It’s a life-and-death issue – cutting non-value cost out.

AS we continue this series, we focus this week on how we track and manage cost in the industry, since this is the substantive issue – bringing down the unit cost in the industry.

Cost accounting is as old as the human being itself, and can be extremely helpful in weeding out the non-value-added activities from a complex production process, and help decision makers make informed decisions. You cannot weed-out what you are not accurately allocating to the correct cost centres, and thus do not have a handle on. Therefore, as part of this cost analysis, we must re-design how we apply cost to the entire process. The focus has to be on measuring the performance of each estate in totality, rather than trying to evaluate the entire industry.

This is vitally important, and has to be done scientifically. In the long run, only those costs directly assigned to an estate and representing a real value-added activity will be allowed to survive in the industry. Every other cost has to be paid for by some other agency outside of GuySuCo, or it must be surgically axed from the system. Getting this right the first time around is a life-and-death issue for many thousands of people in the sugar belt.

My focus will be on the non-Skeldon factories, since I am of the clear opinion that the Skeldon Estate has to be outsourced to private investors armed with the necessary resources to turn that operation around. There are many such investors in India or Brazil, who are resourced both financially and talent-wise to take on this challenge and make money in the process, and save the economy of the Upper Corentyne.

It is one thing to survive, and another to truly thrive. To really thrive, we have to rationalise the non-Skeldon factories. My model suggests – Albion/Rose Hall, Blairmont, East Demerara at Enmore, and West Demerara at Wales. In such a make-up, we have to, first of all, pile all cost data (at a very granular level) into data silos in each respective estate for the last three years.  This means all common costs — such as shipping, headquarters and so on — have to be allocated to each estate using a formula that has the full support of the estate teams.

This information will empower the decision makers to effectively track every single cost per factory from inception to the sale of the final product. This kind of information is gold to any skilled executive who can study that data to get an informed grip on why these factories have such a high TC/TS ratio.

The TC/TS ratio (tonnes cane at factory gate that is needed to produce one tonne of sugar) is the principal key performance indicator on factory yield. The lower this number is, the more productive the factory is.

Any skilled executive, after studying this information, will be in an optimal position to understand what needs to be done to improve efficiency in the factory. However, all decisions should be made in a decision-making vehicle called the “transition vehicle” (or turnaround laboratory). There is no room for a one-man show, as we saw under Raj Singh. This will be used to house people from different levels in the factory with different backgrounds but with one core purpose – giving quick, timely and direct answers on how to lower the cost in the factory. This information will be passed up the chain, but also posted on the factory notice board to inform all staff of the decisions being made.

For this to work, we desperately need the buy-in from the floor.

If the vehicle says cut an activity out of the factory process, we should give them the benefit of the doubt and swiftly ensure all are informed; but most importantly, their jobs depend on the outcome from the recommendations they make. If they focus always on yields, I see them all succeeding. It must be made clear to members of the “Transition Vehicle” from the inception that if they cannot reduce the TC/TS incrementally every ensuing crop over a three-year period and contribute to reducing the loss on the estate, then they would have no job at the end of that six-month period. It is as simple as that.

The industry is on record as having productivity ratios as low as 10.5 TC/TS in the past, and they can do it again and even do better. To give you a snapshot of where we are, Albion had a TC/TS ratio in 2011 of 11.47; Rose Hall had 12.73; Blairmont had 11.45; Enmore had 14.65; Wales had 13.32 and Uitvlugt had 14.58.

On the non-Skeldon estates, we can use the model that I suggested of the “transition vehicle” to identify and attack the problem in segments of six months. The objective is that in every successor period, the TC/TS per factory has to decline. If a factory manager is fully briefed that Headquarters is prepared to give him/her the resources to attack the problem in his or her factory, and he still cannot turn it around, that person is clearly in the wrong business.

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There is also great potential for Blairmont and Enmore, because of the fact that they both have fully functional sugar packaging plants on their premises, and are ahead on the sale of value-added packaged sugar. It makes so much economic sense to mothball Rose Hall to save the Central Corentyne sugar industry, and I hope good sense will prevail on this hard decision. Let us not play politics with this industry for the sake of those 69,000 people who face economic ruin if GuySuCo goes under.

But the biggest challenge outside of Skeldon in the sugar belt remains the West Demerara. For obvious reasons, Wales is on the riverfront, which can make the transport of sugar to the Demerara Sugar Terminal much more cost efficient than if the base of production were at Uitvlugt. This will entail the Uitvlugt Factory being mothballed to enhance the productivity on the West Demerara, and portions of the Uitvlugt land being outsourced for plantation-type cash crop agriculture. It is a tough decision, but the options are few.

I shall stop here for now, and we shall continue next week on a SWOT analysis around this industry. Please feel free to share your comments at sasesin1@yahoo.com.