label manufacturing 1

8/8/2019 Label Manufacturing 1

http://slidepdf.com/reader/full/label-manufacturing-1 1/11

2010Case Study on Label Converting

Make or Buy Decision



Case Study on Label Converting 2010

1 Background

The labels are one of the identification technologies being adoptedworld-over. Labels could be pre-printed as a Brand packaging productlabel or could be printed on demand as a barcode label. On demandlabels are printed through label printers and these labels printerstypically print on paper and various label stocks in multiple sizes.Because label printers can use so many types and sizes of media, theyare suitable for an incredibly diverse range of identification printingneeds. Label Printers can produce wristbands, hazardous materiallabels, temporary ID badges and visitor passes, event tickets, receipts,apparel tags, price labels, file and document identifiers, shipping labelsand container IDs, inspection stickers and more.

These labels can be used for Product identification, Product protection,Asset management applications, documentation and file applicationsetc. The applications for label are varied but all that labels helps is inidentification technologies.

These labels are usually in self adhesive forms for easy application tothe varied surfaces.

Both Brand packaging Product labels as well as on-demand labels areused in various segments including various manufacturing industries –Automotive, FMCG, Consumer Durables, Electronic, Telecom etc; Govt.organization; Defense; Retail; Hospitals etc.

There are various Printing technologies been used for producing labelsand few of most prominent ones are as below

1. Rotary or flexo-graphic Technology2. Letter Press or Flat-bed Technology3. Offset Technology4. UV Technology

All the above technologies are utilized for Brand Packaging labels asthese are most efficient and produce quality labels.

Barcode Labels predominantly use Rotary or Letter Press technologiesto be produced, as they are most efficient and produce quality labels.

Here in this case I would highlighting one variety of Barcode Labelproduction cost analysis for understanding and would use one of thethese 2 technologies to depict the impact on production cost, as both

Page

3




these technologies have different impact on production speeds andcosts.

LABELS FOR DIFFERENT INDUSTRIES

Labels forPharmaceuticalIndustryWithPharmaGradeAdhesives

Labels forCosmetic& PersonalCareProducts

FoodLabels

BarcodeLabels

Thermal Transferand directthermal(Both inplane andmulti-colourlabel)

LaserLabels

Labels forchemicalDrums

Page

4




Labels forAutomobile Industry

Labels forAirlines &Transportations

Labels forGarmentsIndustry

SecurityLabels

Labels for Difficult Conditions

2 Study Objective

The objective of this study is to achieve the following

a) To analyze the manufacturing cost process – Make Decision.b) To decide on Make or Buy decisions for processed customizedlabels

2.1 To Analyze the Manufacturing Cost Process –Make Decision

Page

5

http://www.zircontech.com/anti-counterfeiting-solutions.html








To convert a Label stock to a desired customized label, there arevarious processes and costs. I would be highlighting various Costbreak-ups of various manufacturing components to manufacture acustomized label.

To manufacture a Specific Label Size, below Variable componentsare required

1. Raw material – Label Stock material, Ink stock material, Dies,Block, shrink-wrap film material

2. Direct Labor3. Machine Cost4. Overhead – Electricity Charges, Overtime, Wastages, Setting-

time

Raw Material

Label Material Stocks

1. Coated and Uncoated Paper label2. Synthetic, PVC, PP, PE Labels3. Specialized Labels4. Film labels

Ink Stock Material – All Panton color and mixed color stock inks

Dies – Dies as per label sizes – Single Up, 2 Ups, 4 Ups and soon

Machine Cost

There are various type of machine and processes – Printing Technologies been used for converting a label stock in to a customizedlabel. Depending on the printing technology being used as mentionedabove, a standard machine cost is proportioned for each job

Calculation of Cost of job for a specific Label

Label Considered : Coated Paper label StockLabel Size : 50mmx25mm (Width x Height)Ink formulation : Single Color pre-printingQty to be produced : 1Lac labels

Page

6




Raw Material Cost

Coated Paper Label Stock Cost : Rs.27 per Sq.Mtr

Ink Cost : Rs.500 for 1lac labels

Block Cost : Rs.2000 for custom printing

Die Cost : Rs.1500 for size 50x25mm

Calculation of Material required producing 1lac labels of size 50mmx25mm

Label Size : 50x25mm2mm

Inter-label Gap : 3mm minimum as standard

Left Margin : 2mm

Right Margin : 2mm

Material Required : ((28mmx1lac labels)/1000)) = 2800mtr lengthof material

Add Wastage (~5%) : 200mtr

Total Material : 3000mtr length

= 3000 x 0.054 = 162 sq.mtr Total Material Cost : 162 x 27 = Rs.4374

Now to optimize the production, 4 Ups die is been taken, so that 4labels gets cut with single impression

