Material Flow Cost Accounting March 2013 YoshikuniFurukawa Secretary

Material Flow Cost Accounting （ＭＦＣＡ） March, 2013 Yoshikuni　Furukawa Secretary of ISO/TC 207 WG 8

Contents: 1. Introduction 2. Significance and Characteristics of Material Flow Cost Accounting (MFCA) 3.

Introduction © 2013 Nitto Denko Corporation. All Rights Reserved.

Significance of Material Flow Cost Accounting • MFCA focuses on emission (waste) • Profit

Benefits of MFCA Internal benefits l Increasing profit l Improving productivity External benefits l

Conventional Cost Accounting © 2013 Nitto Denko Corporation. All Rights Reserved.

Characteristics of MFCA © 2013 Nitto Denko Corporation. All Rights Reserved.

MFCA　vs. 　Conventional Cost Accounting © 2013 Nitto Denko Corporation. All Rights Reserved.

Implementation of MFCA Cost Elements 1. Material: Input　Value　of　Material　　 2. Energy: Input　Value　of　Energy 3. System:

Material Flow Cost Accounting (Flow Model) © 2013 Nitto Denko Corporation. All Rights Reserved.

“Material” Flow Chart with Data Product: Adhesive Tapes for Electronics Application Quantity: 912 pcs.

Allocation Method of “Energy and System Cost” Cost Elements Allocation Base Allocation Type Energy

Result of Material Flow Cost Accounting Period: from November 01 to 30, 2000 (Unit:

Comparison of P/L Period: from November 01 to 30, 2000 (Unit: JPY) , (JPY

Decision　Making　Flow (1) Input value of Material Loss and input value of Product are clarified

Decision Making Flow (2) 　 Material Loss Analysis　 1. Theoretical/ Design Loss: Machine Design,

© 2013 Nitto Denko Corporation. All Rights Reserved.

The cause of losses need to be examined from a perspective of supply chain.

Headline of major Japanese Newspaper: -Nitto Denko and MFCA -Invested ”seven hundred million JPY”,

What is ignored in Conventional Cost Accounting Standard cost (including allowable losses) Cost of

Mass Balance vs. Yield Ratio © 2013 Nitto Denko Corporation. All Rights Reserved.

MFCA and PDCA Cycle Determine the applicable product and boundary Make the flow cost

Improvement Cost 2001 2004 2012 (Latest) Product 67% 78% 93% Material Loss 33% 22%

Example of Key Factor for Success(1) High Degree of the accuracy of data Cost

Example of Key Factor for Success (2) 　Priority of Countermeasure: 1. Avoidable/Abnormal Loss: Poor

External Benefits Environmental Impacts 1. Reduction of industrial waste 2. Reduction of CO 2

Improvement Unit: Ton CO 2, one product only Cost 2001 2004 2011 Product 136.

Conclusion of MFCA 製造程単位に廃棄物原価（負の製品）を把握 MFCA grasps the cost of material loss for each

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Contents: 1. Introduction 2. Significance and Characteristics of Material Flow Cost Accounting (MFCA) 3. MFCA vs. Conventional Cost Accounting 4. Implementation & Case Example of Nitto Denko 5. Implementation & Key Factor for Success © 2013 Nitto Denko Corporation. All Rights Reserved.

Significance of Material Flow Cost Accounting • MFCA focuses on emission (waste) • Profit is hidden in emission (waste) • MFCA finds out the hidden profit INR MFCA Japanese “Mottainai” Concept, “What a shame to be wasteful” in ISO © 2013 Nitto Denko Corporation. All Rights Reserved.

Benefits of MFCA Internal benefits l Increasing profit l Improving productivity External benefits l Reducing environmental impacts Contributing to sustainable development © 2013 Nitto Denko Corporation. All Rights Reserved.

Implementation of MFCA Cost Elements 1. Material: Input　Value　of　Material　　 2. Energy: Input　Value　of　Energy 3. System: Labor, Depreciation　and　etc. , 　 4. Disposal (Waste Management Cost)： © 2013 Nitto Denko Corporation. All Rights Reserved.

