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S.Yu. Sarancha, S.A. Levandovskiy, A.B. Moller, V.I. Bilichenko, L.V. Chuntonova
FSBEI HPE Nosov Magnitogorsk State Technical University
SECTION-ROLLING PRODUCTION:
ANALYSIS AND PROCESS EFFICIENCY IMPROVEMENT THROUGH INFORMATION TECHNOLOGY
There is the question of efficiency and profitability, when making decisions on the introduction of various information technologies in production. Evaluating the effectiveness of the introduction projects in the field of information technology is a challenge because the accurate assessment of the actual costs is impossible. Based on the common practice, the decision to introduction information technology shall be based on financial indicators: ROI, TCO, SRR, PBP.
Keywords: efficiency, section-rolling production, information technology, measuring length, Return On Investment, Total Cost of Ownership, Simple Rate of Return, Pay-Back Period.
As part of the research work (RW) experience was obtained in implementing information technology (IT), showing the need for a modern production of a higher degree of information and automation [1]. Also an increase in profitability and efficiency was reported in the research work. It is worth noting that the results were achieved without significant change in the process and without the purchase of expensive equipment.
Based on the experience gained, it can be concluded that the existing logic and principles of accounting and management in the production ceased to be effective and should be improved [1-3].
Practice shows that the steel industry in the Russian Federation contains substantial reserves that can be used by implementation of IT [1, 3-6]. In particular, it concerns the development and application of mathematical models of different com-
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plexity which allow solving a variety of technical and technological problems. The use of optimized algorithms for cutting hot bar products according to the cut length made it possible to reduce the number of rejects in the section rolling shop of OJSC "MMK" by 50%, while their implementation does not require of the existing equipment modernization [7-11].
If the need for a modern IT in metallurgy is justified its efficiency requires more detailed consideration, namely, the calculation of the conventional factors efficiency and economic indicators which allow evaluating the prospects of implemented projects and decide upon their purchase: ROI, TCO, SRR and PBP.
Let’s have a closer look at the coefficients and indicators.
ROI (Return On Investment) - investment reset ratio, reflecting the level of the project profitability.
^ ^ T Profits — Expenditures „ л л л,
ROI =--------------------------100%.
Expenditures
If the ROI is greater than 100%, then the invested project is profitable, if the ROI is less than 100% - unprofitable.
TCO (Total Cost of Ownership) - the total cost of IT ownership for the entire period of its use, including the cost of maintenance and support.
SRR (Simple Rate of Return) - the investments profitability. This indicator gives a rough estimate of what investment proportion returns in the form of profit for a certain period of time. The decision to introduce or extend the projects may be also based on SRR:
NP
SRR =------100%;
TIC
where NP - net profit, TIC - investment in the project.
PBP (Pay-Back Period) - pay-back period or, in other words, it is the period during which the revenues generated by investments become equal to the total cost of the project:
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PBP =
TIC
NP
Statistical data resulting from the implementation of optimized algorithms for cutting hot bar products to the cut length and the use of the software "Cutting production at the section rolling mills" in the actual production, show that the annual economic effect from the introduction of the developed IT into the bar-rolling process with a production capacity of 1 million tons is 60 - 190 000 000 rubles [7, 12]. Based on the experience of the software system implementation, it is recommended to hire three additional employees in each team, that is, in the 24 hours a day production - 9 people, having the 8-hour working day: the operator of a personal computer (PC), the inspector on the scales before the heating furnaces and the inspector after the length cut unit. As practice shows, in the modern production conditions the required control and accounting functions shall be laid on the existing employees, but due to low labor problems the existing staff will handle the extra load. When calculating ROI we shall proceed from the highest possible cost, that is, from hiring of nine additional employees. Thus, with an average salary of 25 000 rubles per month the wages fund (WF) will make up 2.7 million rubles, while taking into account the PIT (personal income tax) and deductions to the Pension Fund (Pension Fund of the Russian Federation), FFMHI (Federal Fund for Mandatory health insurance), SIF (Social Insurance Fund) it will be 3.86 million rubles.
