Ef­fec­tive­ness In­di­ca­tor

In 2012 Be­larus is de­ter­mined to re­duce the ma­te­rial in­ten­sity in the man­u­fac­tur­ing in­dus­try by 2-3%

Economy of Belarus - - CONTENTS - Yev­ge­nia MOROZ

In 2012 Be­larus is de­ter­mined to re­duce the ma­te­rial in­ten­sity

in the man­u­fac­tur­ing in­dus­try by 2-3%

Cal­cu­la­tion Meth­ods

Ma­te­rial in­ten­sity is one of the ma­jor in­di­ca­tors of the com­pany’s pro­duc­tion ef­fi­ciency. To as­sess the re­duc­tion in the ma­te­rial in­ten­sity, you need to di­vide the com­pany’s ma­te­rial in­ten­sity this year by the ma­te­rial in­ten­sity last year (in %) and deduct 100.

The Econ­omy Min­istry of the Repub­lic of Be­larus cal­cu­lates ma­te­rial in­ten­sity in ac­tual prices; there­fore, these cal­cu­la­tion meth­ods can be used at all lev­els – from a com­pany to the en­tire coun­try. This method is in com­pli­ance with gen­er­ally ac­cepted ap­proaches to anal­y­sis, ac­count­ing and sta­tis­tics of ef­fi­ciency in­di­ca­tors and the com­po­si­tion of costs in the man­u­fac­tur­ing in­dus­try. The method al­lows com­par­ing the rel­e­vant in­di­ca­tors be­tween coun­tries and in­dus­tries with­out us­ing cor­rec­tion fac­tors or in­dexes.

Ac­cord­ing to the Econ­omy Min­istry, this ap­proach al­lows pro­duc­ing end-to-end anal­y­sis for each in­dus­try, sub-in­dus­try, com­pany and its branches, as well as each agency, re­gion and branch.

In 2011 the ma­te­rial in­ten­sity in Be­larus shrank by 1%. How is Be­larus go­ing to re­duce ma­te­rial in­ten­sity by 2-3% this year?

The Econ­omy Min­istry has iden­ti­fied ways to ful­fill the ma­te­rial in­ten­sity tar­gets. First of all, these are us­ing new equip­ment and tech­nolo­gies which will re­duce ma­te­rial wastage and en­ergy con­sump­tion. Be­larus is go­ing to de­sign and man­u­fac­ture new prod­ucts that will be less ma­te­rial in­ten­sive and more sci­ence in­ten­sive.

All-round Sav­ing

The work to re­duce the ma­te­rial in­ten­sity of in­dus­trial pro­duc­tion is be­com­ing sys­tem­atic. In fact, it has been go­ing on be­fore and has been quite a suc­cess. How­ever, in 2012 Be­larus added a new tar­get to the so­cioe­co­nomic de­vel­op­ment plan – the re­duc­tion of ma­te­rial in­ten­sity of prod­ucts, works and ser­vices in the man­u­fac­tur­ing in­dus­try. Now it is one of the key qual­ity in­di­ca­tors of the coun­try’s eco­nomic per­for­mance.

The re­duc­tion of im­port in­ten­sity is an­other re­serve to bring down the ma­te­rial in­ten­sity. So far, the ex­penses on im­ported raw ma­te­ri­als and com­po­nent parts ac­count for a sig­nif­i­cant part of the pro­duc­tion cost. With a view to re­duc­ing im­port in­ten­sity, min­istries and gov­ern­ment agen­cies are go­ing to im­ple­ment im­port sub­sti­tu­tion pro­grams for 2012. Thus, this year com­pa­nies af­fil­i­ated with the In­dus­try Min­istry and phar­ma­ceu­ti­cal com­pa­nies af­fil­i­ated with the Health­care Min­istry need to re­duce ma­te­rial in­ten­sity by 2-3%. The tar­get stands at 3-4% for the Ar­chi­tec­ture and Con­struc­tion Min­istry and the Agri­cul­ture and Food Min­istry; 2-3% for Bel­neftekhim Con­cern, Belles­bumprom Con­cern, and Bel­go­spishche­p­rom Con­cern, 2.53.5% for Bel­leg­prom Con­cern.

