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MSc Thesis: Analysis and business plan for cost reduction and adoption of
Aquatherm pipe technology
A thesis submitted in partial fulfilment of the requirements of
DISCLAIMER
I hereby certify that the attached thesis is my own work except where
otherwise indicated. I have identified my sources of information, in particular I
have put in quotation marks any passages that have been quoted word-for-
word, and identified their origins.
Signed________________________________________________________
Date________________________
Thesis Issue 1: 9/25/08 Athanasios Koumpoulis Page ii
DISCLAIMER II
LIST OF FIGURES VI
ABSTRACT VII
CHAPTER 1 – INTRODUCTION IX
1.1 Project Objectives ix
1.1.1 To review Koumpoulis SA ix
1.1.2 To propose and justify changes, and submit these for approval ix
1.1.3 To implement the changes as described x
1.2 Project management x
1.3 Profile of Koumpoulis SA x
CHAPTER 2 - BACKGROUND AND RESEARCH XII
2.1 Basics of Aquatherm materials xii
2.2 Life expectancy of Aquatherm pipes xv
2.3 Varieties Aquatherm pipes xvi
2.4 Physical properties in Aquatherm pipes xxvi
2.5 Joining methods xxvii
2.6 Fire Resistance xxx
2.7 Aquatherm supply xxxii
2.8 Aquatherm’s quality control and manufacture xxxvii
2.9 Training required for aquatherm pipe installations xxxviii
CHAPTER 3 – EVALUATION XXXVIII
3.1 Analysis of Koumpoulis SA xxxix
3.1.1 SWOT Analysis xli
3.1.2 PEST Analysis xliii
3.2 Professional competition xlvi
3.3 Consideration of Koumpoulis SA’s current situation in this project xlviii
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CHAPTER 4 – PROPOSAL FOR INNOVATION XLVIII
4.2 General cost reduction strategies li
4.2.1 Why companies fail in monetary savings lii
4.2.1.1 Placing overly ambitious cost reduction targets and time scales lii
4.2.1.2 An underestimation of resources required and tasks involved lii
4.2.1.3 Improperly differentiating between fundamental and technological issues lii
4.2.1.4 Not enough decision making and inadequate support liii
4.2.1.5 Facilities for production not available for prove-outs liii
4.2.1.6 A lack of full-time commitment to cost reduction from employees liv
4.2.2 How cost reduction is prevented liv
4.2.2.1 The timing of required capital investment creates problems with cash flow liv
4.2.2.2 A lack of confidence that capital investments could quickly be recouped liv
4.2.2.3 High levels of stock exist lv
4.2.2.4 Cost reduction not a focus of key staff members lv
4.2.2.5 The company does not have a strategy for reducing production costs lv
4.2.2.6 The manufacturing suppliers and procedures are held in too high regard lvi
4.2.3 Methods to identify potential cost reduction procedures lvi
4.2.3.1 Analyse installation costs for components with highest value lvi
4.2.3.2 Discuss product and installation with employees lvi
4.2.3.3 Analyze and discuss quality problems with associates when they are encountered lvii
4.2.3.4 Apply the principles of design for installation (see section 4.6) lvii
4.2.3.5 Analyze products from competitors for superior functions and features lvii
4.2.3.6 Develop installation objectives for the long-term (see section 4.8) lvii
4.2.4 Main reasons for resourcing items purchased lvii
4.2.5 The Pareto (80-20) rule lviii
4.2.6 Principles in Design-for-Manufacture lxii
4.2.6.1 Rationalize the range of existing products lxii
4.2.6.2 Eliminate any design features that are unnecessary lxii
4.2.6.3 Introduce standard design features lxiii
4.2.6.4 Decrease variety lxiii
4.2.6.5 Use value analysis to eliminate components which may be redundant lxiii
4.2.6.6 Blend components into single components (by design) lxiii
4.2.6.7 Eliminate waste material lxiii
4.2.7 Manufacturing objectives in the short-term lxiii
4.2.8 Manufacturing objectives in the long-term lxiv
4.2.9 Applied reduction strategies lxv
4.2.10 Changing processes to reduce installation costs lxv
4.3 Proposal plan for business over three years lxvi
4.3.1 Past performance and future projection lxvii
4.3.2 Profit and Loss lxviii
4.3.3 Cash Flow lxix
In the full table for cash flow (see Figure D in appendix) and in following tables the loan is
considered in the first year, in the amount of £500,000 with a £50,000 principle as shown. Only the
partial table has been shown here. All other values are calculated in the classic way or are simple
estimations based on the relevant principles, past performance, and future expenditures. lxx
4.3.4 Balance Sheets – Projected lxx
4.3.5 Ratios lxxi
4.3.6 Conclusions lxxii
4.3.7 Recommendations lxxiii
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REFERENCES LXXV
BIBLIOGRAPHY LXXVII
APPENDICES LXXVIII
GLOSSARY XCVIII
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LIST OF FIGURES
Figure 2.1: New technology pipe comparison
Figure 2.2: New technology size comparison
Figure 2.3: New technology application comparison
Figure 2.4: Combustion values
Figure 2.5: Decision Matrix
Figure 2.5: Expansion
Figure 2.6: Test record
Figure 4.1: Cost elements contributing towards the prime manufacturing costs in
products
Figure 4.2: Effect of reducing the cost of the highest value element
Figure 4.3: Revised cost elements contributing towards prime manufacturing costs in
product
Figure 4.4: Strategy employed to reduce the manufacturing costs of existing products
Figure D: MSDS information for polypropylene
LIST OF TABLES
Table 2.1: New technology pipe comparison
Table 2.2: Potable applications
Table 2.3: Industrial applications
Tables B-C: Product summary tables
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ABSTRACT
This paper will discuss the features of a product that is considered part of the “wave
of the future” in both technology and environmental friendliness. As the paper
discusses many aspects of innovation in terms of both a new material and new
strategies for effective cost reduction a summary of key aspects is twice as long,
proportionally. The new technology pipes, known as Aquatherm pipes, are also better
for water and human consumption as they do not contaminate from either pipe or
joints. The unique joining process for this kind of pipe joins parts in such a way that
they become chemically indistinguishable, forming one piece in a way not exhibited in
other materials. Aquatherm pipes will be discussed in detail in terms of product
innovation and how they affect business.
Koumpoulis SA is a plumbing company that seeks to gain the benefits Aquatherm
pipes offer. Koumpoulis SA’s projects typically involve hotel buildings, but they have
been providing all kinds of plumbing, heating, sprinkler, and other services for over
30 years. Implementing the environmentally friendly and pipes that are considered
new technology would improve their business reputation and product quality. Their
procedures will also vary as the joining method for the pipes is a unique heating
process, rather than sealing or bonding.
Koumpoulis SA will also be analyzed as to how they can reduce general costs as can
apply to the diversity of their projects. The classical strategic planning methodology of
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a SWOT analysis will be applied to briefly review the strengths, weaknesses,
opportunities, and threats that the company faces. As projects performed by this
company always vary in size and type, conceptual and all-purpose solutions will be
considered so that they can be applied to any project. The Pareto rule and other
classic reduction strategies will be reviewed and applied to Koumpoulis SA. The
company’s competition will also be considered.
A three year business plan will be reviewed implementing general cost reduction
strategies as well as plans encompassing a range of variables from employee salary
to reorganizing the crew and profit loss. Projected cash flow will be noted as well as a
balance sheet. Modification processes and their costs will be included as tables in the
appendix also.
By the end of this paper a variety of information that can be implemented by
Koumpoulis SA will be discussed. The business opportunities the company has will
be revealed in detail, and their development towards a better project solution will be
realized using the innovative technology as manufactured by Aquatherm.
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Chapter 1 – Introduction
1.1 Project Objectives
1.1.1 To review Koumpoulis SA
The objective of this project is to analyse the business functions of Koumpoulis
SA, a plumbing company, and to research business and new technology so
that changes can be made. The company’s history, business projects,
employees, and competition will all be considered. The company’s current use
of pipes and methods of joining pipes can be greatly improved. The company’s
financial methodologies and procedures can also be improved be
implementing classic procedures. The way the company handles employees,
crew members, and suppliers has room for improvement as well. The market
in Greece will also be considered to some extent as this is where Koumpoulis
SA is located.
1.1.2 To propose and justify changes, and submit these for approval
The objective here is to propose the implementation of new technology and
methodologies. A three year business plan will be included as well as the
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recommendations for new materials, employment strategies, cost reduction,
supplier handling, competitive strategy, and other financial and operational
methodologies.
1.1.3 To implement the changes as described
The business plan for three years will be included to demonstrate the effects
of the new methodologies as they are proposed so that their effects can be
considered.
1.2 Project management
The Gantt chart is attached (see Appendix A.) The design review is also
included (see Appendix B.)
1.3 Profile of Koumpoulis SA
Koumpoulis SA is a family owned group of companies that specialize in water supply,
freezing, heating, drainage systems, fire extinguishing systems, and other watering
systems. Koumpoulis SA has been in operation for over 30 years. The company
provides to homes and industrial sectors, but has provided mostly for hotels across
Greece.
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Koumpoulis SA’s experience, professionalism, and complete solutions encompassing
multiple systems are what have led a number of areas with high growth and hotel
businessmen from tourist domains to trust their investments with the company.
Business relationships are maintained with returning clients and extended to new
ones as quality new construction takes place as well as when the replacement of old
equipment is needed.
The suppliers of Koumpoulis SA are the largest Greek companies representing well-
known global houses. Project materials are carefully selected to further ensure the
quality in the final product. Koumpoulis SA emphasizes that one of their primary
principles is that product quality is non-negotiable. The long-term business
relationships developed with suppliers allow for an economical solution using high-
quality products. This is another attraction bringing customers to Koumpoulis SA’s as
the offers are among the more competitive in the market.
One of Koumpoulis SA’s main concerns is implementing the newest technology.
While pride is taken in giving on-going training to personnel, successful on-time
delivery is assured by long-term personnel relationships and 30 years of experience.
Koumpoulis SA operates with 12 employees. There are 4 office personnel and 8
technicians.
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In a business environment, Koumpoulis SA strives to succeed and realize its
potential. Staying up to date with technology and doing strategic business planning is
a way that they can do this. A solution to their present day situation is to upgrade to a
new material and to apply conceptual cost reduction strategies that they can apply to
any project in the wide range of services that they provide.
Chapter 2 - Background and research
2.1 Basics of Aquatherm materials
Formerly known as Fusiotherm, Aquatherm greenpipe is a pressure piping system
constructed from the material polypropylene. Aquatherm pipes are resistant to
corrosion, resistant against chemicals, and have a high level of impact resistance.
The material is lightweight, resistant to algae scaling, reduce water hammering
effects and noise generation, and exhibit heat and sound insulation properties. Other
materials commonly used for pipes are more vulnerable to physical and chemical
damage. Polypropylene is also a low friction material, providing for a protection
against abrasion and a decrease in loss of pressure. The Aquatherm system is
designed for applying food-grade materials and for cold and hot potable water. The
Aquatherm greenpipe is very strong and chemically is very pure. Aquatherm
greenpipes have become regarded as one of the most environmentally friendly, high
quality, piping systems. The pipe has been used over the past 35 years in over 80
countries. Dimensions of the pipe range from ½” to 10.” The same pipes are mostly
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sold from one of two major manufactures, Aquatherm and Wefatherm. Aquatherm is
chosen as the better supplier because of its availability to the location and because
of its line of products. The website for the company is also more user-friendly.
