Manufacturers Seek Cost Justification
Machine tool suppliers add their two cents and more
By Jim Lorincz
Machine tool suppliers, builders, and distributors are adopting aggressive ways to support their customers' efforts to improve productivity and profitability in especially trying economic times. Decision-making tools, such as cost-justification models, ROI (return on investment) worksheets, and the requisite careful analysis of the production value of CNC equipment are being brought to bear on their current equipment purchases or, perhaps equally important, their future purchases. The goals are to overcome the limitations imposed by tight capital markets, and satisfy the demanding production expectations of a more-vigilant management.
Evaluating the cost benefits and value of advanced CNC manufacturing solutions provides a solid foundation for decision making. "Most machines are purchased for one of three reasons," says John E. Lenz, president CMS Research Inc. (Oshkosh, WI): "expansion of capacity due to increase in sales, new product/new process, and replacement. An ROI evaluation is required for justification of the purchase decision for all of these except for machine replacements. The traditional ROI method compares the purchase cost of the machine to the savings from the reduction in cycle time with the new machine. However, high cost of machines and the diminishing returns of shorter cycle times create difficulties in the ROI evaluation. Same sales with decreased cycle time will not have justification, and replacement doesn't require an ROI. The most likely situations to justify new machines are for increases in volume."
As an embellishment to the ROI method, Lenz suggests using a modeling method to confirm future efficiency and capacity. The technique projects current operation cost at increased volume levels. ROI is based on the total cost over the ROI period for new and projected current operations compared at the same level of capacity. Lenz cautions that traditional ROI using standard cost doesn't adjust for differences in capacity between current and future configurations. "Usually the future production configuration has much greater capacity than the current state. Increased use of automation and multitasking equipment are good examples of capacity process changers with difficult ROI evaluations," Lenz points out.
"Manufacturers are putting their capital investment under a microscope today, imposing accountability on the process right from the initial planning stage through install timeline, training, and production start date, all of which were critical in establishing the ROI in the first place," explains Larry Schwartz, president and COO, Okuma America Corp. (Charlotte). Okuma and its distributors for a number of years have provided their customers with an Excel spreadsheet (also available on its Web site) as an aid to help them calculate their ROI, especially focused on the benefit of accelerated tax depreciation.
"Manufacturers realize that they still must run their businesses and take care of launching new products, and have the capacity for them," says Schwartz. "They have been driven internally to find ways to cut costs, and some of that effort is related to improvement in manufacturing which, of course, often involves capital equipment as a means of reducing operating costs. Companies today are looking for solutions, not just equipment. They are tying the results of the solution to their ROI, and are expecting the builder and/or its distributor/integrator to provide the resources to achieve those results," Schwartz says.
Through Partners in THINC, Okuma and some 30 suppliers of peripheral equipment and software provide custom-engineered solutions for manufacturers. "The drive in manufacturing is to smaller lot sizes, less work in process, more efficient use of floor space, and to limit the amount of money tied up in inventory. Solutions depend on real-time data, even for quoting jobs. Builders and third-party suppliers of hardware and software can help manufacturers with complete solutions, providing real traceability and accountability, tracking to ROI with real-time data. It's the reason we've been a supporter of MT Connect from the beginning," Schwartz says.
"In the ongoing battle for survival and profitability in the precision parts production business, the latest CNC technology is more important then ever," says Jeff Reinert, president, Index Corp. (Noblesville, IN). "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."
"Traditional ROI analysis, determining the rate of return for the investment based on the project cost and the impact the investment would have on cash flow [typically a rate of 20% or more is considered acceptable], doesn't consider important technical and strategic aspects for maintaining competitiveness," says Reinert. "Quality, for instance, is one of today's top priorities for end users, and quality depends not only on the type of equipment being used but also on the process, such as making parts complete in one setup."
Multitasking machines and automation head the list of advanced technologies that are increasing productivity, often in cellular configuration. "There's a difference between having too much capacity versus appearing to have too much capacity, because things are being measured by old standards," explains Chuck Birkle, vice president, Mazak Corp. (Florence, KY). "It's understandable that customers may be hesitant to invest when they see machines in their shops that appear to have available capacity. It may be a case in which an Integrex multitasking machine can do the work of a number of conventional machines," Birkle says.
"It's easier to measure the utilization of the multitasking machine, which can be an eye-opening situation. The good news is that manufacturers are adopting multitasking technology and consolidating their processes. The rest of the news is that they might discover that their utilization rates have been running well below optimal levels. Today, if you set up a Mazak Palletech system serving multiple multitasking machines, it becomes easier to spot and measure any inefficiency," Birkle asserts.
