Plating shop: the night tariff that did not pay

“Somebody worked out for me that the night tariff would give a million one hundred and forty. I believed it, moved the second shift into the night, and a quarter later I saw that nothing had changed. It turned out that nothing could have.”

Eduard Riznyk runs an electroplating shop in Nikopol. Zinc plating of fasteners and hardware for the local machine builders, three lines, two shifts. Twenty-one years in metalworking, eight of them as the owner. Fourteen people, seven to a shift, steady orders. And the biggest cost line of all, the one he could do nothing about.

A shop of a hundred and fifty kilowatts

Plating lives on electricity. The rectifiers hold the current in the baths for hours on end, and that is not a load you can turn down.

The shop's average load is 150 kW. A shift is eight hours, there are two shifts a day, and 250 working days.

Multiply it out and you get 600 000 kWh a year.

Nikopol is a natural place for this business: a pipe works next door, a few machine-building plants and a crowd of small metalworkers who constantly need their fasteners zinc-plated. Orders are not hunted here, they arrive on their own, and that is why for eight years Eduard barely thought about selling.

Here power is not an overhead but a raw material

In most production electricity is five to seven percent of the cost, somewhere at the level of security. In plating it sits on the same line as the chemistry: without current there is no process at all, and how much of it is needed is set by the coating thickness in the standard, not by the owner.

• average load: 150 kW
• consumption over a year: 600 000 kWh
• area processed: 96 000 m² a year
• price of processing: 145 ₴ per m²

So the shop sells neither metal nor chemistry. It sells processed electricity, and the price of that electricity is the main thing that decides its profit.

What one kilowatt weighs

It helps to bring everything down to a square metre, because metres are what the shop sells.

Six hundred thousand kilowatt-hours over 96 000 m² is 6.25 kWh a metre. At the day tariff of 7.4 ₴ that is 46.25 ₴ of electricity inside a metre which sells for 145 ₴.

There is another reason why that third cannot simply be cut down. The coating thickness is set by the customer on the drawing, and how much current a micron takes is physics. You can improve a rectifier's efficiency by a few percent, but you cannot plate metal with fewer electrons than the chemistry demands.

A third of the price of a metre is current

Forty-six hryvnias out of a hundred and forty-five. For comparison, the chemistry in that same metre is 14.75 ₴, three times less. When the biggest cost line is not your choice but your supplier's tariff, attention goes there whether you want it to or not.

“I worked that figure out for the first time two years ago, and I have looked at it every month since. Forty-six hryvnias of current in a metre. All I can do about it is either less current or cheaper current.”

The year in figures

Ten percent and a bit. For plating that is respectable, and Eduard is content with the figure.

But look at the second line. The electricity is 3.08 times bigger than the whole year's profit.

The shop earns 1 440 000 ₴ and hands over 4 440 000 ₴ for current.

All six lines in the report are correct, reconciled against statements, delivery notes and payroll records. The costs come to 12 480 000 ₴ together. The report conceals nothing — it simply shows the electricity as one sum for the year, with no split by the hour at which it was used.

Two tariffs on the very same line

Ukraine has a two-zone tariff: from eleven at night until seven in the morning electricity is cheaper.

Eduard's day zone is 7.4 ₴ a kilowatt-hour, the night tariff zone 3.6 ₴. The difference is 3.8 ₴: the day tariff costs more than double the night one.

The night tariff zone is cheaper because nobody needs it at night

The tariff is not a gift and not a concession. The system cannot store electricity, so at night, when the plants are standing, the generation has to be either dumped or sold cheap. Cheap is what the night tariff zone is.

Both of Eduard's shifts worked in the day zone: the first from seven in the morning, the second from three in the afternoon until eleven at night.

It was the electricity supplier himself who pointed it out. He looked at two shifts, both in the day zone, and asked why the second one was not at night. The advice was sincere and did not contain one untrue word.

What moving the shift promised

The arithmetic looked unanswerable.

Half the year's consumption is 300 000 kWh. Moving it off 7.4 ₴ onto 3.6 ₴ means saving 300 000 times 3.8, which is 1 140 000 ₴.

There really is no capital spending here. The same equipment, the same volume, the technology not changed by a single degree. The only thing that changes is the hour at which the rectifiers come on.