Aquatherm does not have much competition with other companies for the products
they sell at the current time, but this may happen in the future as more companies
convert to using similar materials for their projects.
The welding properties used in Aquatherm pipe systems are regarded as superior.
The connections are not only leak-proof and permanent, but are chemically
indistinguishable from the pipes themselves.
Aquatherm pipes are fully recyclable. They can be melted, ground up, and reused in
a number of ways. Such examples include wheel linings, transport containers, and
motor protections. Neither the disposal nor manufacturing processes of Aquatherm
pipes result in hazardous waste product. The pipes are also scanned for any possible
metal contamination that may have occurred in the manufacturing process.
A key feature in Aquatherm pipes is long-term heat stabilization. The pipes are
designed to resist damaging effects of high temperatures.
Aquatherm pipes are suitable for transporting all types of water, whether it be distilled
water of the highest purity or the hardest type of ground well water.
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Aquatherm pipe systems hold many international certificates. These include
certificates from:
NSF, ICC (USA)
CSA (Canada)
DVGW, SKZ (Germany)
AENOR (Spain)
ÖVGW (Austria)
WRAS (UK)
SVGW (Switzerland)
KIWA (Netherlands)
SAI-Global (Australia)
CRECEP (France)
SII (Israel)
SIRIM (Malaysia)
TIN (Poland)
LNEC (Portugal)
SITAC (Sweden)
…and many more
Source: Aquathermpipe.com
Standard pipes used in plumbing are inferior to these pipes. PVC pipes and metal
pipes will be ruled out in future decision matrices as none of their properties are
comparable to the new technology or as interests Koumpoulis SA. The detailed
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descriptions that follow reinforce this exclusion of the two basic major pipe materials,
however the information that has already been mentioned is enough for them to be
excluded according to the business interests of the company.
2.2 Life expectancy of Aquatherm pipes
The life expectancy of Aquatherm pipes is in the upwards of 50 years. The shorter life
expectancy of inferior pipes resulting from disruptions and failures from temperatures
as high as the boiling point is not a factor with Aquatherm pipes. The also note that
can be made regarding high temperatures is that a permanent temperature range of
82-90 degrees Celsius may cause a limited decrease in the pipe system’s life
expectancy. If the pipes are used for heating applications and temperature and
pressure conditions remain in the “Working Pressure” table, the pipes will likely last
even longer than the service life as projected.
The manufacturers of Aquatherm pipes take environmental issues seriously. The
color pigments and stabilizers as well as the polypropylene material are all tested by
the manufacturing laboratory and by independent researchers. Aquatherm pipes are
complaint with the highest level of ecological standards and are regarded as “future-
oriented.” Environmentally friendly points of Aquatherm pipes include:
PVC free
Free of heavy metals hazardous to health (such as Cu, Pb, Ni)
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Recyclable
High energy efficiency
A natural insulation value
Lasts longer
Low-emission
2.3 Varieties Aquatherm pipes
There are a number of Aquatherm pipes available. The basic type has no extra
features other than those mentioned, so they are suitable for the majority of
application. As Greece is a nation plagued by excessive heat, dense population, and
laborers looking to save a penny where they can, a project as large as internal
plumbing or external irrigation is a serious issue. As Koumpoulis SA usually does
business with hotels and similar locations, this type of project will be kept in mind.
Obvious differences can be considered aside based on the same analysis and
conclusions. Regarding hotel and building pipe systems, metal and cheap plastic
pipes are becoming a thing of the past, newer high-technology manufactured plastic
is how this area of manufacturing. Still, there are a number of options here. Extra
features in pipes include UV protection and fire safety protection among other
statistics. The following will review the statistical information of all pipes so that the
best choice can be discussed. Again, the review will focus loosely on the piping
projects that may take place in residential buildings. While it is understood that
specialty side projects may very well take place, information shown in the charts and
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graphs can be used to make deductions on a case-by-case basis in the event
deviation from standard projects occur. At the same time, there is no specific focus
on one particular design used in a residential piping project. Specific amounts of
materials and designs will obviously also vary on a case-by case basis. The goal
here is to consider medium to large sized residential piping projects as a whole so
that the principles considered in choosing the best material (and later cost analysis)
can be applied generally to as many custom designs and project sizes as possible.
The tables that follow show working pressures allowable in Aquatherm piping
systems based on a life cycle of 50 years. Balances between operation temperatures
and working pressures vary according to the thickness in the pipe’s wall and on the
faser-composite layer (where applicable.) The thickness in pipe walls are determined
by the standard dimension ratio (SDR) as wall thickness is displayed as a ratio of
total diameter. In example, the wall of a pipe with a SDR value of 8 is 25% of the
pipe’s total diameter. It should also be noted that Aquatherm is analogous with
Fusiotherm.
Wefatherm
Faser
Aquatherm Faser PN20-SDR Inter-Plast
PN20-SDR 7.4 7.4 PP-R80
Life Life Life
Temperature Expectancy Pressure Expectancy Pressure Expectancy Pressure
in Celsius (In years) (In Bars) (In years) (In Bars) (In years) (In Bars)
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20 1 30 1 28.6 1 30
5 28.1 5 26.8 5 28.1
10 27.3 10 26.1 10 27.3
25 26.5 25 25.3 25 26.5
50 25.7 50 24.5 50 25.7
40 1 21.5 1 20.5 1 21.5
5 20.2 5 19.2 5 20.2
10 19.6 10 18.7 10 19.6
25 18.8 25 18 25 18.8
50 18.3 50 17.5 50 18.3
60 1 15.4 1 14.7 1 15.4
5 14.3 5 13.7 5 14.3
10 13.8 10 13.2 10 13.8
25 13.3 25 12.6 25 13.3
50 12.7 50 12.1 50 12.7
Table 2.1: New technology pipe comparison; source: aquathermpipe.com
Aquatherm Aquatherm Aquatherm Aquatherm
Temperature greenpipe pipe greenpipe pipe greenpipe pipe greenpipe
SDR 11 SDR 7.4 SDR 6 faser-
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Aquatherm composite
greenpipe stabi- pipe SDR 7.4
composite pipe
Permissible working pressure (psi)
70°F 185 295 375 355
105°F 135 210 265 255
120°F 110 175 225 215
140°F 95 145 185 175
180°F 40 100 115 100
SDR=Standard Dimension Ratio (diameter/wall thickness ratio)
Working pressure is valid for all pipe sizes with the same SDR.
Table 2.2: Potable applications; source: aquathermpipe.com
Aquatherm Aquatherm
climatherm®
Aquatherm greenpipe greenpipe
faser-
greenpipe stabi- faser-
Conditions composite pipe
pipe SDR 7.4 composite composite pipe
SDR 11
pipe SDR 7.4
Permissible working pressure (psi)
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Aquatherm Aquatherm
climatherm®
Aquatherm greenpipe greenpipe
faser-
greenpipe stabi- faser-
Conditions composite pipe
pipe SDR 7.4 composite composite pipe
SDR 11
pipe SDR 7.4
Permissible working pressure (psi)
160°F (71°C)
operating, plus
105 130 160 160
up to 60 days at
175°F (80°C)
160°F (71°C)
operating, plus
70 85 110 110
up to 60 days at
195°F (90°C)
200°F (93°C)
20 35 40 40
maximum
*This is for water only. Consult for use with other fluids.
Table 2.3: Industrial Applications; source: aquathermpipe.com
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Figure 2.1: New technology pipe comparison; source: aquatherm
brochure, aquatherm-uk.com
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Figure 2.2: New technology size comparison; source: Aquatherm brochure,
aquatherm-uk.com
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Figure 2.3: New technology application comparison; source: Aquatherm
brochure, aquatherm-uk.com
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Figure 2.4: Combustion values. Source: Wefatherm.com
Next we will consider a generic decision matrix, for only conceptual purposes and
loose weighing factors (and thus not applied to the list of tables,) so that we can
consider the pipes from a slightly different angle as they apply to Koumpoulis SA.
Weighting
Fusiotherm Climatherm Firestop
Specifications factor
Water flow 3 (3x2) = 6 (3x2) = 6 (3x3) = 9
Versatility in
4 (4x3) = 12 (4x1) = 4 (4x1) = 4
water
Versatility in
3 (3x2) = 6 (3x2) = 6 (3x2) = 6
heating
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Damage
3 (3x2) = 6 (3x2) = 4 (3x2) = 6
resistance
Heat stability 4 (4x4) = 16 (4x1) = 4 (4x4) = 16
Environmentally
2 (2x2) = 2 (2x1) = 2 (2x1) = 2
friendly
Inert affect to
1 (1x1) = 1 (1x0) = 0 (1x0) = 1
smell and taste
Total score (highest score is best) 49 26 43
Figure 2.5: Decision Matrix
We can see from the tables that Fusiotherm pipes (PP-R(80)) or standard Aquatherm
pipes are the best and most practical for the majority of cases from both the tables
and price from aquatherm and the decision matrix. Weighing factors were selected
that are loosely based on Koumpoulis SA’s priorities. It is recommended for potable
water applications and is suitable for all other applications. Aquatherm pipe is also
considered the best pipe for areas with increased seismity or moving of ground areas
in specialty projects where one of the characteristics is a major factor, such as a fire
sprinkler system, another pipe may be best. These tables and decision matrix did not
consider another very important factor, price, which is yet another reason standard
pipes are best as they have the lowest cost. Generally speaking, standard
Aquatherm pipes will be the most practical and superior choice. They are the most
versatile, have superior qualities, and are the most cost efficient.
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2.4 Physical properties in Aquatherm pipes
Unlike many other pipes, Aquatherm pipes are chemically inert. The pipes do not
alter the quality of water passing through in any way. While other pipes may
introduce VOC’s and heavy metals into water, Aquatherm pipes do not. No chemicals
from solders, glues, solvent cements, or fluxes mix with water as it is distributed
either as the joining process in Aquatherm pipes is made with heat fusion. Aquatherm
pipes also do not support formations of mineral deposits. As the pipes are opaque,
they also do not promote any microbiological growths. Simply put, water coming from
a faucet or other application is of the same quality as it was when in entered the
system in a system that uses Aquatherm piping.
The NSF Standard 14 and NSF Standard 6 requirements are both met in Aquatherm
pipes for assurance in direct contact with drinking water. The material has also been
tested to NSF 51 standards and is thus acceptable for direct contact with food or
applications in food processing in temperatures below 100 degrees Celsius. The
material quality, strength, dimension, resistance to damage, marking, and strict
quality control requirements of the ASTM F2398 and CSA B137.11 are also met.
Aquatherm pipes have even been evaluated against chlorine resistance according to
the ASTM F2023. Specific values of Aquatherm pipes are included in the Appendix.
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Aquatherm pipes alone have minimal protection against UV rays. If the material will
be exposed to UV radiation for a period longer than 6 months is it recommended that
composite pipes be chosen for the system. Material in storage should have direct
sunlight blocked if to be exposed longer than 6 months. The upgraded faser-
composite pipes are designed for applications to be permanently exposed to open
sunlight.
Sound insulation properties are exhibited by the Aquatherm pipes. They provide a
high level of sound dampening. They also insulate from noises caused by water flow
and hydraulic shock. Pipe systems constructed of Aquatherm pipes are preferred to
other types of pipes in building where the comfort of occupants is a concern, since
overall the noise created by Aquatherm pipes is much less than that created by other
pipes commonly used in systems.