More at­ten­tion is paid to the ef­fort to re­duce ma­te­rial in­ten­sity and cut down en­ergy and im­port in­ten­sity of GDP in or­der to en­hance the com­pet­i­tive abil­ity of the Be­laru­sian econ­omy. Re­duc­tion in ma­te­rial in­ten­sity of man­u­fac­tured prod­ucts is con­sid­ered one of the ways to im­prove the ef­fi­ciency of the in­dus­try, in­crease profit and wages. The ma­te­rial in­ten­sity tar­get is set at the level needed to sus­tain the planned growth of gross value added in in­dus­try. Achieve­ment of the ma­te­rial in­ten­sity tar­get should help reach other qual­ity so­cioe­co­nomic in­di­ca­tors. It will also have a sig­nif­i­cant im­pact on the fi­nan­cial per­for­mance of in­dus­trial en­ter­prises, re­turn on sales.

The Be­laru­sian gov­ern­ment is propos­ing to in­tro­duce the pol­icy of all-round sav­ing. The first step to­wards this could be re­duc­ing ma­te­rial in­ten­sity.

We can sig­nif­i­cantly re­duce the cost of gross pro­duc­tion in or­der to en­sure the growth of GDP and in­crease the com­pet­i­tive­ness of do­mes­tic prod­ucts. All-round cost sav­ing re­mains a key chal­lenge. This will en­sure con­sis­tent and well-bal­anced de­vel­op­ment of the econ­omy and its sec­tors now that the cur­rency mar­ket has sta­bi­lized, Prime Min­is­ter of Be­larus Mikhail Myas­nikovich be­lieves.

How­ever, the main ob­jec­tive for 2012 is to en­sure well-bal­anced de­vel­op­ment rather than ad­just the plans de­pend­ing on the cir­cum­stances. This means that busi­nesses and the econ­omy as a whole need to re­tain their po­si­tions on ex­port mar­kets, im­ple­ment tech­ni­cal up­grade projects, raise in­vest­ment and loans. The main thing is to iden­tify cost-sav­ing op­por­tu­ni­ties in each tech­ni­cal par­a­digm, in con­struc­tion, each and ev­ery bud­get­fi­nanced or­ga­ni­za­tion. We process tremen­dous amounts of me­tal, oil, gas, tim­ber. There­fore we must econ­o­mize, and, what is also im­por­tant, raise pro­duc­tiv­ity, said the head of gov­ern­ment in Novem­ber last year at a meet­ing held by the Pres­i­dent to dis­cuss the draft fore­cast of the coun­try’s so­cial and eco­nomic de­vel­op­ment, bud­get and mon­e­tary man­age­ment guide­lines for 2012.

To earn for­eign trade sur­plus Be­larus also needs to pay most se­ri­ous at­ten­tion to re­source sav­ing, and slim­ming down ma­te­rial and en­ergy in­ten­sity of GDP.

All in­dus­tries and sec­tors need to work on re­duc­ing ma­te­rial in­ten­sity. In par­tic­u­lar, Mikhail Myas­nikovich stressed the need for rad­i­cal cuts in ma­te­rial in­ten­sity and im­prove­ments in en­ergy ef­fi­ciency in the con­struc­tion in­dus­try. The state has in­vested heav­ily in the con­struc­tion in­dus­try and now ex­pects ef­fec­tive re­sults. These in­vest­ments should yield new square me­ters of hous­ing, new in­dus­trial and ad­min­is­tra­tive build­ings, and, above all, high ex­port rev­enues.

The con­struc­tion in­dus­try is ex­pected to con­trib­ute to­wards en­sur­ing the bal­anced de­vel­op­ment of the econ­omy and achiev­ing a for­eign trade sur­plus. To this end, de­sign­ers and builders should rad­i­cally re­duce ma­te­rial in­ten­sity, im­prove en­ergy ef­fi­ciency, re­move un­nec­es­sary ex­trav­a­gance in con­struc­tion de­sign, the Prime Min­is­ter said while pre­sent­ing state awards to dis­tin­guished peo­ple in De­cem­ber 2011.

Re­serves to Re­duce Costs

Be­larus should work hard to re­duce ma­te­rial in­ten­sity of in­dus­try. So far the coun­try has made lit­tle head­way.

We are still sig­nif­i­cantly lag­ging be­hind lead­ing com­pa­nies and coun­tries in terms of ma­te­rial in­ten­sity. There­fore, we need to work as hard as we do to re­duce the GDP en­ergy in­ten­sity, said First Deputy Prime Min­is­ter Vladimir Se­mashko.

