July 10, 2015 / blade failure, blade life, blade selection, Cost Management, cost per cut, LIT, productivity, resource allocation, ROI
Most operations managers understand the importance of keeping productivity high and costs low. However, many managers fail to understand that in many cases, spending more in the short term is necessary to achieve the long-term goal of productivity.
This concept is especially true when it comes to metal-cutting tools. Because tools are consumables that need to be purchased and replaced often, it is tempting for managers to focus more on upfront cost. But as the following examples will explain, this strategy does not always offer the best return on investment.
At an event held earlier this year, Jacob Harpaz, CEO of Ingersoll Cutting Tools, explained why managers need to look beyond the price tag when investing in a new tool. According to Harpaz, featured here in Modern Machine Shop, a cutting tool can deliver improvement in three ways:
- Lower price
- Longer tool life
- Greater productivity
Although all three can be beneficial, Harpaz says choosing a tool with greater productivity will always offer the most lucrative return. Here’s why: For a representative machined part, Harpaz estimates that the cost of machinery represents 26 percent of the cost of machining a part; overhead represents 21 percent of the unit cost of machining; and labor and raw material account for 28 and 22 percent, respectively. Meanwhile, the cost of cutting tools accounts for just 3 percent.
The implications of this are significant, according to Harpaz. Using the above estimates, dropping the price of the tool by 20 percent would only deliver a 0.6-percent unit cost reduction. The seemingly even greater change of increasing the life of the tool by a factor of 2 would still only save 1.5 percent. However, increasing productivity would increase the number of pieces the shop can produce in the same period of time, which means the labor cost, overhead cost, and machinery cost per piece would all decrease. Increasing productivity by 20 percent, thus, produces a savings of 15 percent overall, providing the greatest savings opportunity.
Benefits of Upgrading
With the above in mind, managers that want to get the best return out of their tooling need to remain open about investing in upgrades and new technologies In saw blades, advancements in tooth geometry and wear-resistant materials are providing significant improvements for many metal-cutting operations. This article from Canadian Industrial Machinery, for example, explains why the additional cost of a coating on a band saw or circular saw blade can be worth the investment, especially when cutting a challenging material or when higher performance is needed.
There is no question that high-performance blades will cost more. However, because they are able to cut faster and with more accuracy, they improve productivity and save money in the long run. O’Neal Steel, a Birmingham, Alabama-based fabricator featured in a white paper from the LENOX Institute of Technology, found that incurring a significant upfront expense to upgrade some of its blade was worth it. Before the upgrade, O’Neal was spending about $90 per blade, but the fabricator was only getting one day’s worth of cutting. “We had a fair margin, but we were constantly messing up material,” explains Jim Davis, corporate operations services manager. “Most people think it’s costing a lot of money in blades to switch. Well, that’s true, but when you’re cutting really tight tolerances, your blade’s going bad and the material lengths are off, you can add up money really fast and lose all your profits in just an hour or two if you have blade issues.”
For another job in its Knoxville, TN, location, O’Neal was only getting two days of cutting per blade, so they were going through three blades a week. Again, Davis upgraded from a blade costing $280 to one that was $40 more, and immediately his blade-life increased to seven days.. He estimates that in the long run O’Neal saved $600 a week, or an annual total of around $30,000. “That’s a radical change, about a 3:1 ratio on the life of a blade,” said Davis.
The Deciding Factors
Of course, not every upgrade will be worth the cost. The key is for managers to weigh the opportunity cost against the hard cost, considering the true benefits a new tool can offer and whether or not it will contribute positively to the bottom line. To do this effectively, managers need to work closely with their tooling partners to discuss the pros and cons of the different metal-cutting options, while also evaluating all of the factors that contribute to the cost of the cutting process. If the long-term benefit is there, managers need to be sure they aren’t being shortsighted by the price tag. As fabricators like O’Neal are finding, the upfront investment may offer higher productivity, as well as substantial bottom-line savings.