2.5 Joining methods
The method of joining Aquatherm pipes, as mentioned, do not require any solvents
glues, or solder. Heat joining is used which literally melts the pipes into one
indistinguishable piece. Socket, butt, electrofusion, and fusion outlets are used.
The unique and unrivalled connection process of heat fusion is used in Aquatherm
installations. Welding times in this way are quite short: 20 mm OD – 1/2” ID = 5 sec
(Aquatherm 2008). The connections can be tested by pressure or they can be placed
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in operation close to immediately after fusion. Aquatherm pipe fusions have
absolutely no extended waiting times.
The process of heat fusion is one of the most reliable and safest joining processes in
the world for pipe systems. The process involves heating two pieces of (identical)
plastic material and allowing them to cool under medium pressure. The material
polypropylene is great for this type of joining method since it fuses at the chemical
level, and thus there is no way to tell one piece from another once fusion is
completed. This type of connection eliminates weaknesses in the pipe system which
are evident in other pipe systems. Aquatherm’s joints are leak-proof and last longer
than the pipes themselves while joints in other pipe systems tend to leak or even fail.
There is a variety of methods that can be used for heat fusion. These include
Socket Fusion: A fusion method where the outside of the pipe is fused
against the inside of the fitting. This creates a strong bond without restricting
the opening of the pipe. A heating iron is used in this method.
Butt Fusion: This fusion method involves fusing the face of one pipe directly
to the face of another. This creates a connection without a coupling. Fittings
match pipe walls and are installed in the same way.
Outlet Fusion: A fusion method which involves fusing a special curved fitting
directly into the side of the pipe. This connection serves as a branch from
large lines to smaller ones. Outlet fusion uses heating irons.
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Electrofusion: A method of socket fusion that does not use heating irons. The
pipe is joined by running a current through a special fitting, rather than heating
the pipe and fitting directly [1].
All of these processes involve the same basic process of heating the pipe and
carefully joining them prior to letting them cool into a permanent fusion. The heat
fusion process is often used in gas piping since it has a low failure rate and is also
used in “ultra-pure” systems as the connections are free from impurities [1].
Aquatherm’s socket-fusion technique is used on pipe sizes ranging from 3/8”-4” and
helps to streamline the fusion process so that it is even simpler and faster.
Aquatherm’s own custom engineered tools were designed to optimize the heating
temperatures and surface areas. They also decrease heating times and increase the
surface area of connections. Saddle connections help to hasten installation more so
by allowing for the majority of take-offs and branches to be installed after the main
line is securely in its place [1]. Larger pipes (between 5” and 10”) are joined using the
more traditional method of butt-fusion. Many contractors are already familiar with this
method, so for pipes this size additional training may not be necessary. Aquatherm
offers a number of its own training programs in accommodation with the large range
of needs plumbers and mechanical
contractors may have [1].
According to Aquatherm, the welder includes
“
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One machine body with assembly points for the remaining parts
One set clamping jaws composed of 8 two-part jaws bars for pipes and fittings
1/2” - 4” ID (25 - 125 mm OD)
One aquatherm greenpipe welding head for each of the following diameters: 1
1/2” - 4” ID (50 - 125 mm OD)
One welding device Art.-No. 50341
One allen key and tool change clamp
One Installation manual
The aquatherm greenpipe welding machine was specially developed for stationary
welding of pipe and fittings with an external diameter of 50 to 125 mm. This machine
is equipped with a hand crank to facilitate a precise pre-assembly of complicated
installation parts.
(The necessary operating instructions are enclosed.)” [1].
2.6 Fire Resistance
Unfortunately polypropylene is not any more resistant to combustion and fire as other
piping materials. The same standard regulations for fire protection need to be met as
with other piping materials. It is recommended that fire prevention companies are
contacted for the most current listing and installation requirements.
Aquathermpipe.com has a list of manufacturers that have tested and listed fire
prevention productions for use with pipe systems constructed with Aquatherm.
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The Flame Spread Index was designed in attempt to show how fast a given material
will allow fire to spread across it. Different countries have different testing methods
for this, for example, in the United States this is done per ASTM E84 while in Canada
this is per CAN/ULCS102.2. In any case, Aquatherm pipes have a FSI value below
25, making it suitable for the vast majority of applications. Of course, as it is
necessary, a review of local requirements is recommended.
A considerable amount of the danger from a fire is due to the toxins given off from the
combustion of materials. Aquatherm products do not contribute to gas toxicity in fires.
The majority of the smoke produced from the combustion of an Aquatherm pipe is
water vapor; the smoke is not dangerous to people or even animals. One should
keep in mind, however, that the standards used in codes as they are today were
developed 50 years ago. They do not account for modern differences. While not
considered a health issue, Smoke Development Index values for the standard
Aquatherm pipes range from 100 to 150. In areas where applicable, if any, this issue
would need to be addressed. Typically, the SDI is only considered a concern if pipes
are exposed in a high rise application. There are other less common cases where
this is a concern. Applications where the pipe is installed in a return-air plenum is
also another kind where this is a concern. These are also referred to as RAPs. RAPs
are known to introduce a significant amount of safety and health issues into a
building. Even air quality indoors is negatively affected. Plenums are almost
impossible to clean, so they collect a great deal of dust and mold. Fires are known to
spread to plenums and subsequently to the rest of the building at a rapid pace.
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Fighting fires in systems with plenums is also difficult. For all of these health and
safety reasons, it is recommended that RAPs not even be used (if possible) and that
air ducts are ducted to all spaces in each direction. There are more ways to avoid
SDI requirements in other cases. If the pipe is installed behind a wall board of
gypsum, the SDI is not required. If the pipe is routed inside of interior walls that are
rated as non-fire, the SDI is not required.
Specialized (nonstandard) Aquatherm pipe systems have been designed to comply
with more stringent requirements, namely, in cases where the code requires pipes to
meet an SDI of 50 and an FSI of 25. As mentioned, in most cases standard
Aquatherm pipe are considered to be acceptable material in systems. In cases with
the stricter values, advanced Aquatherm systems can be applied at a somewhat
higher cost to meet these needs. In these advanced design, there is a flame rating on
the thermal barrier is to protect the normal lengths of pipes against combustion. This,
in turn, reduces the overall amount of smoke produced and thus lowering the index
values. Advanced Aquatherm systems have also been tested and listed with their
fittings uncovered and lengths of pipe covered to add ease in the process of
installation. The advanced systems also only produced water vapor and carbon
dioxide upon combustion, so exposed fittings are considered safe with regards to
building occupants.
2.7 Aquatherm supply
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Aquatherm systems include everything needed for a complete installation. Systems
include all pipes, fittings, valves, and everything else from the water meter to the final
tap. Aquathermpipe.com’s webpage says “Mixed installations are things of the past”
(Aquatherm 2008).
Aquatherm pipes resist corrosion and scaling. Corrosion and scaling that occur in
other piping systems demonstrate gradual reductions in performance. The walls in
Aquatherm pipes create less friction than is created in other system, which in turn
eliminates abrasion that can cause pin-holing and thus lowering the life expectancy
of the system. The joints, as they are heat-fused, exhibit the same properties as the
pipes. As a result, stresses from physical forces do not damage these areas in any
extra way. Aside from having a longer life, Aquatherm pipe systems do not need as
much maintenance as other pipe systems, an obvious added value.
Aquatherm has developed faser-composite technology, a revolutionary
manufacturing method that increases overall performance in pipes and maximum
operating temperatures. The material used in the faser-composite pipes is mix of a
unique fiberglass and a derivative of polypropylene. The emphasis on the unique
material in the pipe is placed on the middle of the pipe, allowing for rigidity at high
temperatures without losing any other benefits exhibited by Aquatherm pipes. Other
advantages of the faser-composite pipes include a 75% reduction in linear
expansion, a 20% increase in flow while maintaining the same loading capacity due
to a larger inner diameter, a higher carrying capacity, higher stability, and higher
impact strength [1].
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Figure 2.6: Expansion; source: Aquatherm brochure, aquatherm-
uk.com
Here it can also be seen that the standard pipe is the most practical in the general
case.
All Aquatherm pipes are flexible and resilient. Other rigid plastics shatter under
impact. Aquatherm pipes do not shatter under impact, whether the impact is from a
projectile moving at a high velocity or from a slow heavy object. When brought to the
breaking point, the material will split after flattening. Dangerous shrapnel will never be
thrown from breaking pipes. As such, the pipe is extremely safe to use in all
applications, even those considered high-risk.
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Aquatherm pipe systems have a 10 year guarantee for pipes and fittings. They also
have a product liability of €4.5 million (per damage event.) The warranty covers
incidental damage due to material failure. The warranty is not valid if the system is
installed by anyone not trained and certified for Aquatherm pipes and with Aquatherm
approved tools. A pressure report must be submitted after installation for verification
of proper installation. The following is an actual test record.
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Figure 2.7: Test record; (forms available at http://www.aquatherm-uk.com/training.php)
The testing procedure as given by Aquatherm:
“The testing procedure consists of 3 specific processes. The purpose of this test is to
subject the piping system to maximum stress to identify any possible poor jointing or
material damage.
Phase I (test period I hour and 10 minutes)
This test will be carried out at 1.5 times the highest possible working pressure.
1) Take system to 1.5 working pressure and maintain for 30 Minutes.
2) Drop pressure to zero and wait 10 minutes
3) Immediately reinstate the test pressure of 1.5 Working Pressure
At the end of this second 30 minutes the pressure should not reduce by more than
0.6 Bar and no visible leakage should have been evident.
Phase 2 (test period 2 hours)
Immediately apply a test pressure of 1.5 working pressure and maintain for 2 hours.
During this period the pressure should not drop by more than 0.2 bars.
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Phase 3 (test period 45 minutes)
The final phase is 3 operations repeating the following procedure 3 times
a) apply I 0 Bar test pressure for 5 minutes
b) reduce to I bar for 5 minutes
c) reduce to zero pressure for 5 minutes
Repeat 3 times.
If at any stage of this test procedure a fault is found and repaired the full test should
be reapplied.
All results at each stage should be recorded on Test record Sheet and when
completed satisfactorily signed copies forwarded to Aquatherm sales UK ltd for
confirming full test procedure has been applied and the company warranty is then
confirmed.
It should be remembered that the warranty is dependant also upon all operatives
being trained in the application of Fusion Jointing by approved Aquatherm trainers.”
(Aquatherm, 2008).
2.8 Aquatherm’s quality control and manufacture
Quality control is of the highest importance in Aquatherm pipes. Every step in the
manufacturing process, from the selection of raw polypropylene granules to the
finished product shipment, much scrutiny is performed. All shipments of raw materials
are inspected, with those failing to meet high standards getting returned to the
supplier. Aquatherm refines the raw polypropylene into its patented material used in
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Aquatherm pipes, Fusionlen PP-R (80). Aquatherm is able to guarantee the exact
chemical composition of pipes and fittings by manufacturing their own resin.
Aquatherm never uses less than 97% pure polypropylene. Aquatherm claims it is this
that ensures that piping systems will not fail due to manufacturer’s defects, and that
their level of quality is only possible with an engineered thermoplastic such as
polypropylene [1]. After the Fusiolen PP-R (80) is made into final products, testing
takes place. The products are examined for melt flow, impact resistance, dimensional
accuracy, appearance, homogeneity, and tolerance to internal pressure. The test
results are checked and verified by independent labs to ensure that the products are
meeting the standards of CSA, NSF, ASTM, ICC, ISO, DIN, and others [1].
