Short Case
The Royal Mint
A unique manufacturing operation in the UK is the Royal Mint at Llantrisant in South Wales. The Royal Mint is designated as an Executive Agency responsible to the Treasury of HM Government. The Chancellor of the Exchequer is appointed (ex officio) as Master of the Mint. Its objective is to provide the Government with coinage at a competitive price. The Royal Mint has the capacity to handle all of the UK business and still be able to bid for contracts from those countries who do not have their own minting operation. It serves over 60 countries in any one year and produces in excess of three billion coins annually. Its manufacturing requirement ranges from high volumes of standard coinage to individual service medals or commemorative coins.
In the UK, the Treasury contracts with the Royal Mint on an annual basis for the likely requirements for coins in the following 12 months, and the Treasury is also responsible for decisions on any changes to the coinage. The last coin that was introduced was the new, smaller 10p coin; this involved an issue of over one billion new coins and the withdrawal of all the old coins from circulation. This represents one of the largest single projects undertaken and a massive logistics exercise to coordinate the movement of the coins. The Mint meets every three months with executives from the UK clearing banks to discuss their requirements for currency in the shorter term. These estimates are then updated at weekly planning meetings. The Mint would like to work to a ‘just-in-time’ schedule, but because of the nature of the product and the implications of the money not being available, they are obliged to keep a predetermined safety stock to cover any shortfalls.
As in any manufacturing operation, the unit cost of the product is a critical factor in measuring performance, and in the case of the Royal Mint, there is a unique cost ceiling, in that their cost base must always be less than the face value of the coins being produced. Therefore, this mass manufacturing process must focus on monitoring its operating costs. The issue of payment for the product is an interesting concept within the ‘minting’ industry and in the UK. The clearing banks pay the face value of the coins to the Treasury and the annual contract agreement with the Royal Mint is based on the Treasury agreeing to cover a fixed percentage of their fixed costs and the variable cost of each unit then purchased over the year. The Royal Mint can then invoice the Treasury for the currency produced.
The coins are costed in terms of pounds per thousand pieces. Of that cost, approximately 40–50 per cent comprises the raw material cost, with the next 20–40 per cent coming from the production process which transforms that raw metal into a blank coin. The actual stamping of the die onto the coin and the simultaneous milling of the edges form an almost insignificant part of the overall process cost, mainly due to the vast economies of scale at this stage. The efficiency of the stamping process is nominally determined by the life expectancy of the die, and the research at the Mint is involved in initiatives to improve the materials being used in both the coins and dies to extend this period of use. The coining machines used in the manufacturing process are flexible in that they can run to produce any of the UK and most overseas coins without long changeover periods, and orders vary from 1000 million coins for a large country to an order of 5000 for a small island. The machines are able to operate at speeds of up to 750 coins per minute and therefore the nature of a 5000 coin run is very costly, but all the same still viable.
One issue has been the threat of the intrinsic raw metal cost exceeding the face value of the coin: something which has been most prevalent in those countries facing high inflation and which leads to coinage being withdrawn from circulation by those wishing to capitalize on the returns available from the base material. In the UK, the smaller denominations were reaching that point and the Mint had to change the composition of the 2p and 1p coins to a steel core with an electroplated copper outer layer. This reduced the unit cost of the coin and also added to its expected lifetime because it used a less expensive base metal. This new format of coin represents the biggest change in the manufacturing process of coins to occur over the past few years and the pioneering of the electroplating technique, whereby a mild steel core is electroplated with copper, nickel or brass, resulted in a process which will aid the conservation of materials. The reduction in costs is also being achieved without a noticeable reduction in the recognized value of the coin. Another consequence of the electroplating procedure is that the coins have magnetic properties due to the presence of a mild steel core and this has caused initial problems for vending machine manufacturers.
Source:Reproduced by kind permission of the Royal Mint.
Questions
1What is the ‘concept’ of the Mint’s products?
2Explain the criteria which the Mint will need to take into account when it designs new coinage.
3How might the concept of simultaneous design be applied in the design of coinage?