Strategies for reducing cost

The strategies for reducing the cost of each life phase can be viewed by clicking the links below:

1. Material phase
2. Manufacture phase
3. Transportation phase
4. Use phase
5. Disposal and end-of-life phase

Strategies for reducing cost

Material phase

Properties like modulus, strength or conductivity do not change with time.  Cost is bothersome because it does.  Supply, scarcity, speculation and inflation contribute to the considerable fluctuations in the cost-per-kilogram of a commodity like copper or silver.  Data for cost-per-kg are tabulated for some materials in daily papers and trade journals; those for others are harder to come by.  Approximate values for the cost of materials per kg, and their cost per m³, are plotted in Figure 1.  Most commodity materials (glass, steel, aluminum, and the common polymers) cost between 0.5 and 5.0 $/kg.  Because they have low densities, the cost/m³ of commodity polymers is less than that of metals.

Figure 1. The approximate price/kg of materials. Commodity materials cost about $ 1/kg; special materials cost much more; (below) The approximate price/m³ of materials. Polymers and foams, because they have low densities, cost less per unit volume than most other materials.

Strategies for reducing cost

Manufacture phase

Cost modelling of the manufacturing phase.  The manufacture of a component consumes resources (Figure 2), each of which has an associated cost.  The final cost is the sum of those of the resources it consumes.  They are defined in Table 1.  Thus the cost of producing a component of mass  m  entails the cost  C_m  ($/kg) of the materials and feed-stocks from which it is made.  It involves the cost of dedicated tooling,  C_t  ($), and that of the capital equipment, C_c($), in which the tooling will be used.   It requires time, chargeable at an overhead rate C_oh (thus with units of $/hr), in which we include the cost of labor, administration, and general plant costs.  It requires energy, which is sometimes charged against a process-step if it is very energy intensive but more usually is treated as part of the overhead and lumped into C_oh as we shall do here.  Finally there is the cost of information, meaning that of research and development, royalty, or license fees; this, too, we view as a cost per unit time and lump it into the overhead.

Figure 2. The inputs to a manufacturing cost model.  

Table 1. Symbols, definitions, and units.   

Think now of the manufacture of a component (the “unit of output”) weighing  m  kg, made of a material costing C_m $/kg.  The first contribution to the unit cost is that of the material  mC_m  magnified by the factor 1/(1-f) where f is the scrap fraction – the fraction of the starting material that ends up as sprues, risers, turnings, rejects, or waste:

The cost  C_t  of a set of tooling – dies, molds, fixtures, and jigs – is what is called a dedicated cost: one that must be wholly assigned to the production run of this single component.  It is written off against the numerical size  n  of the production run.  Tooling wears out.  If the run is a long one, replacement will be necessary.  Thus tooling cost per unit takes the form:

where  n_t  is the number of units that a set of tooling can make before it has to be replaced, and ‘Int’ is the integer function.  The term in curly brackets simply increments the tooling cost by that of one tool-set every time n exceeds n_t.

The capital cost of equipment, C_c, by contrast, is rarely dedicated.  A given piece of equipment – a powder press, for example – can be used to make many different components by installing different die-sets or tooling.   It is usual to convert the capital cost of non-dedicated equipment and the cost of borrowing the capital itself into an overhead by dividing it by a capital write-off time,  t_wo, (5 years, for example) over which it is to be recovered.  The quantity  C_c/t_wo  is then a cost per hour – provided the equipment is used continuously.  That is rarely the case, so the term is modified by dividing it by a load factor, L – the fraction of time for which the equipment is productive.  The cost per unit is then this hourly cost divided by the rate at which units are produced :

Finally there is the overhead rate C_oh.  It becomes a cost per unit when divided by the production rate units per hour:

The total shaping cost per part, C_s, is the sum of these four terms, taking the form:

The equation says: the cost has three essential contributions – a material cost per unit of production that is independent of batch size and rate, a dedicated cost per unit of production that varies as the reciprocal of the production volume  (1/n), and a gross overhead per unit of production that varies as the reciprocal of the production rate  (1/). The equation describes a set of curves, one for each process, with the shape shown in Figure 3.  It compares the cost of casting an aluminum con-rod by three alternative processes: sand casting, die casting, and low pressure casting.  At small batch sizes, the unit cost is dominated by the “fixed” costs of tooling (the second term on the right of the equation for C_s).  As the batch size n increases, the contribution of this to the unit cost falls (provided, of course, that the tooling has a life that is greater than n) until it flattens out at a value that is dominated by the “variable” costs of material, labor, and other overheads.  Competing processes usually differ in tooling cost  C_t  and production rate , causing their  C – n  curves to intersect, as shown here. Sand casting equipment is cheap but the process is slow. Die casting equipment costs much more but it is also much faster. Mold costs for low pressure casting are greater than for sand casting, and the process is a little slower. The economic batch size for a process is the range in number of components for which that process is cheaper than competing processes.

Figure 3. The relative cost of casting the con-rod as a function of the production run. The costs are normalized by that of the material.  

Strategies for reducing cost

Transport phase

The cost of energy contributes to the cost of transport, but there are many other contributions: the capital cost of the transport system, handling charges, salaries of transport staff, insurance and more.  We have analyzed data from transport web-sites, fitting the data to simple models. 

Transport costs depend on the “density” (the weight divided by the volume) of the package being transported.  If the density of the package is greater than a critical minimum density, the cost is based on weight alone.  If it is less than this the cost is calculated as if the weight of the package is

m_v =  volume x critical minimum density.

Different shapes of package (Box, Crate, Guitar etc.) may be charged at different rates even though the volume and weight are the same.

Transport costs increase with distance of travel, but not in a simple way.  For short distances, the fixed (distance-independent) charges dominate.  For longer distances the fuel costs account for an increasingly large fraction of the total cost and the cost rises with distance.   The transport cost models in the audit tool take account of this complexity.

Strategies for reducing cost

Use Phase

The cost of the use-phase of a product is a combination of the cost of the energy it uses, of maintenance and depreciation (or the equivalent in rental or leasing charges) and, sometimes, taxes, license fees or royalty payments. Some of these – the cost of energy for example – can be quantified and suggestions made about how to reduce them.  Others are specific to the individual user and must be left their (your) judgment.  Potential strategies are categorized into three groups (click category for guidance on impact reduction):

• Static mode - mechanical devices
• Static mode - heating and cooling systems
• Mobile mode - transportation

Static mode - mechanical devices

A large cost-component of the use phase of static mechanical devices – machine-tools, washing machines, dish-washers and the like – is the cost of the energy they use.  Minimizing this is the first priority.

Static mode - heating and cooling systems

Refrigerators and freezers, ovens and kilns, space heating and air conditioning use energy to heat or cool space.  The cost of this energy dominates the use-cost.

Mobile mode - transportation

The fuel-derived energy consumed by transportation appears as kinetic and thermal energy.  Minimizing these can reduce running costs.  Recovering them can reduce fuel consumption.

Strategies for reducing cost

Disposal and end-of-life phases

There are six options for disposal of products at the end of their first life:

• Landfill
• Combust for energy recovery
• Downcycle
• Recycle
• Re-condition or re-manufacture
• Reuse as is

End-of-life costs arise from legislation requiring collection and appropriate disposal. There are collection costs, land-fill taxes, dismantling and reprocessing costs.  Revenues can be generated through reconditioning or sale of materials for recycling.