2.9 Training required for aquatherm pipe installations
Aquatherm provides training to focus on two areas, systems advantages and
installation advantages. Customized training is provided to engineers, architects,
building owners, and contractors so they can become familiar with the methodologies
used in installation Aquatherm products. The information is made available through
catalogs, brochures, booklets, from their website, from training guides, and from
Aquatherm representatives. Aquatherm also offers course for installation to licensed
contractors and plumbers that cover installation and fusion techniques.
Chapter 3 – Evaluation
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3.1 Analysis of Koumpoulis SA
A business should always be implementing the best planning strategies possible so
that they can succeed. Strategic planning and research, followed by actual
implementation are the best steps a company can take realize its success. In some
business this requires members form a board to discuss inventory and statistics so
that is methodologies and future meetings can be adjusted accordingly. For some
businesses new technologies and training need to be researched so that a company
can make an informed decision that best suits its needs. SWOT analysis and cost
reduction plans are parts of strategic planning that are universal in usefulness as they
benefit every company, non-profit and for-profit alike.
Koumpoulis SA is a plumbing company that does not focus on a specific type of
plumbing project and rather encompasses nearly all projects that can be done with
piping. As Koumpoulis SA is a growing and developing company even after more
than 30 years of experience, they also evaluate their strategies for cost reduction and
other forms of business analysis so that they can make strategic decisions for their
success.
The objective of this paper is to describe strategies for Koumpoulis SA’s evolution as
a business. Koumpoulis SA will be further described so that their business functions
and needs can be better understood. A general SWOT analysis will be applied to the
basic needs of the company. Typical scenarios and concerns of businesses will be
discussed as a new material for use within the company is analyzed and considered.
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Descriptions of similar products will be given and the best choice for the company will
be described after considering a variety of factors specific to the needs of
Koumpoulis SA. Following this generalized (although specific to the range of
Koumpoulis SA’s projects) cost reduction strategies will be considered. A Pareto
analysis and other cost reduction strategies will be directly applied to the business
scenarios and concerns of the company. We will conclude with a range of concepts
for Koumpoulis SA to consider so that they can evolve as business while better
meeting the needs of their clientele.
While some risk is involved in converting to a new material, or using it at all for the
first time, the potential benefits to be had are also considerably significant. High
quality material has always been the obvious factor in businesses such as this one.
Also of rising importance in today’s world of energy crises and pollution are
ecological factors. A variety of Aquatherm pipes have been developed over recent
years and are being praised for their quality and environmental friendliness. While
this seems like an obvious solution for all companies if taken for granted, the
following will analyze the properties of Aquatherm pipes in attempt to conclude if they
are a wise choice to be applied to Koumpoulis SA’s business functions. Multiple
pipes within this area will be analyzed so that the type that best meets the general
needs of the business will be realized.
Cost reductions are important to any company. Second to amount of customers and
sales or reputation, reducing cost is the next best step in maximizing profitability for a
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business. As Koumpoulis SA offers a variety of services from heating to gardens to
fire sprinklers, a general conceptual cost analysis is derived so that it can be applied
to any and all of the company’s projects. A Pareto rule is apllied with final variables
left so that the formula can be applied to any specific project numerically. As each
project varies in size, shape, and material cost, each one will experience a different
level of cost reduction but will benefit from the same application of numerical
reduction and business reduction strategies as listed. Koumpoulis SA will have
evolved and will have modernized with the implementation of new-age materials and
up-to-date cost reduction applications.
It is standard in the strategic planning process in any business, both for profit and not
for profit, to perform a SWOT analysis. Strengths, Weaknesses, Opportunities, and
Threats need to be considered so that they can be adequately addressed. These will
be considered for the company both at the present and after the implementation of
the ideals within this paper.
3.1.1 SWOT Analysis
The main strength of Koumpoulis SA at the present is their experience. They have
developed a considerable amount of business relationships with a variety of people
in Greece and have done some major projects with a variety of hotels. Thirty years of
experience is proof of success not only from a business point of view but from the
point of view of customers as well. Having done larger projects, such as the hotels,
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this gives them the verifiable experience of being competent for projects of all
dimensions so that they can stand above smaller companies and thus have a more
competitive edge. If the company implemented the ideologies and methods
discussed in this paper as best as they could, they would have the additional
competitive edge of having newer technology and benefit from increased profits by
following the cost reduction strategies.
The weaknesses facing Koumpoulis SA are their lack of formal organized strategic
planning. While this is not a considerable weakness considering the weaknesses of
less successful companies, this seems to be the area in which they could improve
with the most. If they implemented the methodologies in this paper and took their
desire to stay up to date with technology and training one step further to encompass
regularly performed analysis and considerations of changes that could be made, the
company would not have this weakness.
The opportunities for this company are essentially the basis of this entire paper.
Koumpoulis SA has the opportunity to implement new technologies and training so
that their product quality, environmental friendliness, and reputation can all improve.
The growth from tourism in the company’s location, Greece, has been constant in
recent years. Naturally this is an opportunity in itself. The company also has the
opportunity to eliminate a major weakness and implement regular cost reduction
analysis and strategies so that they can be more cost efficient. After implementing
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these, the company still has the opportunity to expand and consider new materials as
they are made in this field.
The major threat facing Koumpoulis SA both now and in the future is competition
from companies like it. Being outbid and outshined by more cost effective or
reputable companies is a concern to any business. Another threat to projects in
Greece is the high temperature strain on them, which are than average. Because of
this extra care must be taken so that projects can withstand these conditions.
Upgrading to a new material and keeping newer materials as an option to customers
while analyzing their methods for places where cost reduction strategies can be
applied is their best way to ensure that they stay competitive in the main areas of
competitive bids, technology, and reputation.
3.1.2 PEST Analysis
Another kind of analysis used in strategic planning is a PEST analysis. These
consider political, economic, social, and technological factors. These will be
considered in detail here and are mentioned elsewhere in this writing as they apply to
other situations.
Politically there is not too much concerned with Koumpoulis SA and their operations.
The political system in Greece is free in that it does not hinder the progress and
growth of any companies, especially a plumbing company. The country attracts a
high volume of tourists, also as allowed by the political system, which increases the
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business potential. While there are taxes which somewhat affect company
operations, is it not exaggerated to the point where businesses in Greece are
affected any more unusually as compared to other countries.
Economy follows the functions of the political system regarding taxes. The market in
Greece is fairly strong and is largely supported by tourism. Plumbing companies
thrive on this, and as hotels are being built to accommodate the growing number of
tourists, business potential increases. The global energy crisis affects business in
subtle ways such as increased fuel and other minor costs, but has not affected
material costs significantly. Transportation costs to job sites have had a small but
noticeable effect on project estimates. Aquatherm reports that the price of
polypropylene is very stable in spite of the economic factors as they are in the current
world economy. The price of polypropylene is also predicted to remain stable
(Aquatherm, 2008). The economy has also slightly affected the cost of living as
certain goods are more expensive in light of the global economy problems, but the
demand for jobs is also higher so an increase in labor price is negligible.
Social factors that affect the business of Koumpoulis SA involve word-of-mouth types
of advertising, referrals, and reputation. Personal opinion is more valuable to the
company than commercial advertising. Strong business-business contacts are also
crucial for company success. Koumpoulis SA has a semi-strong relationship with its
supplier as it can receive a 20% discount for bulk material purchases. As the
company is family owned and operated it has the advantage of being tightly knit from
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the inside. This advantage is not one the average company has, but at the same
time, some companies view this as a negative factor and do not recommend the
mixing of family and business. The company has a small number of active employees
(12) so it is able to maintain a decent level of coordination between all employees
without too much effort. Koumpoulis SA does seek to increase its level of employees,
and in doing this they will need to increase their efforts in communication. At the
same time they will likely have a higher reputation and gain the social benefits from
doing this.
Technologically speaking, Koumpoulis SA is slightly above par. They are more
advanced than the average small company but do not have the resources or
methods as the largest companies. They have access to fairly new office equipment,
so they have the means to exhibit the qualities and procedures of a standard
commercial business. Tools and transportation are also handled within the business
so that renting and personally owned equipment is kept to a minimum. Implementing
more modern materials and installation processes would be the most useful steps in
using technology to increase their success as a business. As they do not
manufacture any product manufacturing technology is neglected for this case.
Increased office technology and transportation generally would not make for a
considerable difference, however strategically precise efforts in using computer
software to make business connections and network would have a proportionally
positive impact.
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3.2 Professional competition
While the market in Greece is known for its high level of competition from smaller
companies willing to cut corners on quality for smaller bids, this is countered by the
importance of business connections in the culture. Social acquaintances, word of
mouth transfer of reputation, and oral recommendations of businesses have the
highest influence on customers. Competition is rough in nearly any business, and
companies have a wide variety of options of how to combat or otherwise cope with
this.
Koumpoulis SA has three direct competitors. Vasilas is in such direct competition
because of their personal acquaintances and high level of connections. Markakis is
considered a competitor and thrives mostly on their ability to save on travel expenses
due to their connectivity with the region. Karagiannis is another competitor that uses
foreign labor to increase its profitability and success.
To combat this competition so that they can achieve an increased customer base,
Koumpoulis SA has a number of choices. They could follow the cost reduction
strategies as attached so that they can bid lower numbers on estimates. In addition to
this, they could use some of the strategies their competitors use to lower estimations
and increase business connections. Placing more emphasis on acquaintances and
non-commercial advertising would increase their image in the Greek market. Using
foreign labor carries the risk of unfamiliar connections and training among other
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things, but would allow for lower estimates should Koumpoulis SA use the savings to
increase customer base rather than increase profitability.
Another strategy that could save on labor costs, in addition to allowing the company
to handle a large extension of customers, is to hire subcontractors to carry out the
labor. Once training is completed and a good system is developed so that the
subcontractors are operating according to the tastes of the owners, an efficient
system would be developed so that the owners could spend more time on customer
relationships. This is standard in large companies, of course, and obviously a
substantial amount of success is required for small companies to be able to take the
step from doing things themselves or with a small number of employees to being able
to hire subcontractors. As mentioned, the critical business and personal relationships
necessary for notable success in the Greek market could become a focus at this
point. Koumpoulis SA members would have the freedom to place more effort into
acquiring new customers. They would need to do this acquiring, obviously, to obtain
the same level of net income. It is a given that less physical energy would be required
however. For smaller newly expanding companies it is wisest for them to promise
only one job at a time to subcontractors so that they can be sure that there level of
income is still sufficient enough to warrant them being hired in the future. Naturally,
expanding to new customers, while adding to experience and an increased rate of
production is good for the company’s reputation. Overcoming this hurdle is risky,
challenging, and requires some kind of effective marketing effort and strategy, but
once this hurdle of an expanded customer base and subcontractors is overcome, the
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business’s success increases exponentially provided nothing out of the ordinary
damages their reputation. Koumpoulis SA is at a point where they can increase their
success as a business exponentially by following these principles. If they record their
activities and see that they follow the three year business plan included in this paper,
and thus the plan is followed, they will have grown considerably and will be able to
take extra steps to undercut or outshine the competition as deemed fit.
3.3 Consideration of Koumpoulis SA’s current situation in this project
While it was mentioned that Koumpoulis SA has over 30 years of experience, some
factors of procedure and methodologies will be neglected as the company plans to
reform and build its new business plan from “the ground up.” All factors have been
mentioned, but in figuring cost reductions and profit loss in the sections that follow
the reader needs to consider that the company plans to reform its business
operations rather than simply extend them.
