Second Visit - Arax Gold

1. Second Visit - Arax Gold 12 September, 2005

2. Reasons for success • Normal, traditional jewelry manufacturing through mature investment casting technology. • Inexpensive labor • Which is reasonably qualified • Existence of markets (although this keeps the company without its brand name). • Constant renovation of the models offered.

3. Plant Specifics • Mostly manual work • Not very high process efficiencies • Short production cycles • Huge amount of models • No need in Marketing • Absence of ISO certification

4. Value Added • As many of you have correctly mentioned the value added is in design, thus constant renovation of the models offered is very important. • Manufacturing in the middle range of the market - in terms of quality. This is related to marketing.

5. Brand Name • The brand name issue is certainly related to the access to markets. This means that Arax Gold is using the markets of few existing distribution companies - by sacrificing its brand name. • This happens frequently for companies that want to enter to existing markets, e.g. under name of GE many producers were working.

6. Relation to AGRC • Armenian Gold Recovery Company (Global Gold) in Ararat manufactures gold concentrate that is being sold in Belgium. • Just exactly like Arax Gold’s shipment to its headquarters and clients. • Anyway AGRC does not produce gold, but only high content concentrate.

7. Waste of 1% - 3% • Average of 2% seem not to be large. • But how much is the profit of the company? • 5%? 10%? • In this case the 2% of loss is something very considerable! • Compare with the salaries! that are around 4.5% of sales!

8. Salary Policy • Salary policy is close to be correct: it is normal and absolutely OK to attract manufacturing businesses to Armenia by relatively inexpensive workforce. • However their policy should be corrected, since they said that they experience problems with cadre turnover - this is also an optimisation problem.

9. Operational Problems • Waste management issues - statistics and quality control; • Optimization of company layout that may even more shorten the production cycle • Optimization of storage logic • Development of computerized tracking system. • General Quality Control system improvement. • Improving work conditions - lighting, ventilation, etc. • Salary Policy • …

10. Economic Order Quantity - EOQ • Q – quantity to order • D – demand, or rate of use • P – period, P = Q/D, e.g. in days • h – holding cost per unit for the period P • H – total holding cost for P, H = h·(Q/2) ·P • C – ordering effort cost • I – inventory cost, I(Q) = H(Q) + C(Q) I(Q) = h·Q/2 ·P + C Iday = h·Q/2 + C/P Iday = h·Q/2 + C·D/Q

11. EOQ, Iday(Q) = h·Q/2 + C·D/Q

12. EOQ = 2CD/h

13. Research • Would be good to invest in technological research to improve the technologies implemented; • To enforce the quality control capabilities; • To enforce more the modeling capabilities, although this is related to the marketing issues as well.

14. Infrastructure • What does this plant add to Armenian infrastructure? • Positive example of success in general and particularly in the area of jewelry. • Experience of specialists, knowledge, including the way of working with all market decided by the US headquarters.

15. You have to pay attention to: • %-age of the used capacities; • Timing, • Yields of the processes, also: • PLEASE LOOK AT POTENTIAL IE PROBLEMS. AS WE DISCUSSED!

16. System Approach • In my evaluation of your report I pay attention to how “systematic” is your approach: how much logical are the connection of different aspects of your observations.