New Industrial Methods for cutting metals
In today’s competitive markets, understanding the structure of the costs of a product is essential to the improvement of the process as well as to a correct pricing strategy.
For a sheet metal product, the production cycle has several phases starting from the raw material to the final product ready for delivery which includes: cutting, roll forming, bending, welding, punching, laser cutting, assembly of possible accessories, painting, and packaging.
Parameters such as the efficiency of a machine or its Hourly Cost depends on entrepreneur’s estimations and strategic decisions. Always remember that the result of the calculation is highly affected by all these decisions.
Below describes the procedure used for the calculation of the production cost of a single sheet metal product and of a full batch.
Step One: Breaking Down the Production Cycle
Let’s calculate the hourly cost and efficiency of a single machine or system.
Since production cycles can be so different from one another and may include different phases, we need to break the production cycle down to simpler processes, as shown in the picture below.
In this way the output of Machine 1 becomes the input of Machine 2, carrying on its production cost as if it were a new raw material, and it’s possible to focus on one of these production cycles at a time. Let’s start with Machine 1.
Step two: Calculate the cost of the raw materials
Depending on its structure, the manufacturing of a product may require more than one types of raw materials.
For example, in order to make a standalone roll former for drywall studs, its coils need to be produced by galvanized steel. For a complete system with roll forming and packaging, the raw materials will be metal coils, straps, and timber tiles.
In order to calculate or estimate the amount of raw material that will be required to manufacture one single product, including the scrap generated in the process.
Let’s take as an example the product F of the a.m. article. The product has dimensions 415x685mm, thickness 1mm and is obtained from a sheet metal plate with dimension 1000×2100. We can fit 6 parts on this sheet, with a scrap of 19%. A simple calculation shows that for one piece, the amount of raw material is a plate with dimensions 700x500mm and thickness 1mm.
The following formula describes how the unit cost of the raw material is calculated:
In the previous example, considering the material cost of 0.7 € for each Kg and density of steel as 7.8 kg/dm3 we obtain:
RAW MATERIAL COST = 7 x 5 x 0.01 x 7.8 x 0.7 = 1.91 €
This procedure has to be carried out for each of the raw materials used in the process.
Step three: adding the cost of the machining
Keep in mind that, we need to have the following data:
- The hourly cost of the machine or system (in this phase, the overhead costs are not taken into account.)
- Productivity (cycle time) and Efficiency of the system.
The formula to calculate the cost of the machining is the following:
For example, assuming the following parameters,
- Cycle time = 12 seconds,
- Efficiency = 80.5%
- Machine hourly cost = 77,3 Euro
It would be possible to calculate the machining cost.
MACHINING COST = (77.3 x 12 / 0.805) / 3600 = 0.32 Euro
So, the total direct cost of the production for one piece is:
Step four: Repeat the calculation for different phases of the production cycle
Having calculated the production cost of the product from the raw material to the final output of machine 1, we use the same procedure for the other machines or phases that complete the production cycle.
The output of each machine carries on the costs attached to it by the previous processes until the end of the line is reached, and the product is ready for the delivery.
1) Process and workflow bottlenecks
2) Resource Allocation and Efficiency
3) Training and Maintaining Talent
4) Customer Service and Delivery
5) Managing Cost