Chapter 4 – Proposal for Innovation
4.1 Cost benefits as a result of using Aquatherm material
Aquatherm’s pipe systems are revolutionary in the business world. They are
changing the way contractors do business. As the material prices are stable and
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figures for labor are relatively consistent, contractors have an easier time meeting or
coming in under their budget. The reliability, environmental friendliness, and warranty
allow contractors to increase their reputations while having a level of security in their
budgets. As Aquatherm piping systems are regarded as being the future standard
with their benefits and environmental friendliness, contractors have been keeping
their competitive edge by using the products.
While there are obviously all kinds of steps business can take to maximize
profitability and to make themselves more successful, merely using Aquatherm pipes
is one step. Doing a full analysis after using these products is recommended for
business that plan to both do a cost analysis and convert to a new material, as using
Aquatherm pipes changes many variable for the best in profitability.
The heat-fusion connections allow for reliable, simple, faster connections. This, of
course, reduces some time in project completion. There is also a level of consistency
in the joining method, as opposed to other methods, which caters to the predictability
the contractors seek in estimations.
There is some benefit to profits from pipe material as well. The price of (raw)
polypropylene is very stable. On the other hand, metal materials and commodities
tend to fluctuate considerably and without warning. Contractors can safely bid
months in advance if using Aquatherm pipes, having confidence that materials can
be purchased at a price similar to the time of the bid. Aquatherm systems often cost
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less than other comparable systems generally, obviously catering to initial savings
and profitability [1]. While generic PVC systems are lower in cost in the general case,
they do not offer any of the benefits of Aquatherm pipes. More expensive materials
(some as mentioned, addition items not discussed also exist) do not have the ratio of
cost-to-benefit to warrant purchase except in special situations, as shown in the
comparison diagram.
As heat times are consistent and preparation work is minimal, there is next to zero
unpredictable factors that can result in a project completion delay or an increase in
labor costs. The pipes are lighter in weight than metal pipes, and thus require less
power to transport at any level or assemble. Compared to other plastics, they are
less likely to be damaged and needing replacement from accidental mishandling. The
fusion outlets also help to hasten and simply installation once main lines are secured.
Fusion outlet connections take very little time to install when compared to full
reducing tees.
No matter how skilled a contractor may be, defective piping materials can cause a
system to fail without prediction. Often in these cases the contractor is still held liable.
The cost of failure for a contractor can be devastating without a compromise between
them and clients or insurance, and furthermore can damage future business for the
company as it may damage their overall reputation. This is of the utmost concern to a
business in any situation. This is another reason many contractors are beginning to
use Aquatherm piping systems. Between the high level of quality control, resilient
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material, and warranty, Aquatherm provides a better solution against contractor
liability. Furthermore, a company’s reputation is likely to rise just by using the
products as they cater to the growing concern for ecology and still carry the stigma of
being new technology. Contractor failure and reputation slander is decreased to a
statistical minimum in the use of this material and adequate materials training.
Regarding pipe prices, the product range of the pipe is directly related to the diameter
and wall thickness of the pipe as well as its weight. For the pipe being investigated, it
comes in a package of a 40m pipe with diameter of 32mm and a wall thickness of
4.4mm, which roughly translates to roughly thirteen 3m pipes. The charge rate is
done by meter length, so 1m costs £2.45. So a 40m pipe which is packed as thirteen
3m pipes would cost £98 as of 25/06/08 conversion rates. Obviously, as mentioned,
total costs and cost reductions will vary in projects of different sizes in comparison to
similar projects using different materials and methodologies.
4.2 General cost reduction strategies
There are two kinds of costs in production, costs in processes and costs in products.
The majority of production costs related to product occur in the design phase as
product specifications (such as size, type, form, and finish) typically have some
influence on the production processes used to create the products. At the same time,
the majority of production costs related to processes are determined by the available
resources and “in-house” knowledge.
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If selling a larger number of products or services is not a realistic option for a
company extending efforts to gain more profit, then the alternative strategy is to
attempt to gain more profit from the products or services being sold. If the sale prices
are mostly influenced by the forces of the market, then the key to increasing (or even
maintaining) profit is to find ways to decrease installation costs and operation costs.
The following is a graphical representation of how one can attempt to reduce
production costs.
4.2.1 Why companies fail in monetary savings
4.2.1.1 Placing overly ambitious cost reduction targets and time scales
Often companies will place too much emphasis on such high goals with good
intentions but this often will ultimately backfire, in some cases even resulting in a loss
of profit. New plans and procedures are best implemented with caution and strategy,
and with all aspects fully considered.
4.2.1.2 An underestimation of resources required and tasks involved
Improper planning in this way is a sure-fire method too failure. Improper training,
projection, and implementation is a major threat to savings.
4.2.1.3 Improperly differentiating between fundamental and technological issues
Typically this involves what can or cannot be physically changed. Taking steps for
one issue when it is not necessary, or failing to do so when it is necessary, is another
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example of this. Companies need to stay informed so that necessary changes of the
proper type are taken when it best benefits the company and the clients.
4.2.1.4 Not enough decision making and inadequate support
This is a necessity and should be coming from senior management in critical
situations, such as when seeking authorization for expenditure for capital equipment.
Poor strategic planning is the downfall of profit and non-profit companies alike. Larger
companies often need a form of a decision making panel or board to keep up on the
decision making process. In the absence of this, at least one individual should be
designated to handle the decision making processes properly (and formerly) from
beginning to end. Companies often choose to “wing” decision making processes and
do them from memory and loose discussions rather than formerly. This is not wise
and is often largely contributes to decrease potentials and success.
4.2.1.5 Facilities for production not available for prove-outs
In this case, there are no running trials to confirm that any changes function properly.
An absence in facilities and means to run trials and tests can quite likely lead to
improper use in an actual production, contributing to error and profit loss. Companies
are best to ensure methodologies and such will be successful prior to work done, and
not test on procedures that “count.”
Thesis Issue 1: 9/25/08 Athanasios Koumpoulis Page liii
4.2.1.6 A lack of full-time commitment to cost reduction from employees
Even with the best plan, companies that do not have a dedication that involves the
action of all employees directly involved with the products or procedures will have
difficulty seeing their projections come to light without adequate dedication from
employees. Employees need to be properly instructed as well as properly observed
to ensure cost reduction goals are realized. Everything from aquatherm pipe training
to new design methodologies to material savings needs to be taught and enforced
with every Koumpoulis SA employee.
4.2.2 How cost reduction is prevented
4.2.2.1 The timing of required capital investment creates problems with cash flow
Cash flow and investments need to be coordinated so that there is a little room for
variation. Failure to do this can cause severe problems not predicted in any analysis
performed.
4.2.2.2 A lack of confidence that capital investments could quickly be recouped
No consideration and/or faith in payback figures. While not jeopardizing cash flow, so
that investments could potentially cause bankruptcy, is ideal, and failure to take any
level of risk in investing will also stunt a company’s growth. Investments need to be
made in small steps so that a company can recover from any loss incurred. A
Thesis Issue 1: 9/25/08 Athanasios Koumpoulis Page liv
company that does not make substantial investments is a company that will not see
substantial returns.
4.2.2.3 High levels of stock exist
Any old stocks should be sold prior to new stock being introduced. This is not a factor
for the current state of the company but could potentially be in a number of years, in
which case the company will need to consider this principle.
4.2.2.4 Cost reduction not a focus of key staff members
When critical staff members remain committed to other activities in the company.
Employees not actively involved with cost reduction procedures still need to be
constantly aware of policy and procedural changes so that they do not indirectly
effect cost reductions by taking actions that will cater to other employee’s actions that
will directly affect cost reduction.
4.2.2.5 The company does not have a strategy for reducing production costs
This is the case where a company does not have any procedures in place to
implement and quickly record any changes as they occur. While material strategies
and loose attempts at procedural changes are often enough for most companies to
see results, a formal and thorough plan is all the more likely to generate benefits, and
usually well worth the added effort.
Thesis Issue 1: 9/25/08 Athanasios Koumpoulis Page lv
4.2.2.6 The manufacturing suppliers and procedures are held in too high regard
This is bad when it is true to the point that they are considered to be above any need
for change. Nothing in business is above the need for change as soon as the market
says otherwise. Technology is ever changing, as are the needs and demands of
people.
4.2.3 Methods to identify potential cost reduction procedures
4.2.3.1 Analyse installation costs for components with highest value
These items usually provide the largest scope in cost reduction (see section 1.5.) In
some cases some less expensive items can be eliminated but typically the cost
reductions can be made by the most expensive items. We will identify these for
Koumpoulis SA in a later section.
4.2.3.2 Discuss product and installation with employees
Ask them what product or process changes would make their professional lives
easier. Craftsmen may have ideas on how to take (safe) geometrical shortcuts in pipe
design or may have thoughts and requests on how they could save time, effort, or
material under different conditions.
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4.2.3.3 Analyze and discuss quality problems with associates when they are
encountered
This should follow a failed inspection or customer complaints. Not properly analyzing
a situation in order to save time and energy is not a good strategy to take in the long-
run.
4.2.3.4 Apply the principles of design for installation (see section 4.6)
4.2.3.5 Analyze products from competitors for superior functions and features
Here we will have a superior product so regarding pipes alone searching for superior
product features has already been solved. This strategy could be extended to other
components and methodologies alike. Researching time and pipe saving benefits
(see following section for analysis on pipe saving) in other companies would be
effective as pipe material and labor costs are likely the highest items in placing bids.
4.2.3.6 Develop installation objectives for the long-term (see section 4.8)
4.2.4 Main reasons for resourcing items purchased
-Ensures a continuous product supply from supplier(s).
-Reduces inadequate quality and delivery performance.
-Avoids unacceptable increases in price.
-Aids in obtaining desirable business terms offered elsewhere.
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-Aids in security and politics, for example, in the event your main competitor
has recently gained control of an existing supplier.
4.2.5 The Pareto (80-20) rule
The Pareto rule suggests that 20% of the cost figures will end up accounting for
80% of the prime installation costs. The components with the highest value
typically give the largest scope in reducing costs, so it is recommended that costs
here be examined first to add efficiency in efforts. To further increase efficiency,
adopt the principle of “gathering the lowest hanging fruit,” the strategy for
achieving maximum gain with minimum effort. The elements of cost that
contribute to the cost of prime installation in products can be plotted as a
histogram. This is indicative of cost distribution.
Step 1) In identifying 80% of prime installation costs in something such as a
piping system, clearly the element in the vast majority of all cases that will
account for this cost is the pipe itself. As this is generally fixed, the next pliable
element is labor. Koumpoulis SA already has found one way to save on materials
by purchasing in bulk. They do have the option, however, of attempting to
eliminate up to 20% of the material used by applying more geometrically efficient
designs and joint methods, but this may be challenging without giving a sloppy
appearance. Technically the Pareto rule can be applied to both parts and labor as
they both have the potential to be lowered and both constitute the highest
monetary amounts in an estimate for a project. So, the larger the project is, the
Thesis Issue 1: 9/25/08 Athanasios Koumpoulis Page lviii
more this will be true. To use figures in a personal calculation, add up material
costs before factoring in labor and taxes. Take this total material cost, and
multiply by .8. So in a project estimated by Koumpoulis SA to include 2000
pounds in Aquatherm pipes alone, a savings of 400 pounds is estimating bringing
the part estimation to 1600 pounds. This of course can be applied to and will vary
from project to project depending both on size and materials used, but the
principle is the same in any case. We will call this number P, and will continue to
use in calculation. While the variables involved in a business such as this the
circumstances allowing for the changes in savings vary when pushed to extremes
in instances of extreme material shortcuts and immigrant labour, this principle is
still believed to be true and can be applied in this area of business.
