The issue of production costs is always quite controversial and I am increasingly aware that most companies are not clear about this topic, or rather, they know that it exists, but it is not used properly.
Let’s start from an established assumption (at least I hope so):
“The cost of the machine is never a problem”.
Wait, don’t get me wrong!
This is certainly a statement that may sound absurd to many in the sector, yet it is not absurd and I will explain why.
Before understanding why the cost of machinery is never a problem, it is necessary to take a step back and know exactly how purchasing costs are structured.
The purchase cost, counter-intuitively, is the last element we should worry about.
Direct and indirect costs for calculating the TCO
First of all, you need to make a distinction between:
– Direct costs (obvious and known costs)
– Indirect costs (hidden costs)
By “direct costs” we mean the known production costs, which are those easily attributable to a specific activity or cost center and which are therefore easy to identify and quantify.
In 90% of cases these costs are the only ones that are taken into consideration.
This is mainly due to a cognitive bias of our brain, which tends to give more weight and importance to what it sees and can touch, excluding or giving less importance to “less evident” elements.
However, in many cases, these less evident costs can be the most significant.
So now we come to the “indirect costs“, which are those that we can define as hidden costs of production, that is, those that are more difficult to identify and are not always easy to quantify and attribute to the respective activities and cost centers.
Before making an investment in new machines, it is important to know how to manage these two ingredients in order to make the best investment choices and be able to obtain a better economic return.
The sum of these two broad cost families leads to a better understanding of the convenience of one purchase over another.
But above all, thanks to them, it is possible to calculate an indicator that is essential for the investment choice in production departments.
Let’s talk about the TCO, the Total Cost of Ownership.
Without this indicator it is really difficult to be able to make the correct choices and the probability of making mistakes is much higher.
TCO: what it is and why it is the indicator of your investments in production
By TCO (Total Cost of Ownership) we mean the total cost of owning an asset.
It is a cost assessment methodology in use in the field of durable goods, including industrial machinery, which allows you to have a complete medium-long term picture of all the costs and cash flows that will have to be faced when purchasing a specific asset A with respect to another particular asset B.
Why do I want to emphasize “medium-long term”?
The answer lies in the fact that it is absolutely not sensible to carry out a simple short-term analysis, aimed solely at the purchase price of the asset, as this data says little or nothing about a whole series of other costs that will arise from that particular purchase.
You have to ask yourself the right questions:
- What this purchase will involve?
- Which costs will I have to face for the equipment?
- How much staff will I need to manage it?
- How much will the annual maintenance costs be?
- How long will I be able to use this machine?
- How soon will I be able to amortize the cost, depending on the production capacity?
And so on…
These are just some of the questions you should ask yourself.
And these questions are the ones that we, thanks to precise evaluation and quantification methods, use in the Porta Production Method that allow us to determine the TCO of the specific investment.
To understand even better the concept of Total Cost of Ownership, I want to show you this image:
It is an image that in a few seconds reflects in a hyper-simplified way what we need to understand to define the TCO.
In 90% of cases, people looking for a new car focus only on the purchase cost, giving a really low weight to a whole series of costs that they will have to face in order to maintain the car (insurance, road tax, consumption, etc. …).
Yet it is known that a wide part of the cost of a car is represented by the various sub-costs that arise from its POSSESSION.
Here, in the world of Machine Tools it is the same thing and the purchase cost is the item that theoretically should weigh less in the investment evaluation process.
That’s why I started by saying that
“The cost of the machine is never a problem”.
Precisely because very often a more expensive Machine Tool, if evaluated correctly in a medium-long term perspective, can be less expensive than solutions and machines with significantly lower sales prices, but which hide invisible costs that erode profit in the medium term.
This is TCO and it is good to know how to manage it, especially if you are a user of Machining Centers.
Speaking about Machining Centers …
The TCO applied to the world of Machining Centers and Machine Tools
Having understood the concepts set out above, now I would like to focus on the world of Machine Tools and Machining Centers in particular.
The comparison I want to propose you is between Machining Centers in battery and Machine Tools with 3 independent spindles.
Obviously the Machine with 3 independent spindles has a higher purchase cost than a single Machining Center, but stopping at this figure would not allow your company to know the truth behind these two investment options.
The points to consider when buying a Machine Tool are:
- COST OF EQUIPMENT
- AUTOMATION COST
- COST OF SPECIALIZED STAFF
- COST OF ENERGY
- COST OF OCCUPIED SPACES
Machine Tools with 3 independent spindles are much more productive than Machining Centers, and they are also designed for quick production changes (in 15 minutes), so they have a much lower TCO.
Below is the comparison between 3 Machining Centers in battery and 1 PORTACENTER with 3 independent spindles of Porta Solutions S.p.A.
This allows you to better face the productivity challenge, with production changes in 15 minutes that reduce your piece cost!
The solution of 3 independent spindles allows you to perform, in a single piece clamping, a faster work cycle while maintaining a single production process.
With 3 Machining Centers in battery you have 3 processes to keep under control and your CPK will result from the average of these 3 processes.
This, together with the production speed (significantly higher in the PORTACENTER), allows you to have fewer machines in production, fewer personnel, less hidden costs.
FEWER MACHINES = LOWER COSTS
And here, for investments and production needs where it is necessary to be more competitive, the TCO of a machine with 3 independent spindles with one single process, such as the PORTACENTER, is clearly advantageous compared to Machining Centers in battery.
Why the TCO in 3-spindle Machine Tools is significantly lower
Now let’s see the advantages and the reason why Machine Tools with 3 independent spindles with a single production process reduce the TCO and therefore also the piece cost:
- EQUIPMENT, 4 clamps for 1 PORTACENTER against 48 clamps for 3 Machining Centers.
- AUTOMATION, one robot instead of 3.
- SPECIALIZED STAFF, with 1 PORTACENTER, the employee will dedicate 33% of his time to the management of the machine, compared to 100% of the time to be devoted to managing 3 Machining Centers in battery.
- OCCUPIED SPACE, with 3 Machining Centers in battery the space occupied is much higher.
- ENERGY, having only one 3-spindle machine allows you to reduce energy costs, which are very high in departments with many Machining Centers in battery.
Now that you understand what the Total Cost of Ownership is, it is important to take action and ensure that the next investments in new plants and Machine Tools you make are can optimize your profit margin to reinvest in the company.
Choosing to purchase a new Machine Tool is a delicate operation in which errors can not be allowed, because a mistake could compromise the future of your company forever.
Precisely for this reason I have developed the PORTA Production Method, a tested method which, step by step, allows you to maximize the results of your investments in new Machine Tools.
This is also thanks to the support of a team of highly experienced Technical Tutors, who will guide you in the analysis of your production department and identify the best choice for your company.
Now it’s your turn!
Do you want to continue making bad investments, thinking that the purchase cost of the machine is the only thing that matters?
Or do you finally want to make the TCO calculation one of your tools to maximize profit margins and medium to long-term results for your manufacturing company?
REMEMBER: The cost of the machine is never a problem!
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To your results, Maurizio Porta
Master Trainer PORTA PRODUCTION METHOD