“Material” Flow Chart with Data Product: Adhesive Tapes for Electronics Application Quantity: 912 pcs. Period: one month (Nov. 01 -30, 2000), (JPY 1. 80/INR ) Dissolution　etc. , 　 2，474. 39㎏　　　　　　　22，144. 50㎡　　　　　　　27，404. 00㎡　Coating & Drying Flow　to　Product Flow　to　Waste 　Store Product 　Slitting　etc. , 　　306. 83㎏　21，714. 15㎡　24，761. 75㎡ SI: 　　　　　　　127. 58㎏ 9，028. 80㎡ 10，296. 00㎡　　　　　351. 01㎏　　24，840. 60㎡ 28，327. 00㎡　　　　　247. 87㎏　　17，541. 50㎡　　￥ 177，431. 12 　　　　　　　￥ 65，009. 62 　　￥ 1，165，500. 00 　　　　￥ 1，142，850. 00 ￥ 1，264，800. 00 　　　　　　￥ 1，142，850. 00 EI: 　　　　83. 40㎏ 5，902. 35㎡ 6，730. 75㎡　　￥ 74，370. 26 ￥ 1，307，400. 00 ￥ 52，517. 47 ￥ 923，236. 82 ￥ 809，607. 68 Core　etc￥ 714，582. 22 　（￥ 2，499，944. 19） 68% 　　　SI: 　　　　￥ 27，031. 58 ￥ 475，200. 00 　　　Waste: 　　　　　86. 27㎏　　　　430. 35㎡　　　　2, 642. 25㎡　　　　　　EI: 　　　　￥ 17，670. 94 ￥ 310，650. 00 <Total　Waste> 　 Waste: 　　　103. 14㎏　　　　　　 7，299. 10㎡　　　　　　　10，785. 50㎡　Waste: 　　　　289. 41㎏　 7，729. 45㎡ 13，427. 75㎡ Solvent　Gases　1，981. 29㎏ Solvent　Gases　1, 981. 29㎏　　　Waste: 　　￥ 13, 357. 00 ￥ 22, , 650. 00 　￥ 121, 950. 00 Waste: 　￥ 21，852. 79 　￥ 384，163. 18 ￥ 497，792. 32 29% Solvent　Gases ￥ 99，064. 50 Top: Adhesive(Red) Middle: Backing　Film(Blue) Bottom: Separator(Green) Waste: 　￥ 35，209. 79 　￥ 406，813. 18 ￥ 619，742. 32 （￥ 1，061，765. 29）　3% Solvent Gases ￥ 99, 064. 50 © 2013 Nitto Denko Corporation. All Rights Reserved.

Allocation Method of “Energy and System Cost” Cost Elements Allocation Base Allocation Type Energy （electricity） Consumption B Energy （fuel） Consumption B Labor (legular employee） Man-hour A Labor (part-timer) Man-hour A Operating time B Maintenances Expenditure C Tools and Implements Expenditure C Depreciation (straight-line method) A　：　Allocation on base of real data B　：　Allocation on base of monthly data (correctly as possible) C　：　Apportionment on base of monthly data © 2013 Nitto Denko Corporation. All Rights Reserved.

Result of Material Flow Cost Accounting Period: from November 01 to 30, 2000 (Unit: JPY ), (JPY 1. 80/INR ) Cost Product Material loss Total Material Energy System Disposal Total 2, 499, 944 (68. 29%) 57, 354 (68. 29%) 480, 200 (68. 29%) N/A 3, 037, 498 (67. 17%) 1, 160, 830 (31. 71%) 26, 632 (31. 71%) 222, 978 (31. 71%) 74, 030 (100%) 1, 484, 470 (32. 83%) 3, 660, 774 (100%) 83, 986 (100%) 703, 178 (100%) 74, 030 (100%) 4, 521, 968 912 pcs (100%) © 2013 Nitto Denko Corporation. All Rights Reserved. 12

Comparison of P/L Period: from November 01 to 30, 2000 (Unit: JPY) , (JPY 1. 80/INR) Material Flow P/L (Unit: Yen) Sales* Cost of Product Cost of Material loss Gross Profit Selling, General and Administrative Expenses* Operating Profit *Provisional Figure Conventional P/L (Unit: Yen) 15, 000 Sales* 3, 037, 498 Cost of Sales 1, 484, 470 N/A 10, 478, 032 Gross Profit 8, 000 2, 478, 032 Selling, General and Administrative Expenses* Operating Profit 15, 000 4, 521, 968 N/A 10, 478, 032 8, 000 2, 478, 032 © 2013 Nitto Denko Corporation. All Rights Reserved.

Decision　Making　Flow (1) Input value of Material Loss and input value of Product are clarified in each Quantity Center. The Material Loss Analysis in each Production Process Implemented Countermeasure to reduce Material loss Increase of profit and reduction of environmental impact 　 © 2013 Nitto Denko Corporation. All Rights Reserved.

Decision Making Flow (2) 　 Material Loss Analysis　 1. Theoretical/ Design Loss: Machine Design, Solvent Medium, Edge of Jumbo Roll, etc 2. Normal Loss: Set-up, Trial Running, Cleaning, Sample, etc 3. Avoidable/Abnormal Loss: Poor Workmanship, Spoilage, Defective Unit, etc 　　 © 2013 Nitto Denko Corporation. All Rights Reserved.