Step 2) Finding the minimum number of cost elements that comprise 80% of the
prime manufacturing cost. As determined in step 1, 80% of the manufacturing
costs P will be used in future calculations. Considering what will comprise 80% of
manufacturing costs, as mentioned, this of course will be the pipes and fittings for
all large projects. With the Pareto rule all costs that are less than 50% of the next
highest cost element are not taken into consideration. Smaller items used in pipe
systems will not be considered. The two most costly items are of course pipes
and pipe fittings. If heaters, tanks, or other devices are used for any various
projects, they can be factored in just the same. As such, pipes and fittings would
be targets for analysis in potentially reducing prime installation costs.
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After the cost of the highest costing component has been decreased, the
histogram can be re-plotted as seen in the figures below. As Figure 4.3 shows, a
point of saturation will be reached where the required amount of effort to gain
further reductions in cost will be greater than the savings that can be achieved. Of
course, it is important to cease efforts prior to reaching this saturation point and
begin a different exercise in cost reduction.
Highest cost component value
Cost elements ranked in order of value
mfg. cost 20% of these elements tend to account
for 80% of the product’s prime mfg. cost
Individual components + installation
Figure 4.1: cost elements contributing towards the prime manufacturing costs in
products
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cost reduction achieved
mfg. cost elements ranked in order of value
New highest cost component
Individual components + Assembly operation
Figure 4.2: effect of reducing the cost of the highest value element
Cost components ranked in new order of
value
mfg. cost New highest cost component
Negligible?
Individual components + Assembly operation
Figure 4.3: revised cost elements contributing towards prime manufacturing costs in
product
Thesis Issue 1: 9/25/08 Athanasios Koumpoulis Page lxi
4.2.6 Principles in Design-for-Manufacture
As a product’s design stabilizes, sales improve, investment confidence grows, and
quality in production increases. Opportunities for reducing the manufacturing costs of
the product through design-for-manufacture techniques are created.
Design-for-manufacture is a method used to decrease the costs of products in prime
manufacturing by implementing cost savings and cost avoidance for new products.
The method only applies to products and thus does not apply to processes.
4.2.6.1 Rationalize the range of existing products
This should be done according to the demand from the market and as suggested by
SWOT and PEST analyses.
4.2.6.2 Eliminate any design features that are unnecessary
Use feature analysis to observe the contribution made by the geometrical features to
the functionality of the system. Identify geometric features and designs that are
efficient and inefficient. Any inefficient design or pattern has potential for cost
reduction. If parts do not need to be used, or joints can be created without additional
parts due to the unique fusion process, they should not be used.
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4.2.6.3 Introduce standard design features
These will promote the use of standard methods of installation.
4.2.6.4 Decrease variety
This should be done where ever possible, and across the range of components.
Promoting ‘interchangeability’ is the concept to keep in mind in this case.
4.2.6.5 Use value analysis to eliminate components which may be redundant
4.2.6.6 Blend components into single components (by design)
4.2.6.7 Eliminate waste material
Reuse and save material wherever this is practical. As polypropylene can be melted
and reformed, this is an option available to the company should it choose to pursue
it. Simple molds for pieces with short length could be constructed without the use of
industrial material if equipment capable of melting (without charring) is used. Without
melting and molding the material could be welded into different pieces if not reusable
in the current state.
4.2.7 Manufacturing objectives in the short-term
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4.2.7.1 Performance of product must not be degraded from changes due to cost
reduction.
4.2.7.2 Target programs for cost savings to achieve the following: a 5% company
turnover, or 5 times the salaries of those employed full-time on cost reduction.
4.2.7.3 Periods of investment payback should not exceed 12 months for component-
based changes or 24 months for production process-based changes.
4.2.7.4 Suppliers of new products should guarantee their proposed prices for a
minimum of 12 months following the date of sample approval.
4.2.7.5 Any advancement in technology should be justified based on the cost savings
achieved.
4.2.7.6 Undertake a whole spectrum of exercise for cost savings.
4.2.8 Manufacturing objectives in the long-term
4.2.8.1 Develop a system for, or get into the habit of, making continuing
improvements.
4.2.8.2 Decrease or stop issuing free items to sub contractors.
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4.2.8.3 Attain a lower amount of defective product and service. This can be done with
either inspection prior to purchase or an improved business relationship with the
supplier.
4.2.8.4 Attain a lower amount of inventory (component/tooling/product.)
4.2.9 Applied reduction strategies
Figure 4.4: Strategy employed to reduce the installation costs of existing products.
4.2.10 Changing processes to reduce installation costs
As time progresses, the following factors will increase if a product is to be successful.
4.2.10.1 Technical stability (lower risk of changes in design)
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4.2.10.2 Market confidence
4.2.10.3 Demand for product (higher sales become equal to higher production
quantities)
4.2.10.4 Other manufacturing processes are realized
4.3 Proposal plan for business over three years
Koumpoulis SA will use the general strategies as mentioned above in the following
three years. In addition to these, the company will need to follow a specific agenda
for other aspects of their business.
As mentioned, Koumpoulis SA has 12 employees. Office employees are paid a
salary of roughly £18,000 per year while technicians earn £12,000 per year on
average. Transportation is an expense of the company as they use a van to transport
technicians to the job sites.
Koumpoulis SA may find it wise to make a considerable loan so that it can invest in
more supplies and subcontractors, provided that it can find enough projects to justify
the subcontractors. The supplier offers a higher discount when purchases are made
in a greater bulk amount than has been made by the company in the past. So, even
when loan interest is considered the loan has a high probability of being a worthwhile
investment as the discount rate of materials could double, from 20% to 40%.
Thesis Issue 1: 9/25/08 Athanasios Koumpoulis Page lxvi
The following is a detailed analysis of specific figures in the past for Koumpoulis SA,
following this is a projection for the same figures when estimations of strategy
implementation is carried out over a few years.
4.3.1 Past performance and future projection
The following is a partial basic review of past performance. For more thorough
statistics see Figure J in the Appendix.
Past Performance
2005 2006 2007
Sales £1,000,000 £1,300,000 £1,500,000
Gross Margin £600,000 £800,000 £1,000,000
Gross Margin % 60.00% 61.54% 66.67%
Operating Expenses £400,000 £550,000 £700,000
Gross margin is calculated by subtracting cost of goods from the total sales revenue
and divided by the total revenue. Other values have simply been recorded based on
past values. In following future performance business expenditures include a
purchase of a van (estimated at £2000,) and includes employee salaries (£12,000-
18,000 for 12 employees.) The gross margin is calculated the same way and all other
values are an estimation based on past performance, future expenditures, and cost
reduction strategies. For values where the Pareto rule can be applied, such as
materials and given room for this application with bulk discount, values have been
Thesis Issue 1: 9/25/08 Athanasios Koumpoulis Page lxvii
multiplied by P (.8) accordingly. Depreciation has also been considered for value in
welding and other equipment.
2009 2010 2011
Sales £1,600,000 £1,700,000 £1,900,000
Gross Margin £650,000 £870,000 £1,200,000
Gross Margin % 67.00% 68.57% 69.97%
Operating Expenses £380,000 £450,000 £600,000
It should be noted that no significant information has been researched revealing a
change in liability. Only a partial table has been included here (see Figure I in
Appendix.) Operating expenses show decrease significantly at first due to improved
cost reduction strategies and different materials, but then will show the same rise as
before as great amounts of material are purchased with a business loan and
subcontractors are hired. Fusion methodology may reduce this somewhat but for
estimation purposes it is assumed that the liabilities will follow the past cycle of the
company. Also note the factors of assets are not proportional in all areas to
accommodate a loan once ample funds are generated, although this is included in
totals for the three year table. We can see the positive impact as estimated when the
Pareto rule is applied and cost reducing strategies are considered. Considering the
loan interest and uncertainty, the margin of error is roughly 10%.
4.3.2 Profit and Loss
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The following is a prediction of profit loss over three years. A partial table is shown
here, more details are included in Figure H in the Appendix.
Total Operating
£1,313,992 £1,754,500 £2,039,000
Expenses
Profit Before Interest
£246,008 £1,478,500 £2,152,000
and Taxes
Interest Expense £47,705 £29,150 £12,470
Taxes Incurred £50,410 £362,338 £543,797
Net Profit £147,893 £1,087,013 £1,595,733
Net Profit/Sales 7.55% 26.77% 30.34%
The increase due to the loan is considered here, and it is taken as granted that the
supplies will be able to be used as they are purchased from the loan. Here margins
and profit margins are calculated in the classic way of relevant division, and all other
values are nothing more than rough estimates based on the same principles
discussed in cost reduction. Projections for cash flow follow.
4.3.3 Cash Flow
Pro Forma Cash Flow
2009 2010 2011
Cash Received
Thesis Issue 1: 9/25/08 Athanasios Koumpoulis Page lxix
Cash from Operations:
Cash Sales £490,000 £1,015,000 £1,315,000
Cash from
£1,352,925 £2,780,277 £3,793,730
Receivables
Subtotal Cash from
£1,842,925 £3,795,277 £5,108,730
Operations
In the full table for cash flow (see Figure D in appendix) and in following tables the
loan is considered in the first year, in the amount of £500,000 with a £50,000
principle as shown. Only the partial table has been shown here. All other values are
calculated in the classic way or are simple estimations based on the relevant
principles, past performance, and future expenditures.
4.3.4 Balance Sheets – Projected
The company's projected balance sheets for 2000-2011 are shown below. A more
complete table is included in the Appendix (see figure F.)
Retained Earnings £130,000 £277,893 £1,364,905
Earnings £147,893 £1,087,013 £1,595,733
Total Capital £327,893 £1,414,905 £3,010,638
Total Liabilities and
£792,100 £1,761,196 £3,224,798
Capital
Net Worth £327,893 £1,414,905 £3,010,638
Thesis Issue 1: 9/25/08 Athanasios Koumpoulis Page lxx
The information here is taken either from the above tables or combined and totalled
to fit the category. No complex calculations beyond basic mathematics operations are
required. The following uses the above estimations and loose calculations to show
more complex relationships in the form of ratios.
4.3.5 Ratios
Total Asset
2.47 2.31 1.63 n.a
Turnover
Debt Ratios
Debt to Net
1.42 0.24 0.07 n.a
Worth
Current Liab. to
0.19 0.40 0.81 n.a
Liab.
Liquidity Ratios
Net Working
£372,789 £1,123,001 £2,291,934 n.a
Capital
Interest
5.16 50.72 172.57 n.a
Coverage
We can see that this business plan will lead to considerable success should the
strategies be followed in accordance with the instructions. A partial table is shown
Thesis Issue 1: 9/25/08 Athanasios Koumpoulis Page lxxi
here, a full table is shown in the Appendix (see Figure G.) Sales are projected to
jump as shown in the second year due to the new capabilities in the first year
following the loan. Basic ratios are calculated by basic division between the two
categories reflected. Advertising expenses typically not calculated for this company,
but is a safeguard to ensure that the company can make the most of its supplies
purchased from the loan. While these numbers are in fact projections rather than
sure-fire predictions, they are quite attainable. New customers, reputation, and
project quality are critical in achieving this. The Aquatherm pipes will aid in increasing
the company’s reputation, and advertising will aid in the company being able to install
all of its material purchased at a bulk discount price from the loan.