Birkle believes that optimization and consolidation of processes are essential to productivity improvement. "That's exactly why MT Connect is gaining traction. It gives the machine tool user the ability to openly and seamlessly communicate with components in a cell, to measure productivity improvements available through closer integration with third-party suppliers of peripherals and software."
The process of educating customers is ongoing. "One thing we see is that the people who used to do cost justification for the company are either gone or may be new in their positions and without a lot of experience in purchasing capital equipment," says Greg McCartney, vice president, Ellison Technologies. "We do Lunch and Learn events in which we bring twenty to thirty customers for a presentation on topics like automated cellular manufacturing, multitasking technology, and cost justification, for example, followed by lunch. It's a good way to bring them up to speed on the newest technology from Mori Seiki. For our customers in second and third tier shops, we've actually gone in and done presentations to their customers to help them win the business."
For its part, Mori Seiki USA Inc. (Hoffman Estates, IL) supports its customers with innovating machining processes, fixturing and cutting tools developed by its Machining Technology Laboratory (MTL) for its NT multitasking mill-turn, its NZ multiaxis CNC lathes, and NL CNC lathes among others in its product line. "We have demonstrated the Grill Tool, a 5" [127-mm] face mill with a grinding disk that pops up when high-pressure coolant is turned on to finish surfaces to 6 or 7 rma," says Kevin Bowers, team leader, Mori Seiki.
For precision-engineered parts machining, ZPS America LLC (Indianapolis) offers three distinct multispindle machine technologies: cam, hybrid CAM/CNC, and CNC. "The application, whether long running, a family of parts, or a mix of low-volume products, determines which type of multispindle fits best," says Olaf Tessarzyk, managing partner and president of ZPS America. "Adding a CNC slide to the cam multispindle allows completing a part complete without the need to blank parts or finish them in secondary machining."
ZPS America has introduced the eight-spindle ZPS 867 CNC production center for machining parts to 72-mm diam. Typical parts run on ZPS CNC multispindle machines include ejectors, camshaft end caps, and (in one case) a 185-mm-long steering shaft. "Cost justification for the 867 CNC multispindle, which is priced just under $2 million, is easier than might be thought on first sight. Its value must be considered in light of the number of single-spindle machines that would be required to match its production," says Tessarzyk. "That's the real test."
Automated solutions for OEM producers of engine components like crankshafts aren't always obvious to companies that have been chasing pallets around conveyors in between fenced standalone robots with their legacy systems, according to William Gore, regional manager, Fuji Machine America Corp. (Vernon Hills, IL). "People don't go beyond what they know unless you can show them a better alternative. We analyze what they are doing and show them what our single, twin-spindle lathes, and drillmill centers built for automation from the ground up, with integrated robots on board can do. The technology is modular, easy to use with workholding robot jaws and chucks, readily accessible to operators for quick changeover."
Gore points to the amount of work that was outsourced to suppliers that is coming back to US manufacturers to meet their production schedules and profit goals as an opportunity to replace older less sophisticated equipment. "In our proposals we guarantee process solutions, cycle time, and takt time by utilizing a line approach to integrated automation. We can do this because Fuji machines employ built-in robotic automation, workstockers, conveyors, workholding, in-process auto gaging, and are engineered from one source," says Gore.
Fuji Machine has introduced the VTP 1000 vertical hard-turning machine as an alternative to profile grinding precision parts. "The VTP 1000 is a one-meter maximum diam hard-turning machine, which is capable of less than one micron accuracy simultaneously in two axes. Some lathes can do hard turning in one axis cuts. We're putting tapers and contours on gears, inside and outside bearing races, and other parts that are typically ground after heat treatment," Gore says.
"Manufacturers are looking to get more bang for the buck out of their equipment to help pay for it," says Russell Riddiford, president, Anca Inc. (Wixom, MI). "Obviously, automation is one of the key drivers, and 85% of our CNC tool grinders are sold with automation for untended operations." Anca offers aggressive financing arrangements through its own financing company. Terms may include six months deferred payment for the new customer or a balloon payment. "We can tailor the financing to suit the customer's cash flow, to account for the learning curve until the equipment is fully productive, or extend the term up to as long as eight years," says Riddiford.
Anca's customers are found in automotive, aerospace, and medical industries, OEMs with the need to support their own CNC machines, major cutting tool manufacturers, and large and small shops, all the way down to the mom and pop shop on the corner. Gaging the pulse of the economy, Anca introduced an entry-level machine early in the downturn—the FastGrind CNC tool and cutter grinder—for sharpening drills, step drills, end mills, burrs, profile tools, routers, and special tools. The FastGrind is based on the technology of Anca's mid-range grinder technology, but at about half the price.
This article was first published in the December 2009 edition of Manufacturing Engineering magazine.