A million one hundred and forty thousand is 79.2% of the shop's annual profit. Almost a doubling of the earnings out of one decision about the roster.

“I carried that figure around in my head for three months. One million one hundred and forty. No capital spending, no new equipment — the people just come in eight hours later.”

What a night shift costs

People are paid extra for working at night. In Eduard's shop that is 35% on top of the wage, and the wage there is 28 000 ₴.

At night there is more scrap, and it is not idleness

Scrap on the day shift is 2.1%, on the night shift 3.4%. The reason is not that people work worse at night. The reason is that at night there is nobody to make the call: the technologist is asleep, the laboratory is shut, and a doubtful batch is either let through or put through again in the morning.

One point three percent of 48 000 m² at a price of 145 ₴ is 90 480 ₴.

What scrap means in plating

Scrap here is nothing like scrap in machining, where a part is either within tolerance or it is not.

A coating can come out thin, uneven, burned through, stained by bad rinsing. Some of those parts can be stripped and plated again, some cannot. The technologist makes that call, and the speed of the call decides whether the batch goes back through the process or goes to the customer.

Scrap is measured in reprocessing, not in parts

When a batch is stripped and plated a second time, the shop pays twice for the same electricity and the same chemistry, and the revenue stays single. That is why scrap in plating is counted as a percentage of the area processed and not in pieces: what matters is not how many parts there were but how many metres had to go through the process twice.

Minus thirteen thousand

Now subtract.

The saving is 1 140 000 ₴, the night shift costs 1 153 680 ₴. The effect is minus 13 680 ₴.

Moving the shift into the night costs more than it saves. Not by much — by 13 680 ₴.

It is that “not by much” which makes the decision treacherous. If it had given minus half a million, nobody would have taken it. But minus thirteen thousand is simply not visible in an annual report: it drowns in the swings of the chemistry and the tariff.

And that is on the assumption that everything else stays as it was. If output fell at night, or downtime grew because there is no technologist, the minus would be bigger. So 13 680 ₴ is the optimistic estimate, not the pessimistic one.

Thirteen thousand against revenue of fourteen million is one tenth of a percent. No report will light up a difference like that, and no bookkeeper will notice it. The decision looked like a success for exactly one reason: its consequence was smaller than the accuracy with which the shop measures itself.

Where the line runs

It helps to work out not the effect but the threshold.

From the 1 140 000 ₴ of saving you first have to take out the scrap and the security, because they do not depend on how many people there are: that leaves 809 520 ₴ for the premium. Divide it by the 117 600 ₴ of annual premium per person and you get 6.88.

The figure 6.88 is unpleasant precisely because it is so close. It does not say “never”, it says “almost”. If the wage were a thousand lower or the gap between the tariffs ten kopiykas wider, the decision would flip into the black, and moving the shift would have been the right move.

A night shift pays off with six people, not seven

Seven is already past the line. Six would be in the black, but the shop physically does not run on six: seven people are the minimum for three lines with loading and unloading.

“I asked the technologist whether six could manage. He said: they can, if we switch one line off. But if we switch one line off, the saving drops by a third and we are back where we started.”

Why none of it was visible

• the electricity arrives as one invoice a month, with no split by zone
• the night premium lies inside the general payroll
• scrap is counted as a percentage for the whole shop, not by shift
• security and night logistics are fixed costs, and nobody ties them to the roster

To see the minus 13 680 ₴, all four lines have to be brought into one calculation. Every one of them exists in the accounts, but they lie in four different places and have never once stood side by side.

It is worth saying that the supplier did not point out the baths either. He sells kilowatts and sees only them: in his calculation people, scrap and security do not exist, because they are not his costs. The advice was sincere and incomplete at the same time.

What was tried before

The first attempts were about consumption, not about the tariff.

Eduard changed the rectifiers for more efficient ones, put variable-speed drives on the ventilation, worked through the regimes. That gave about four percent of consumption and then ran out: the rest of the electricity goes into the process itself, and there will be no less of it while the coating thickness stays the same.

The tariff, on the other hand, promised a kilowatt more than twice as cheap, and that is exactly why it was so easy to believe in.

The first step turned out to be technical rather than financial: a meter on each line separately. Until then the shop had one meter at the intake, and every conversation about consumption rested on the technologist's guesswork.