4.3.6 Conclusions
In completing this project the following has been accomplished:
A review and analysis of Koumpoulis SA’s business scope and needs
A SWOT and PEST analysis to give scope to cost reduction strategies and
calculations
Aquatherm pipes have been proven to be better than classic materials, in both
innovation of design, application, and fusion method
A variety of new technology pipes have been compared, the standard pipe
was found to be best as it met the most of the company needs
The other new technology pipes were considered and found to be more useful
than classic materials for specialty projects
Thesis Issue 1: 9/25/08 Athanasios Koumpoulis Page lxxii
A list of innovative cost reduction strategies were combined and applied to
Koumpoulis SA
A full and thorough business plan over the next three years was shown in
detail
A ratio analysis followed the plan to further show statistical relationships
In conclusion, Koumpoulis SA has much potential to gain more of a competitive edge
from changes made to its production. Aquatherm products alone will saving joining
time, and once training to employees has been completed this factor will really give
the company a chance to shine. Aquatherm pipes are a trend of the future, and
clients that consider Koumpoulis SA to be using high quality, new technology that is
good for the ecosystem will further increase its reputation. The principles as
described here apply to general projects, although it is recommended that
Koumpoulis SA documents their expenditures and applies the logic and economics
formulated and explained here so that they can see first hand the differences that
can be realized by following such a formal plan.
4.3.7 Recommendations
In future planning and function the following is recommended:
Increased recording and document filing so that the actual performance can
be tracked in direct correlation to the three year plan
Periodic meetings with employees to review the cost reduction strategies to
see if they can be further applied to any circumstance
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The financial situation thoroughly analysed periodically so that the best time to
take a loan for supply purchases can be determined
Direct action in advertising, geographically expanded availability for services,
and increased soliciting to increase project rate so that subcontractors can be
hired
Consideration of exploiting foreign labour under direction supervision
Attempt at moulding and/or joining techniques to make the most out of waste
material. The following describes how the material is initially moulded:
Figure 4.3: Plastic injection moulding
The company could also invest in the machine showed if it wished to attempt to make
more use of excess material from either its own projects or as a recycler of waste
from other companies as well.
Thesis Issue 1: 9/25/08 Athanasios Koumpoulis Page lxxiv
REFERENCES
[1] Aquatherm. Various articles. http://Aquathermpipe.com/. Viewed Sep 25th 2008
Aquatherm-UK. Various articles. www.aquatherm-uk.co. Viewed Sep 25th 2008
Business Plans. Various Tables.
http://www.bplans.com/sample_business_plans/Manufacturing_Business_Plans/Mac
hine_Tooling_Business_Plan/Finance_fc.cfm Viewed Sep 25th 2008
Koumpoulis SA. Various articles. http://koumpoulis.gr/home_eng.php?choice=1 Sep
2008.
www.managementhelp.org/plan_dec/str_plan/str_plan.htm Viewed Sep 25th 2008
www.quickmba.com/strategy/swot/ Viewed Sep 25th 2008
www.mindtools.com/pages/article/newTMC_05.htm Viewed Sep 25th 2008
www.quickmba.com/strategy/pest/ Viewed Sep 25th 2008
www.netmba.com/strategy/pest/ Viewed Sep 25th 2008
Thesis Issue 1: 9/25/08 Athanasios Koumpoulis Page lxxv
Plummer, S, Topic 9: Economic Break-even Analysis, Level Three Lecture Notes on
Manufacturing Systems, School of Environment & Technology, University of Brighton.
Plummer, S, Cutting costs to boost profits, Engineering, p 16, July/August 1992.
Plummer, S, Cutting the cost of existing castings, Castings Buyer (UK), Vol 6, No 2,
pp 3; 6, Sept 1993.
Plummer, S, Flying high, Manufacturing Engineer, Vol 71, No 4, pp 24, 26, April/May
1992.
www.va-interactive.com/cit/workshops/profitloss/index.htm Viewed Sep 25th 2008
www.profit-loss.com/ Viewed Sep 25th 2008
www.extension.iastate.edu/AgDM/wholefarm/html/c3-14.html Viewed Sep 25th 2008
www.googobits.com/articles/932-how-to-prepare-a-cash-flow-statement.html Viewed
Sep 25th 2008
www.finpipe.com/equity/finratan.htm Viewed Sep 25th 2008
Thesis Issue 1: 9/25/08 Athanasios Koumpoulis Page lxxvi
www.va-interactive.com/inbusiness/editorial/finance/ibt/ratio_analysis.html Viewed
Sep 25th 2008
www.bized.co.uk/compfact/ratios/index.htm Viewed Sep 25th 2008
cpaclass.com/fsa/ratio-01a.htm Viewed Sep 25th 2008
Wefatherm. www.wefatherm.com. Viewed Sep 25th 2008.
Bibliography
www.businessfinance.com/
www.dol.gov/dol/topic/hiring/foreign.htm
www.entrepreneur.com/growyourbusiness/howtoguides/article81358.html
www.ezunsecured.com/
www.foreignlaborcert.doleta.gov/hiring.cfm
www.merchantloans.com/
www.sellersreference.com/wholesale_suppliers.html
www.sfmic.com/res_cat_doc/comptalk_hiring_subcontractors_mn.pdf
Thesis Issue 1: 9/25/08 Athanasios Koumpoulis Page lxxvii
APPENDICES
Appendix A: Gantt Chart
SUMMARY of the 2008 COST REDUCTION PROGRAM
Unit
Estimated Capital
manufacturing
Annual Investment
Product/ cost
Modification
Process Description Cost Estimate
Number Quantity
Code Current Proposed Saving Cost d
(units/
(£/ unit) (£/ unit) (£/ (£) Payback
year)
year) (months)
MOD001 001 Part change 10 8 100+ 200+ 800+ 12
MOD002 002 Part change 20 16 100+ 400+ 1600+ 12
Thesis Issue 1: 9/25/08 Athanasios Koumpoulis Page lxxviii
MOD003 003 Part change 30 24 100+ 600+ 2400+ 12
MOD004 004 Part change 20 16 100+ 400+ 1600+ 12
MOD005 005 Part change 20 16 100+ 400+ 1600+ 12
MOD006 006 Part change 10 8 100+ 200+ 800+ 12
MOD007 007 Part change 10 8 100+ 200+ 800+ 12
MOD008 008 Part change 10 8 100+ 200+ 800+ 12
MOD009 009 Part change 10 8 100+ 200+ 800+ 12
MOD010 010 Part change 20 16 100+ 400+ 1600+ 12
Batch
Estimat Curre Time
Order Replann
ed nt Old left to Planned
Produ Quanti ed Old
Modificati Annual Stock Suppl Introducti
ct/ Descripti ty for Stock
on Quantit Level y Old on Date
Proces on Old Level
Number y (units Stock for New
s Code Stock (units in
(units/ in (month Stock
(units/ stock)
year) stock) s)
order)
Part
MOD001 001 100+ tba tba tba tba tba
change
Part
MOD002 002 100+ tba tba tba tba tba
change
Part
MOD003 003 100+ tba tba tba tba tba
change
Thesis Issue 1: 9/25/08 Athanasios Koumpoulis Page lxxix
Part
MOD004 004 100+ tba tba tba tba tba
change
Part
MOD005 005 100+ tba tba tba tba tba
change
Part
MOD006 006 100+ tba tba tba tba tba
change
Part
MOD007 007 100+ tba tba tba tba tba
change
Part
MOD008 008 100+ tba tba tba tba tba
change
Part
MOD009 009 100+ tba tba tba tba tba
change
Part
MOD010 010 100+ tba tba tba tba tba
change
Appendix B and C: Product summary tables
Common chemical name: polypropylene
Formula: (-C-H2-CHCH3-)n
Generic name: polyolefines
CAS number: 9003-07-0 and 9010-79-1
Resistance to impacts: 18mj/square meter (ISO/R179) and 70kp/square centimeter at
0 Celsius
Tensile strength: 40N/square millimeter (ISO/R572)
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Elasticity Factor: 800N/square millimeter (ISO178)
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Figure D: properties of polypropylene; source: MSDS, aquathermpipe.com
Pro Forma Cash Flow
2009 2010 2011
Cash Received
Cash from Operations:
Cash Sales £490,000 £1,015,000 £1,315,000
Cash from
£1,352,925 £2,780,277 £3,793,730
Receivables
Subtotal Cash from
£1,842,925 £3,795,277 £5,108,730
Operations
Additional Cash Received
Sales Tax, VAT,
£0 £0 £0
HST/GST Received
New Current £0 £0 £0
Thesis Issue 1: 9/25/08 Athanasios Koumpoulis Page lxxxiv
Borrowing
New Other Liabilities
£0 £0 £0
(interest-free)
New Long-term
£500,000 £0 £0
Liabilities
Sales of Other
£0 £0 £0
Current Assets
Sales of Long-term
£0 £0 £0
Assets
New Investment
£0 £0 £0
Received
Subtotal Cash
£2,342,925 £3,795,277 £5,108,730
Received
Expenditures 2009 2010 2011
Expenditures from Operations:
Cash Spending £138,658 £224,124 £284,739
Payment of
£1,704,746 £2,814,733 £3,386,897
Accounts Payable
Subtotal Spent on
£1,843,404 £3,038,857 £3,671,636
Operations
Additional Cash Spent
Thesis Issue 1: 9/25/08 Athanasios Koumpoulis Page lxxxv
Sales Tax, VAT,
£0 £0 £0
HST/GST Paid Out
Principal
Repayment of £50,000 £0 £0
Current Borrowing
Other Liabilities
Principal £0 £0 £0
Repayment
Long-term Liabilities
Principal £175,100 £166,800 £166,800
Repayment
Purchase Other
£0 £0 £0
Current Assets
Purchase Long-term
£270,000 £200,000 £300,000
Assets
Dividends £0 £0 £0
Subtotal Cash Spent £2,338,504 £3,405,657 £4,138,436
Net Cash Flow £4,421 £389,620 £970,294
Cash Balance £64,421 £454,041 £1,424,335
Figure E: Cash flow
Pro Forma Balance Sheet
Thesis Issue 1: 9/25/08 Athanasios Koumpoulis Page lxxxvi
Assets
Current Assets 2009 2010 2011
Cash £64,421 £454,041 £1,424,335
Accounts
£247,075 £511,798 £663,069
Receivable
Inventory £135,600 £280,353 £362,391
Other Current
£15,000 £15,000 £15,000
Assets
Total Current Assets £462,096 £1,261,192 £2,464,794
Long-term Assets
Long-term Assets £370,000 £570,000 £870,000
Accumulated
£39,996 £69,996 £109,996
Depreciation
Total Long-term
£330,004 £500,004 £760,004
Assets
Total Assets £792,100 £1,761,196 £3,224,798
Liabilities and Capital
Current Liabilities 2009 2010 2011
Accounts Payable £79,307 £128,191 £162,860
Current Borrowing £0 £0 £0
Thesis Issue 1: 9/25/08 Athanasios Koumpoulis Page lxxxvii
Other Current
£10,000 £10,000 £10,000
Liabilities
Subtotal Current
£89,307 £138,191 £172,860
Liabilities
Long-term Liabilities £374,900 £208,100 £41,300
Total Liabilities £464,207 £346,291 £214,160
Paid-in Capital £50,000 £50,000 £50,000
Retained Earnings £130,000 £277,893 £1,364,905
Earnings £147,893 £1,087,013 £1,595,733
Total Capital £327,893 £1,414,905 £3,010,638
Total Liabilities and
£792,100 £1,761,196 £3,224,798
Capital
Net Worth £327,893 £1,414,905 £3,010,638
Figure F: Balance Sheet
Ratio Analysis
2009 2010 2011 Industry Profile
Sales Growth 30.67% 107.14% 29.56% -0.50%
Percent of Total Assets
Accounts
31.19% 29.06% 20.56% 24.80%
Receivable
Thesis Issue 1: 9/25/08 Athanasios Koumpoulis Page lxxxviii
Inventory 17.12% 15.92% 11.24% 26.10%
Other Current
1.89% 0.85% 0.47% 24.20%
Assets
Total Current
58.34% 71.61% 76.43% 75.10%
Assets
Long-term
41.66% 28.39% 23.57% 24.90%
Assets
Total Assets 100.00% 100.00% 100.00% 100.00%
Current
11.27% 7.85% 5.36% 35.70%
Liabilities
Long-term
47.33% 11.82% 1.28% 18.50%
Liabilities
Total Liabilities 58.60% 19.66% 6.64% 54.20%
Net Worth 41.40% 80.34% 93.36% 45.80%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 79.59% 79.63% 79.68% 35.80%
Selling, General
& Administrative 72.00% 52.86% 49.17% 20.80%
Expenses
Advertising 2.27% 1.60% 1.33% 0.70%
Thesis Issue 1: 9/25/08 Athanasios Koumpoulis Page lxxxix
Expenses
Profit Before
Interest and 12.55% 36.42% 40.91% 4.00%
Taxes
Main Ratios
Current 5.17 9.13 14.26 2.20
Quick 3.66 7.10 12.16 1.15
Total Debt to
58.60% 19.66% 6.64% 54.20%
Total Assets
Pre-tax Return
60.48% 102.43% 71.07% 7.30%
on Net Worth
Pre-tax Return
25.04% 82.29% 66.35% 16.00%
on Assets
Additional
2009 2010 2011
Ratios
Net Profit
7.55% 26.77% 30.34% n.a
Margin
Return on
45.10% 76.83% 53.00% n.a
Equity
Activity Ratios
Accounts 5.95 5.95 5.95 n.a
Thesis Issue 1: 9/25/08 Athanasios Koumpoulis Page xc
Receivable
Turnover
Collection Days 59 45 54 n.a
Inventory
3.00 3.98 3.33 n.a
Turnover
Accounts
Payable 21.55 22.34 21.01 n.a
Turnover
Payment Days 21 13 16 n.a
Total Asset
2.47 2.31 1.63 n.a
Turnover
Debt Ratios
Debt to Net
1.42 0.24 0.07 n.a
Worth
Current Liab. to
0.19 0.40 0.81 n.a
Liab.
