America's Business-to-Business Journal for Industry
   Subscribe      Advertise       Submit News       Feedback       Jobs   
Featured
Similar Articles:
Valves Enhance Machinery and Worker Safety
Laser Measurement Technology in the Wind Energy Industry
Energy Savings In Process Heating, a Fresh Look at the Basics

Justifying High Technology in the Machine Shop

Examining ROI is a good start, but its only one of several factors that should be considered when looking at the latest CNC machines




In the ongoing battle for survival and profitability in the precision parts production business, the latest CNC technology is more important than ever. It allows shops to do more in one operation with less direct labor, produces more consistent, higher quality parts and helps reduce the cost per piece produced.

Still, some shops, accustomed to the 'way they've always done it' may feel old technology will see them through. It won't. At least not in this global market. The need to understand how to profitably invest in CNC is urgent—if you want to be competitive. Buying new technology is a strategic decision to assure the future competitiveness of your company.

Justifying new technology is a multi-step process:

Step #1: Understand your costs

• Use a transparent costing system

• Evaluate all cost factors

• Evaluate the influence of new technology on the cash flow, and

• Calculate piece-cost and evaluate the influence of investment of new technology on production cost and return on investment

Step #2: Understand potential benefits of CNC technology

Measurable benefits include:

• Productivity

• Reduced set-up and tool change time

• Improve uptime

• Throughput

• Scrap rate

• Tooling cost

• Maintenance cost

• Job preparation cost

Intangible benefits include:

• Quality, accuracy, surface finish - does not depend on operator skill

• Process flexibility - single-step, drop-off complete

• Preset quick change tooling with standardized inserts

• Single point turning rather than costly form tools

• CNC equipment is environmentally friendlier

Step #3: Understand the costs of older equipment

• Lower efficiencies

• Longer than planned set-up times

• Requires vanishing skills to set up and operate

• Requires “tweaking” to successfully run good parts--only a few set-up/operators in your company have this ability

• Incapable of today's quality requirements

• Cannot statistically hold tolerances

• Produces excessive scrap parts, hurting efficiency, adding to material cost. (With today's material prices you could be throwing away $1 each on a large 12L14 part!)

• Frequent unplanned downtime for repairs

• In-house maintenance personnel (overhead)

Calculating payback. There are a number of ways to evaluate the payback of new technology. Doing a Return on Investment (ROI) analysis can help you to make a good decision on whether to buy an expensive or less expensive machine.

ROI analysis indicates how the investment will impact a company's cash flow, based upon the revenues and expenses associated with the project. ROI is given as a percentage rate of return.

The company performing the ROI analysis must determine the rate of return for the investment based on the project cost and the impact the investment would have on its cash flow. Once the rate of return is determined, the company must then determine if it is an acceptable rate of return. Typically a 20% or greater rate of return is considered acceptable.

There's more. However, this justification method does not consider important technical and strategic aspects for maintaining competitiveness. Quality for instance is one of today's top priorities for end-users. This factor is a good example of what is not fully recognized in an ROI analysis. Quality depends not only on the type of equipment being used but also on the process, such as making parts complete in a single step.

In addition to quality, there are a number of other benefits, (Intangible Benefits), which will have an impact on the competitiveness of the company. These may be as important as the impact of the investment on the cash flow. Considering these other benefits is a longer-term approach to investment that can ensure the survival of the company.

While the ROI analysis method has traditionally been used to analyze high-volume multi-year projects, it can also be used to analyze the wisdom of buying a machine for low-volume production of a large variety of parts over a number of years. The example shown was very simple, and there are many additional factors that you might want to consider, such as tax implications regarding new machinery.

Finally, ROI is not necessarily the same as the profitability and competitiveness. Profitability depends on the cost per hour rate of the machine being considered for purchase and on the impact of the intangible benefits. Depending on a company's capital investment decision, the cash flow impact can be quite different from long term competitiveness and profitability.

It is possible to have a high ROI and a low profitability, and the opposite is also true.

Look at a new machine purchase from both standpoints. Perform an ROI analysis, and also look at the long term impact of the investment. Although profitability may initially be higher when looking at a lower priced machine; because of the long term benefits the higher quality machine purchase can be the most favorable choice for the precision parts producer.

The author of this piece, Jeff Reinert, is President of INDEX Corporation in Noblesville, Indiana. INDEX supplies high-precision CNC turning machines, including single-spindle, multi-spindle, sliding headstock Swiss turning machines, and turn-mills for screw machine, aerospace, medical devices, automotive and other precision machined parts industries. For more information about the company http://www.index-usa.com


All comment postings require your name and email address for user verification only. Your email address will not be used or distributed for any other purpose.
No advertising is permitted and will result in the post being deleted and/or banning. Please click "REPORT" to report any inappropriate posts.
blog comments powered by Disqus


Permission to Reproduce:
Unless otherwise stated, the copyright and similar rights to all material published on this website are owned by The Manufacturers Group Inc. DBA Manufacturing & Technology eJournal. Reproduction of any article in print, electronic or any other form must acknowledge Manufacturing & Technology eJournal as the Source and include a link to http://www.mfrtech.com


Latest Ohio News:
ARRA Brownfield Revolving Loan Fund Opportunity for Ohio

O-I Enters Argentinean Market with Acquisition of Glassmaker Cristalerias Rosario

Reynolds Machinery Adds Samsung Line of Turning Centers and Machining Centers


Latest Indiana News:
Novae Corporation Manufacturer to Establish New Production Facility

Technology Firm, BlueLock, to Expand In Indianapolis

Rolls-Royce Awarded $75 Million MissionCare Contract for V-22 Osprey Engine Support


Latest Kentucky News:
$3.9 Million Expansion at Caldwell Tanks in Louisville

Masonite Completes Acquisition of LEDCO

Howa Textile Industry Co., Auto Supplier, To Move Richmond, Indiana Operations to Kentucky

Kentuckiana Curb Expanding in Louisville

Signature HealthCARE to Move National Headquarters to Louisville, Kentucky


Latest Michigan News:
More Than 7,180 New Jobs Planned for Michigan

KMT Robotic Solutions Extends Relationship with FANUC Robotics America

Dow Announces Sale of Styron Division to Bain Capital for $1.63 Billion


Other News:
How to Lower Your Welding Costs

What Role if Any Do Unions Play in Your Business? We Would Like To Hear From You

The Engineering Pyramid: Increasing the Speed of Innovation

Massey Energy Announces Agreement to Acquire Cumberland Resources Corporation

Technical Services for RFID, Networking, and Sensor Projects from Balluff

Eastman to Acquire Genovique Specialties, a Producer of Non-Phthalate Plasticizers

The Critical Realities Driving PLM Initiatives

10 District Polls Showing Voters Opposed to Current Health Care Proposal

Simplify Inventory Receiving, Shipping, and Activity Reporting with Web-based Inventory Management

And Don't Miss
Our Most Recent Cover Stories
Letters, Comments, and Forums
National News
Other States
White Papers
Return to our Home Page