Three lines, three appetites

When Eduard put separate meters on the lines, the picture turned out to be uneven.

• the zinc plating and passivation line: 38% of consumption, runs automatically
• the preparation line: eats little, but needs people the whole time
• the drying and packing line: average consumption, people needed on every batch
• before the measurements all three were taken to be roughly the same

That last item was the most expensive mistake of all. For eight years the shop planned its roster as if the load were spread evenly, because no other information existed.

Move the equipment, not the people

The answer turned up when Eduard stopped looking at a shift as one whole thing.

There are three lines in the shop, and they do not consume alike. The heaviest baths — zinc plating and passivation — give 38% of the whole consumption, and they are automatic: load them, start the programme, take the work off in the morning.

Thirty-eight percent of consumption is 228 000 kWh a year. Multiply that by the 3.8 ₴ gap between the tariffs and you get 866 400 ₴ of saving without a single change in the technology.

An automatic bath does not need a shift

A bath like that does not have to be tended all night. It needs two people: load it in the evening, take the work off in the morning, keep an eye on the process in between. The technologist and the laboratory are not needed for it, because a programme does not make decisions, it carries them out.

“When I showed that table to the technologist, he looked at it and said: we do this at night anyway, the people just sit beside it. So for eight years seven men kept watch over a bath that runs on a programme.”

A smaller saving, a better result

Here is the most interesting thing in the whole story.

On the baths the saving is SMALLER: 866 400 ₴ against 1 140 000 ₴, which is 273 600 ₴ less. And the result is 404 880 ₴ better.

The reason is that the cost travels together with the saving, and the cost is proportional to people, not to kilowatts. Two operators instead of seven mean 235 200 ₴ of premium instead of 823 200 ₴. On top of that the scrap does not change at all, because automation does not get worse at night.

Running the baths at night costs 475 200 ₴: the 235 200 ₴ of premium for two operators plus the same 240 000 ₴ of security and logistics, which do not depend on the number of people. That is exactly why they ate the whole point of moving a shift.

In percentage terms the effect from the baths is 27.2% of the annual profit. Not the saving that moving the shift promised on paper, but real money instead of arithmetic with the cost side left out.

What Eduard did

“For two years I looked for a way to pay less for a kilowatt. And the question was never about the kilowatt — it was about how many people I pay a premium to for standing next to a bath that works on its own.”

The shop went over to a mixed roster in a month. Two heavy baths work at night with two operators, the rest of the lines work by day with a full shift. The net profit comes to 1 831 200 ₴ instead of 1 440 000 ₴.

• the electricity is now counted zone by zone rather than as one invoice
• scrap is written down by shift, not by shop
• the night premium is held on a line of its own, apart from the payroll
• every bath has its own consumption, taken off its own meter

The fourth point is the one that gave the answer. Until then Eduard knew the consumption of the shop but did not know how much each bath ate — and without that it was impossible to see that 38% of the load needs no people at all.

Three meters had to be put on the lines, and together they cost less than one month of the saving they uncovered. It is the cheapest thing Eduard has bought in eight years, and the only one that added the shop neither capacity nor volume.

The money does not vanish — you simply do not see it

“Twenty-one years in the shop, and I still believed that saving on electricity was about equipment. It turned out to be about the roster. And a roster is not technology any more, it is finance.”

Nothing in Eduard's shop changed: not the equipment, not the volume, not the price of processing. Still three lines, fourteen people, the same 600 000 kWh of consumption. The only thing that changed is that it is now visible which part of that consumption does not need people standing beside it.

How to see this in your own shop

Everything above rests on one comparison that appears neither on the electricity bill nor on the timesheet: how many kilowatt-hours fall into which tariff zone, and how many people get the night premium for them. While power sits as a single monthly sum, a 1 140 000 ₴ saving looks obvious while the 823 200 ₴ of premium and 90 480 ₴ of extra scrap live on other lines. When consumption, shifts and scrap come together in one place on their own, it becomes clear that the equipment should move, not the people — which is exactly why owners of small and medium businesses use Finmap: to see the financial picture instead of guessing at it.

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Topic foundation: Management Accounting Explained: What It Is and Why Owners Need It