Liquidity Ratios
Net Working
£372,789 £1,123,001 £2,291,934 n.a
Capital
Interest
5.16 50.72 172.57 n.a
Coverage
Thesis Issue 1: 9/25/08 Athanasios Koumpoulis Page xci
Additional Ratios
Assets to Sales 0.40 0.43 0.61 n.a
Current
Debt/Total 11% 8% 5% n.a
Assets
Sales/Net Worth 5.98 2.87 1.75 n.a
Dividend Payout 0.00 0.00 0.00 n.a
Figure G: Ratios
Pro Forma Profit and Loss
2009 2010 2011
Sales £1,960,000 £4,060,000 £5,260,000
Direct Costs of
£400,000 £827,000 £1,069,000
Goods
Other £0 £0 £0
Cost of Goods Sold £400,000 £827,000 £1,069,000
Gross Margin £1,560,000 £3,233,000 £4,191,000
Gross Margin % 79.59% 79.63% 79.68%
Expenses:
Payroll £635,040 £910,000 £1,000,000
Sales and Marketing
£167,900 £220,000 £265,000
and Other Expenses
Thesis Issue 1: 9/25/08 Athanasios Koumpoulis Page xcii
Depreciation £9,996 £30,000 £40,000
Quality Assurance £93,800 £104,000 £125,000
General &
£96,000 £124,000 £174,000
Administrative
Manufacturing &
£129,600 £130,000 £175,000
Engineering
Machining &
£86,400 £100,000 £110,000
Systems Building
Payroll Taxes £95,256 £136,500 £150,000
Other £0 £0 £0
Total Operating
£1,313,992 £1,754,500 £2,039,000
Expenses
Profit Before Interest
£246,008 £1,478,500 £2,152,000
and Taxes
Interest Expense £47,705 £29,150 £12,470
Taxes Incurred £50,410 £362,338 £543,797
Net Profit £147,893 £1,087,013 £1,595,733
Net Profit/Sales 7.55% 26.77% 30.34%
Figure H: Profit and Loss
Future Performance
2009 2010 2011
Thesis Issue 1: 9/25/08 Athanasios Koumpoulis Page xciii
Sales £1,600,000 £1,700,000 £1,900,000
Gross Margin £650,000 £870,000 £1,200,000
Gross Margin % 67.00% 68.57% 69.97%
Operating Expenses £380,000 £450,000 £600,000
Collection Period
19 25 34
(days)
Inventory Turnover 3.00 3.00 3.00
Balance Sheet
Current Assets 2009 2010 2011
Cash £40,000 £40,000 £80,000
Accounts
£60,000 £90,000 £150,000
Receivable
Inventory £40,000 £70,000 £110,000
Other Current
£6,000 £14,000 £17,000
Assets
Total Current Assets £146,000 £214,000 £357,000
Long-term Assets
Capital Assets £100,000 £100,000 £100,000
Accumulated
£10,000 £20,000 £30,000
Depreciation
Thesis Issue 1: 9/25/08 Athanasios Koumpoulis Page xciv
Total Long-term
£90,000 £80,000 £70,000
Assets
Total Assets £185,000 £270,000 £365,000
Capital and Liabilities
2009 2010 2011
Accounts Payable £25,000 £50,000 £75,000
Current Borrowing £15,000 £35,000 £50,000
Other Current
£5,000 £5,000 £10,000
Liabilities
Subtotal Current
£45,000 £90,000 £135,000
Liabilities
Long-term Liabilities £50,000 £50,000 £50,000
Total Liabilities £95,000 £140,000 £185,000
Paid-in Capital £50,000 £50,000 £50,000
Retained Earnings £40,000 £80,000 £130,000
Earnings £0 £0 £0
Total Capital £90,000 £130,000 £180,000
Total Capital and
£185,000 £270,000 £365,000
Liabilities
Other Inputs 2009 2010 2011
Thesis Issue 1: 9/25/08 Athanasios Koumpoulis Page xcv
Payment Days 30 30 30
Sales on Credit £750,000 £1,000,000 £1,125,000
Receivables
18.75 12.50 8.65
Turnover
Figure I: Estimated Future Performance
Past Performance
2005 2006 2007
Sales £1,000,000 £1,300,000 £1,500,000
Gross Margin £600,000 £800,000 £1,000,000
Gross Margin % 60.00% 61.54% 66.67%
Operating Expenses £400,000 £550,000 £700,000
Collection Period
19 22 34
(days)
Inventory Turnover 3.00 3.00 3.00
Balance Sheet
Current Assets 2005 2006 2007
Cash £20,000 £40,000 £60,000
Accounts
£40,000 £80,000 £130,000
Receivable
Inventory £30,000 £60,000 £90,000
Thesis Issue 1: 9/25/08 Athanasios Koumpoulis Page xcvi
Other Current
£5,000 £10,000 £15,000
Assets
Total Current Assets £95,000 £190,000 £295,000
Long-term Assets
Capital Assets £100,000 £100,000 £100,000
Accumulated
£10,000 £20,000 £30,000
Depreciation
Total Long-term
£90,000 £80,000 £70,000
Assets
Total Assets £185,000 £270,000 £365,000
Capital and Liabilities
2005 2006 2007
Accounts Payable £25,000 £50,000 £75,000
Current Borrowing £15,000 £35,000 £50,000
Other Current
£5,000 £5,000 £10,000
Liabilities
Subtotal Current
£45,000 £90,000 £135,000
Liabilities
Long-term Liabilities £50,000 £50,000 £50,000
Total Liabilities £95,000 £140,000 £185,000
Thesis Issue 1: 9/25/08 Athanasios Koumpoulis Page xcvii
Paid-in Capital £50,000 £50,000 £50,000
Retained Earnings £40,000 £80,000 £130,000
Earnings £0 £0 £0
Total Capital £90,000 £130,000 £180,000
Total Capital and
£185,000 £270,000 £365,000
Liabilities
Other Inputs 2005 2006 2007
Payment Days 30 30 30
Sales on Credit £750,000 £1,000,000 £1,125,000
Receivables
18.75 12.50 8.65
Turnover
Figure J: Past Performance
Glossary
Aquatherm: German based company selling varieties of polypropylene pipes, also
refers to the standard line of pipe Aquatherm manufactures
Cash flow: this is a depiction of how funds are transferred within a company
Climatherm: a special design of polypropylene pipes designed to withstand more
extreme climatic conditions
Cost reduction strategy: any methodology employed to reduce the expenditures of a
given company
Thesis Issue 1: 9/25/08 Athanasios Koumpoulis Page xcviii
Decision matrix: a table used in calculating factors specific to differing materials and
applied with weighing factors for a sum total
Dividends: cash transfers of a company
Elasticity: refers to the “stretchiness” a material exhibits
Faser-composite technology: manufactured by aquatherm to reduce linear expansion
by 75%
Firestop: another technology in pipes for the purpose of flame retardation
Fusion welding: a unique process in welding that does not use solvents or other
additional material, but rather heat to melt the two pieces together to form one
chemically indistinguishable piece
Fusiotherm: the original name for standard aquatherm products
Gantt chart: this chart shows a timeline for work and research to be performed in
conjunction with the progress actually performed
Thesis Issue 1: 9/25/08 Athanasios Koumpoulis Page xcix
Gross profit margin: margin calculated by subtracting costs from sales revenue and
dividing by
Koumpoulis SA: Greece based plumbing company in operation for over 30 years
MSDS: stands for “material safety data sheet,” required to be public for all materials
so that anyone can be aware of any potential hazard the material may present
Pareto rule: also known as the 80-20 rule, this states that 80% of the installation
costs are due to 20% of what is involved
PEST analysis: used in strategic planning, determines the political, economic, social,
and technological issues regarding a company
pH value: refers to the acidity or caustic level of a material, ranging from -14 to 14
with 0 being neutral
Plastic injection moulding: the process of moulding in the manufacture of
polypropylene pipes
Polypropylene: a unique material known for its ability to be joined by chemical bonds
so that it forms one indistinguishable part
Thesis Issue 1: 9/25/08 Athanasios Koumpoulis Page c
Profit loss: this is an analysis designed to show how excess funds in a company
depreciate
SWOT analysis: used in strategic planning, determines the strengths, weaknesses,
opportunities, and threats regarding a company
UV: ultraviolet, referring to solar radiation that is damaging to standard aquatherm
pipes after prolonged exposure
TBA: abbreviation for to be announced, often used in projections with undetermined
variables
Thesis Issue 1: 9/25/08 Athanasios Koumpoulis Page ci
