Manufacturing Economics – Time to work smarter ….

18th February 2016
  • Bridging the Productivity Gap

    In all industrial operations, the cost of running the operation, e.g. for labour, raw material, electricity is increasing at a faster rate than the price of the goods that are sold. In order to bridge the gap there is a need to continuosly increase efficiency, resulting in higher productivity.

    Bridging the gap is the only way to stay competitive and ultimately to stay in business. At Sandvik Coromant we have commited ourselves to improve your productivity. Our idea is to close the negative productivity gap.

  • What will have the biggest impact on your profitability

    Tooling costs account for about 3% of total machine costs. This is not much. Even if you increase tool life, your total cost savings will still be very small.

    If we split up your costs to produce a component we can see that the majority of your costs are fixed costs and in many cases are 60-70% of the total production cost.

    The cutting tools represent around 3-4% of the costs and it is clear that changes in tool life and price only will have a minor effect.

    Cost of tools, i.e 30% reduction will only reduce the component cost by 1%.

    Optimization of cutting data and cutting time will will reduce the component cost up to 15%.

  • Manufacturing Economics elements

    Example showing profit and costs per component.

    Gross profit is the residual profit after selling a product and deducting the fixed and variable costs.

    Fixed costs are the costs that are present even if the production is stopped, usually around 70% of the total costs.

    • Machinery 24% includes interest and lease payments.
    • Labor 28% salaries and wages.
    • Buildings 18% lease & office equipment, services etc & Admin.

    Variable costs are the costs in the production when raw material and cutting tools are consumed. This usually represents around 30% of the total costs.

    • Cutting tools 3%
    • Workpiece material 27%


    Conclusion: Time to work smarter РAllow CIS to Improve your productivity  !