One computer place will also be needed although the existing one is likely to be used. The acquisition of PC software will cost the company 70 000 (one-time payment in the first year), the cost of electricity should also be considered , taking into account the work in 3 shifts, 24 hours a day, 7 days a week, 365 days a year (again, in the same production conditions with the planned repair and maintenance so the number of hours will be slightly lower) and the consumption of about 200 watts / hour, we get about 12 000 rubles (at the cost of 1 kW of electric power approximately 6.6 rub.). Based on data from 2010 the software technical support will cost 183 000 rubles per year with an average of 61 thousand rubles per year per employee, working on a PC (taking into consideration the practice at the metallurgical enterprise the
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costs of the software support will be lower) [8,11]. Purchase of the software and its implementation will cost the company 6 million rubles, and concerning the amount of annual license fees we will take it up as 2% of the project annual economic benefit, as the accepted value.
It is necessary to take into account the costs associated with training new employees - 20 000 rubles per employee.
When calculating ROI we will adopt the annual economic effect from the introduction of the software "Cutting production at the section rolling mills" for 60 million rubles, that is, we start from the minimum value of the economic effect. Thus, in the first year of using the ROI the index will be at the level of 418.64%, and the following - 719.81%, which indicates a high level of profitability of the project.
When calculating the TCO, we assume that the life of the project is 3 years. Then the TCO for the entire period of use will be 33.53 million rubles, and the annual TCO - 11.18 million rubles. Evidently the overall TCO does not exceed the total economic benefit for the entire period of operation, which proves that the project is profitable.
In the calculation of the net income it is necessary to calculate the SRR, and take the profit tax equal to 20%. Then SRR for the entire period of use will be 2871.61%, and the annual - 957.2%. That is, for the entire period the profit is much higher than the investment itself.
Payback period or PBP is 0.1 years or 1.25 months, in other words, the project has a short payback period and is fully paid off in the shortest term.
The numerical values of the generally accepted indicators, allow us to understand that the implementation of the software " Cutting production at the section rolling mills" is a cost-efficient solution. And, despite the relatively high cost of implementation of the complex, the payback period was 1.25 months.
List of references
1. Moller A.B., Tulupov O.N., Levandovskiy S.A., Kinzin D.I., Ruchinskaya N.A., Sarancha S.Yu., Guschina M.S., Naydenova A.V., Elesina V.V., Kulakova
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A.E. Otchet o NIR/NIOKR, Magnitogorskiy gosudarstvennyy tehnicheskiy universitet im. G.I. Nosova, Finansiruyuschaya organizaciya: OAO «MMK», 2013g. Nomer gosudarstvennoy registracii: 01201366941, UDK: 621.771.25/26.
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9. Sarancha S.Yu., Moller A.B., Levandovskiy S.A.. Poetapnoe vnedrenie IT
v usloviyah sortoprokatnogo proizvodstva: spiral' kachestva Djurana kak
nepreryvnyy process povysheniya effektivnosti vypuska produkcii. Materialy 73-y Mejdunarodnoy Nauchno-Tehnicheskoy Konferencii «Aktual'nye problemy sovremennoy nauki, tehniki i obrazovaniya». Tom 1. 2015. UDK 621.771.25: 658.562.3. S. 147-151.
10. Sarancha S.Yu., Levandovskiy S.A., Moller A.B., Kinzina I.I.. Voprosy byudjetirovaniya oblasti informacionnyh tehnologiy v metallurgicheskoy otrasli na primere proizvodstva sortoprokatnoy produkcii. Kalibrovochnoe byuro. 2015. №5. S.24-29.
11. Sarancha S.Yu., Levandovskiy S.A., Moller A.B., Statsenko J.S.. Information technology and Juran's spiral of quality as a continuous process of improving the efficiency of section-rolling mill. Калибровочное бюро. 2015. №5. С.30-44.
12. Sarancha S.Yu., Moller A.B. Primenenie informacionnyh tehnologiy v metallurgicheskom proizvodstve: optimizaciya tehnologii prokatki i raskroya gotovoy produkcii v sortoprokatnom proizvodstve. Materialy 72-y Mejdunarodnoy Nauchno-Tehnicheskoy Konferencii «Aktual'nye problemy sovremennoy nauki, tehniki i obrazovaniya». Tom 1. 2014. UDK 621.771.25/26: 004.94. S. 139-143.
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