/or premature failure. The cost to rebuild a carbon baking furnace for an aluminum smelter can be as much as $50 million, not counting the increased cost of purchasing carbon while the furnace is out of commission. Implementing proper maintenance and operating practices can extend the furnace life by as much as five years. Managers must...

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