3mm

Page

7

50mm25mm




On a Flat Bed printing technology, it is estimated that about3000impresssions can be achieved in 1 hour

This translates to 12000labels per hour with 4 Ups die

To produce 1lac labels, therefore now 9 hours would be required –1lac/12000 = 8.5hours.

To accommodate setting time of die another half an hour is added tothe total production time making total of 9hours.

Machine Cost CalculationAs Flat-Bed printing technology is used for converting raw label stock,standard machine hour cost is Rs.300 per hour. This would vary withthe printing technology been used with the type of machine.

For a Flexo printing technology, standard machine hour cost taken isRs.2000 per hour

Total Machine cost for producing 1lac labels : Rs.300 x9hrs =Rs.2700

Labor Cost

On an average Rs.35 per hour is been paid for a Single operator andfor producing any job about 3 operators are required.

Total Labor Cost : Rs.35 x 9 x 3 = Rs.945

Electricity

On an average about Rs.10 per hour charges are been incurred inrunning the machine

Total Electricity Charge : Rs.10 x 9 = Rs.90

Page

8




Overtime Cost

Over time cost is 1 and half times of regular hour cost.

As for producing 1lac labels 9hours are required, 1hour over time costfor 3 operators would be Rs.35 x 1.5 x 3 = Rs.157.5

Now to compute the total cost of Production as below

1. Raw Material Cost : Rs.4374

2. Machine Hour Cost : Rs.27003. Die Cost : Rs.15004. Ink Cost : Rs.5005. Electricity Cost : Rs.906. Labor Cost : Rs.9457. Overtime Cost : Rs.157.58. Block Charges : Rs.2000

Total Production Cost : Rs.12266.5

On Above there would be additional Packing and Shrink-wrapping cost,which is estimated to be 1-2% of the production cost.

Packing and Shrink-wrapping cost: Rs.12266.5 x 2% = Rs.245.3

Total Production Cost with Shrink-wrapping = Rs.12511.8 ~Rs.12512

Therefore to produce 1Lac labels of 50x25mm, total cost would beRs.12512, translating to Rs.125 per 1000 labels.

Fixed Costs

Page

9




1. Machinery Cost : Rs.20Lac2. Monthly Rent for the Building : Rs.200003. Power line : Rs.1Lac4. Fixed Assets : Rs.3.5Lac

5. Shrink-Wrap Machine : Rs.500006. Security Deposit : Rs.1Lac

Fixed Costs are not directly considered in calculation of the productioncost, except the machine cost is amortized as a variable standard costfor machine usage. As the profit pricing is been followed and a profit of Rs.10Lac is estimated in for 1 st 3 years to break-even. In this businessof label conversion, 30% gross profit is estimated.

3 Buy Decision

Cost of 50x25mm, 1lac labels buy from Other Big Convertors

Label Cost : Rs.137 per 1000 labelsLogistics Cost : Rs.200 per shipmentTotal Cost for 1lac labels : Rs.13700 + Rs.200 = Rs.13900

Apart from this there is a threat cost , as incase label is pre-printedwith a single color logo of a company, original convertor would haveaccess to the opportunity.

This Buy Cost increase much more once it is high value labels in termsof Synthetic or specialized labels, where cost of the raw material itself would be Rs.600 per Sq. mtr

Also as the label becomes much more specialized, there is always aMinimum Order Qty of the Raw Material Purchases as stipulated by theVendor of Raw Material.

Page

10




4 Other Advantages towards Make Decision

2.2 Just in time Production can be achieved minimizing finished product stocks

2.3 Production Wastages can be studied and necessary corrective actions could beimplemented

2.4 Setting time of die could be studied and necessary corrective actions could beimplemented

2.5 Raw Material costs can be tried for controllingwith better planning

2.6 Wear and Tear could be minimized with regular maintenance, so not have shut down time due tomachine break downs

2.7 Proper utilization of machine and labor time could be achieved economizing the cost of production

Page

11

label manufacturing 1

Documents