En­ergy in­ten­sity and ma­te­rial in­ten­sity de­fine the qual­ity de­vel­op­ment of the econ­omy. This is an in­te­grated in­dex which char­ac­ter­izes ra­tio­nal use of re­sources and eval­u­ates eco­nomic and tech­ni­cal de­vel­op­ment of the coun­try in gen­eral. Thus, in 2011 Be­larus’ GDP en­ergy in­ten­sity shrank by 2.2%. The GDP en­ergy in­ten­sity is pro­jected to re­duce down to 285kg of oil equiv­a­lent per $1,000 of GDP. As against 1994, Be­larus’ GDP en­ergy in­ten­sity fell 2.7 times, while the gross do­mes­tic prod­uct went up three times, or 284%. How­ever, the con­sump­tion of pri­mary en­ergy re­sources in­creased by only 3.2%. Thus, the coun­try man­aged to boost the pro­duc­tion of goods and ser­vices us­ing vir­tu­ally the same amount of re­sources. We would like to achieve the same re­sults in re­duc­ing ma­te­rial in­ten­sity of prod­ucts.

The Econ­omy Min­istry has an­a­lyzed which in­dus­tries can be most suc­cess­ful in cut­ting ma­te­rial in­ten­sity. The most promis­ing ar­eas are ma­chine-build­ing, the pro­duc­tion of con­struc­tion ma­te­ri­als, wood­work­ing. In the mean­time, chem­i­cal and rub­ber in­dus­tries are less ca­pa­ble of re­duc­ing costs be­cause of the ex­ist­ing chem­i­cal tech­nolo­gies.

The re­serves to re­duce ma­te­rial in­ten­sity are limited by the slow pace of pro­duc­tion up­grade. There­fore, it is es­sen­tial to work sys­tem­at­i­cally in or­der to re­duce ma­te­rial in­ten­sity rather than im­ple­ment one-time mea­sures aimed at sav­ing ma­te­ri­als. First of all, the in­dus­trial com­plex is to re­duce de­pen­dence on raw ma­te­ri­als, as the coun­try is heav­ily de­pen­dent on im­ports. There are sev­eral so­lu­tions to this prob­lem.

For ex­am­ple, cer­tain prod­ucts may be man­u­fac­tured in coun­tries which im­port raw ma­te­ri­als. It also makes sense to move assem­bly plants to con­sum­ing coun­tries. Be­larus could also at­tract in­vestors

who have ac­cess to raw ma­te­ri­als. There is a need to de­velop in­dus­tries which make use of lo­cal raw ma­te­ri­als and di­ver­sify the sup­ply of fuel and en­ergy re­sources.

Be­larus can also in­tro­duce mod­ern man­age­ment and mo­ti­va­tion sys­tems at en­ter­prises. For this pur­pose, com­pa­nies may use mo­ti­va­tion tools to re­duce costs. In line with the Coun­cil of Min­is­ters’ Res­o­lu­tion No. 1779 of 30 De­cem­ber 2011, which ap­proved the fore­cast tar­gets of so­cial and eco­nomic de­vel­op­ment of Be­larus in 2012, com­pa­nies have to in­tro­duce cer­tain amend­ments and ad­di­tions to the con­tracts with their di­rec­tors. Thereby, di­rec­tors of en­ter­prises can be awarded or brought to ac­count de­pend­ing on their suc­cess or fail­ure to meet ef­fi­ciency tar­gets, namely net profit, ma­te­rial in­ten­sity re­duc­tion, la­bor pro­duc­tiv­ity, re­turns on sales.

There are also plans to in­tro­duce ERP sys­tems. Although in­for­ma­tion au­to­ma­tion sys­tems are rather ex­pen­sive, they al­low re­duc­ing costs sig­nif­i­cantly. Fur­ther­more, such sys­tems can be used at smaller sec­tors of en­ter­prises, ac­cord­ing to the Econ­omy Min­istry.

A hold­ing com­pany sys­tem will pro­mote re­duc­tion of ma­te­rial in­ten­sity in pro­duc­tion. The work on cre­at­ing hold­ing com­pa­nies in Be­larus was launched in 2011. One of the main goals is to re­duce ma­te­rial in­ten­sity. For ex­am­ple, Av­tokom­po­nenty Hold­ing Com­pany which com­prises nine com­pa­nies with BATE Com­pany in the lead might save up to 10-15% on the pur­chase of ma­te­ri­als. To­day its com­pa­nies make bulk pur­chases of steel in­stead of buy­ing it sep­a­rately as they did be­fore. This means lower prices for ma­te­rial.

