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The 15 billion dollar question!

The saving in choosing the right priority

Mike Abberley
President, Sandvik Coromant

In the United States, the manufacturing industry could save 15 billion dollars by using the right tools from the start, even if companies paid more for the tools. Sounds impossible? In fact, it's not. It's manufacturing economics - a smart and forward-thinking way of doing business. The real question now is: Are you getting your share of that 15 billion?

Imagine a world where tools are free. The tool supplier arrives at the factory and gives away all the tools needed for the machines. That must be a sure ticket to huge savings and big profits, right? Well, not really, says Mike Abberley, president of Sandvik Coromant in the United States.

"If I gave away the tools, I could only save the customer 3 percent. That is the cost for tooling as a percentage of the total production cost. And while 3 percent would be very nice, I wouldn't be around very long to continue to do that," says Abberley.

Instead there are other, more profitable ways of doing business. One of these is outlined in the company's "manufacturing economics model." Abberley explains:

"You have the conflict between the purchasing and the manufacturing. The buyer is often measured by how much cheaper he can buy the tools. Generally, buyers work on lowering the acquisition price. Meanwhile, the end-user operator on the shop floor is interested in the efficient use of the tool. And it is very clear that the significant cost savings are achieved when we address the issue of use. The way manufacturing economics works is if you lower the purchase price of the tools by 30 percent, the customer will save 1 percent of the cost of the component. If he buys a better tool and increases tool life by 50 percent, he lowers the cost of the component by 1 percent. But if instead he buys a better performing tool and speeds up by increasing cutting data then he can reduce the cost of the component by 15 percent."

The process relies on the purchase of higher performing and possibly more expensive tools that will cut at higher speeds. For an outsider this sounds like a calculation aimed at keeping the price of tools high. But Abberley disagrees:

"We have all these new products that we are introducing to the marketplace every year. In some cases a new product or a new technology can be more expensive to buy, but nevertheless it could still be the best solution for the customer. In the example we use in manufacturing economics, we increase the cutting data by 20 percent and we increase the cost of the insert by 50 percent, and we still save the customer a lot more money."

For customers, tooling cost should be almost insignificant. That 15-dollar insert, a component in a 500,000-dollar machine, is making money when it is moving across the work piece and cutting. The customer has opportunities to reduce cost with faster tool change, with fewer test cuts, with the 'first part right' concept and with having more accurate tooling. However, the real cost savings in machining comes with increasing speed, which leads to higher productivity.

"The secret to business economics is that increasing cutting data affects the fixed costs," Abberley says. "The other two, lower prices and increased tool life, don't affect the fixed costs. They don't affect the machinery, they don't affect the labor, and they don't affect the building and the administration. So increasing productivity is the only way to go, really."

However, no model is perfect without a real payoff. And that payoff is calculated in dollars and cents. So the question that Sandvik Coromant must answer every time is: What does this mean for me? This is a question that cannot be answered except by sitting down with each customer and doing the homework. But a telling example of what kind of money we are talking about, as a saving, is the calculation made for the total American market. Says Abberley: "Now is the absolutely ideal time because the output has to be improved to keep up with the increased demand. The whole basis for manufacturing economics really culminates with the fact that if we are big enough and customers are willing, then we can take the concept to every customer in the United States. This will improve the cutting data 20 percent and we could save the American manufacturing industry 15 billion dollars a year, which certainly helps put American manufacturing on a more competitive global footing."

This leaves us with Abberley's final question: "Are you getting your share of that 15 billion?"

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