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