An­other im­por­tant thing is to shorten the chain of sup­pli­ers and the num­ber of mid­dle­men and to buy raw ma­te­ri­als from a di­rect sup­plier. The sys­tem of the kind has al­ready been de­vel­oped, and there are schemes for di­rect pur­chases of prod­ucts and ma­te­ri­als. It will, no doubt, con­trib­ute to­wards re­duc­tion of ma­te­rial in­ten­sity in pro­duc­tion.

Sat­is­fac­tory Ex­per­i­ment

Me­chan­i­cal en­gi­neer­ing is the least ma­te­rial-in­ten­sive in­dus­try. This area demon­strates the high­est out­put of in­no­va­tive prod­ucts. Last year the share of shipped in­no­va­tive prod­ucts in the pro­duc­tion of trans­port ve­hi­cles and equip­ment made up 45.3%, that in the pro­duc­tion of ma­chin­ery and equip­ment – 37.7%.

The In­dus­try Min­istry has a well-de­vel­oped base for in­tro­duc­tion of tech­no­log­i­cal in­no­va­tions at its com­pa­nies. The min­istry runs con­tin­u­ous up­grade projects, new sci-tech gov­ern­ment pro­grams, and projects as part of the gov­ern­men­tal in­no­va­tion de­vel­op­ment pro­gram for 2011-2015. Im­ple­men­ta­tion of sci-tech in­no­va­tions, pro­duc­tion of in­no­va­tion goods is im­pos­si­ble with­out ma­te­rial in­ten­sity re­duc­tion. On the other hand, it is im­pos­si­ble to cut ma­te­rial costs with­out in­tro­duc­ing tech­no­log­i­cal in­no­va­tions. These ap­proaches help the In­dus­try Min­istry re­duce ma­te­rial in­ten­sity by 4-5% an­nu­ally, said Valery Fish­man, deputy head of

the main depart­ment for in­no­va­tive and in­vest­ment ac­tiv­ity of the In­dus­try Min­istry.

Com­pa­nies that co­op­er­ate closely with sci­ence re­duce ma­te­rial in­ten­sity by us­ing new ma­te­ri­als and tech­nolo­gies. Prod­ucts ac­quire new fea­tures due to the use of mod­ern ma­te­ri­als and be­come less ma­te­ri­al­in­ten­sive, the of­fi­cial said.

Stanko­gomel is a case in point. It makes part of the old­est machinebuild­ing plants of the coun­try and pro­duces ex­port-ori­ented and im­port sub­sti­tu­tion prod­ucts. Ma­chine-tool in­dus­try is met­al­in­ten­sive. Nev­er­the­less, there are re­serves to re­duce ex­penses here.

We have been re­cently work­ing on im­prov­ing tech­nolo­gies and con­struc­tions. We de­sign foundry moulds to de­crease the con­sump­tion of cast iron, im­prove the pro­cess­ing tech­nol­ogy to max­i­mize the co­ef­fi­cient of used parts, Stanko­gomel Di­rec­tor Gen­eral Vladimir Sos­novsky said.

An­other way to re­duce ma­te­rial in­ten­sity is to use cheaper ad­vanced ma­te­ri­als (poly­mers) in­stead of me­tal. Stanko­gomel gets such ma­te­ri­als from V.A. Be­lyi Me­tal Poly­mer Re­search In­sti­tute (Gomel) of the Na­tional Academy of Sci­ences of Be­larus. The com­pany had to im­port the nec­es­sary ma­te­ri­als be­fore.

Now Gomel sells its ma­chin­ery to more than 20 coun­tries world­wide, in­clud­ing the United States, Ger­many and Poland. Its numeric con­trol units ( ma­chin­ing cen­ter mod­ules) are bought by Be­laru­sian com­pa­nies as part of the im­port sub­sti­tu­tion pro­gram. Such equip­ment was im­ported be­fore.

The ex­am­ple of Stanko­gomel shows that ma­te­rial in­ten­sity re­duc­tion be­comes a nec­es­sary con­di­tion for the de­vel­op­ment of com­pa­nies, en­hance­ment of their com­pet­i­tive abil­ity on the mar­ket. Pro­duc­ers get re­sults by means of en­gag­ing this in­ter­nal po­ten­tial of the eco­nomic growth.

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