How to recognize and quantify its benefits
November 21, 2002
Quick die change equipment is a capital investment, and i competes for funds with other capital investments. Therefore, it's critical to understand the benefits of implementing quick die change.
Return on investment (ROI) is a key financial performance ratio for all companies. Effective managers know this and spend their capital budgets carefully. It's also equally important to optimize use of existing assets. For stampers, this means focusing on press uptime, and quick die change is an important element that affects press use.
Benefits from quick die change can be grouped into five categories: marginal revenue, cost reductions, cost recovery, cost avoidance, and ancillary benefits. Here are some areas to consider when researching quick die change systems.
Marginal revenue is an accounting term. In a stamping context, it means the additional sales dollars derived from increased press uptime resulting from quick die change -- less raw material costs and variable expenses incurred.
Variable expenses include wages and benefits for operators and electricity to run the presses. Periodic expenses, such as rent, depreciation, and front office expenses, are excluded in computing marginal revenue from increased press uptime.
Marginal revenue from more press uptime can be substantial. If demand for a product exceeds capacity, the marginal revenue generated by quick die change can result in an investment payback of a few months. Investment payback in months can be determined by dividing total equipment expenditures by the calculated monthly monetary benefit obtained from implementing quick die change.
For example, if a press is used one more hour per day and the press time (excluding material) is sold for $100 per hour, the monthly incremental sales value is approximately $2,000.
Variable costs to run the incremental hours for a month might be $1,000. Subtracting $1,000 in costs from the monthly incremental sales value of $2,000 results in an additional income, or monthly monetary benefit, of $1,000. Does this mean the stamper has a 50 percent profit margin? Not at all --it means the stampers income is $1,000 more or the loss is $1,000 less because of marginal revenue made possible by quick die change.
Quick die change equipment can reduce several cost items. Some are obvious while others may not be.
For example, a manufacturer whose products include stamped components achieves optimum inventory level before implementing a quick die change system. An economic lot quantity (ELQ) formula is used to calculate the quantity to be stamped per setup. The objective of the formula is to help calculate a lot quantity, so the cost of reordering (which includes die exchange) equals the cost of carrying inventory.
Figure 1shows the impact of implementing quick die change on several variables. In this example, the average cost of inventory is reduced by $2,900. Part of this reduction is achieved by reducing the minimum stock level, because the unscheduled setup cost is reduced by 75 percent. The number of runs per year increases from 12 to 20.
Welders used a fully computerized, inverter- type GTAW power supply with 100- to 200-amp output and an internal memory that holds up to 100 multilevel, multifunction welding schedules for this project.
When inventory level is reduced, cost savings are significant. This is why so many companies are initiating just-in-time manufacturing. The cost of capital, or interest on borrowing, to maintain inventory might be 8 percent per year. Insurance is another expense. The cost of obsolescence, spoilage, floor space, racking, custodial, and accounting are other significant expenses.
In total, inventory carrying costs usually are between 20 and 30 percent per year of the value of the inventory. If quick die change allows a stamper to reduce average inventory by $1 million, about $250,000 in cost reductions is achieved per year.
Optimum asset use also requires balancing resources and business volume. If a stamper finds that press use can be increased through quick die change to the point of disposing existing equipment, money received from sale of the equipment, cost savings, and benefits from the use of newly available floor space should be used in calculating payback.
When greater output is required, the least costly means of increasing capacity should be determined. Increasing existing press uptime by implementing quick die change may avoid the incremental cost of a more expensive capacity increase alternative, such as expanding the plant and adding another press.
Quick die change does not require additional floor space. Therefore, if quick die change allows a company to defer plant expansion, the cost avoided by expansion deferment should be considered in calculating its benefits.
For example, if a facility expansion would cost $250,000, and the interest on this investment and occupancy costs amounted to 20 percent per year, then a one-year deferral of an expansion would avoid $50,000 in costs for that year.
Quick die change equipment is designed to make work easier because personnel and equipment wear and tear often are reduced. This can create a better working environment, which may be reflected in terms of regular attendance, fewer injuries, and less employee turnover.
Part quality may improve and tooling maintenance costs may decrease because clamping points and forces have been predetermined and are applied consistently. This benefit may be estimated or treated as a bonus.
Decreased die exchange time should also lead to better customer service, because production lead-time becomes more predictable, and a setup is easier to break to respond to an urgent job. Quantifying improved customer service is somewhat subjective, but its benefit may be significant.
Olav Vangstad is president of American Aerostar Corp., 25014 Avenue Kearny, Valencia, CA 91355, phone 800-780-9850, fax 661-257-6609, Olav Vangstad is president of American Aerostar Corp., 25014 Avenue Kearny, Valencia, CA 91355, phone 800-780-9850, fax 661-257-6609, e-mail firstname.lastname@example.org, Web site www.astar.com. American Aerostar Corp. is a manufacturer of quick die change systems. American Aerostar Corp. is a manufacturer of quick die change systems.