The cause of losses need to be examined from a perspective of supply chain. It is important to trace upstream the cause of losses (e. g. Upper processes, Materials, suppliers) Recovery, Refinement, Deodorizing Furnace Suppliers ③ Two of materials (Unit: Kg) Solvent, Polymer Solvent Gases (100%) Four of materials (Unit: Kg) -Solvent -Monomer -Crosslinker A -Crosslinker B Gas emissions Two of materials (Unit: Width x Length) (1) Backing Films: 　　　570 mm width (2) Separator: 　　　650 mm width Energy (1) Steam, Thermal (2) Electric power One of material: Plastic core (Unit: Piece) Energy: Electric power ￥ 72, 936. 90 Dissolution ② Two of materials (Unit: Kg) Solvent, Polymer ① Coating & Drying Batch Blend Store Waste Energy cost: 83, 986 （Dissolution, Batch blend, Coating & Drying, Slitting & Inspection and Packaging) Slitting W a s t e：　 Backing film：　　　　￥ 22, 650 Separator：　　　￥ 121，950 A d h e s i v e：　　　￥ 1 3， 3 5 7 Inspection & Packing Each size of product (Width x Length) Waste 　￥ 22, 650. 00 ￥ 13, 357. 00 ￥ 121, 950. 00 Manufacturing Division ￥ 923, 236. 82 ￥ 809, 607. 68 　￥ 52, 517. 47 ￥ 1, 307, 400. 00 　　￥ 74, 370. 26 Upper quantity center Adhesive Mass (Unit: Kg) ￥ 172, 900. 70 ￥ 541, 681. 52 Materials ￥ 104, 494. 22 Auxiliary materials Packaging materials ￥ 384, 163. 18 ￥ 497, 792. 32 　￥ 21, 852. 79 W a s t e： out of Jumb o Roll Backing film：　　￥ 384，163. 18 Separator：　￥ 4 9 7，792. 32 Adhesive：　￥ 2 1， 852. 79 Finished Product: Adhesive tapes for Electronics Application Quantity: 912 rolls Warehouse Finished Products（912 rolls) Backing film: ￥ 923, 236. 82 Separator: ￥ 809, 607. 68 Adhesive: ￥ 52, 517. 47 Plastic core: 　　￥ 541, 681. 52 Packaging materials: ￥ 172, 900. 70 　　 Total　　　￥ 2, 499, 944. 19 The cause of losses does not always lie in the quantity center where they occurred © 2013 Nitto Denko Corporation. All Rights Reserved.

Headline of major Japanese Newspaper: -Nitto Denko and MFCA -Invested ”seven hundred million JPY”, based on MFCA - Reducing Costs - Firstly in Japan (Note: JPY 1. 80/INR) © 2013 Nitto Denko Corporation. All Rights Reserved.

What is ignored in Conventional Cost Accounting Standard cost (including allowable losses) Cost of finished product Avoidable/ abnormal loss Normal loss Theoretical　 Design loss The scope of improvement target in standard costing Ignored The scope of improvement target in MFCA Cost of finished product Cost of waste © 2013 Nitto Denko Corporation. All Rights Reserved.

MFCA and PDCA Cycle Determine the applicable product and boundary Make the flow cost matrix Set up the material flow model Analyze material flow data (loss analysis and process analysis) Establish quantity centers Collect material flow data Repeat this cycle Plan measures to solve problems Decide data collection methods Implement measures planned Determine allocation methods of energy and system cost Collect material flow data Cost reduction and lowered environmental impacts © 2013 Nitto Denko Corporation. All Rights Reserved.

Example of Key Factor for Success(1) High Degree of the accuracy of data Cost (man-hours) and degree of the accuracy of data Cost Reasonable level low small Number of the established quantity center large © 2013 Nitto Denko Corporation. All Rights Reserved.

Example of Key Factor for Success (2) 　Priority of Countermeasure: 1. Avoidable/Abnormal Loss: Poor Workmanship, Spoilage, Defective Unit , etc 2. Normal Loss: Set-up, Trial Running, Cleaning, (Sample), etc 3. Theoretical/ Design Loss: 　 © 2013 Nitto Denko Corporation. All Rights Reserved.

Improvement Unit: Ton CO 2, one product only Cost 2001 2004 2011 Product 136. 8 Material Loss 73. 2 66. 0 (-7. 2) 210. 0 202. 8 58. 8 (-14. 4) 195. 6 Total © 2013 Nitto Denko Corporation. All Rights Reserved.

Conclusion of MFCA 製造程単位に廃棄物原価（負の製品）を把握 MFCA grasps the cost of material loss for each production process MFCA is like a CT scanner that provides clearer picture of manufacturing processes 産廃原価はレントゲン、マテリアルフローコスト会計はＣＴスキャンどの製造程の改善に人とお金を投入すべきか優先順位が明確になる It helps to determine the priority of process improvement The improved performance will be made clear as 改善効果は「負の製品阻止額（新しい概念）」 “savings from curtailing material losses” Necessary information for implementation is often 現行の会計システムを変えるものではない already in a site It enables companies to cut costs and reduce environmental impact simultaneously © 2013 Nitto Denko Corporation. All Rights Reserved.