Look Beyond the Price
Analyze cost factors and match CNC technology to manufacturing needs
By Olaf Tessarzyk
Everyone agrees that one of the greatest challenges facing US contract manufacturers today is preserving profit margins in the face of the onslaught of offshore competition.
Competition from low-cost producers of simple parts is changing the profitability picture for US contract manufacturers. The shop owner who tries to keep these parts at home is challenged by his customers, who say that they can get the parts cheaper from sources in China, Indonesia, or Taiwan, among others.
Pricing pressures have reduced margins of US contract manufacturing shops from their historical high levels to as little as half of what they were. To maintain and increase their competitiveness in machining precision-engineered parts, they must elevate their shops to a higher level of precision-machining capabilities.
Contract manufacturers already have experience with CNC on machining centers, lathes, and grinding machines, but perhaps not so much with multispindle CNC technology. Adopting CNC multispindle technology is part of an overall strategy that makes it possible for smaller lot sizes and a greater variety of precision-engineered parts to be scheduled economically.
Multispindle technology isn't cheap. It can generate sticker shock. But the value of such machines can be demonstrated by looking at the returns they can provide. And it is value that is critical. Machines that generate a profit are worth their price; those that don't are little more than expensive doorstops.
CNC multispindle technology changes the shop's production flow and requirements. The biggest learning curves involve the machine and setting up the manufacturing flow so that the machine is always making parts, not idling.
Having a multispindle CNC machine that can produce 15,000 parts a day will significantly affect tooling, retooling, and measurement requirements. You can't afford to just sit back and measure parts every couple of hours. With this type of equipment, you can make a lot of bad parts quickly if something goes wrong.
Of course there are other types of flexible equipment to consider before you decide to make a purchase. In general, you can say that at the low end of the volume scale, turn-mill centers are very effective for lot sizes of 1 to 1000. They do continuous runs in lot sizes of 50 to 500, for example, and can drop parts complete. Turn-mill centers are characterized by multiple spindles and turrets handling bar in diam from 42 to 102 mm and turning lengths to 2000 mm. Turn-mill centers can handle low-to-medium volume production for simple-to-complex parts produced from bar stock in production runs of 1000–25,000 parts.
Key features of these machines typically include identical main and counter spindles for complete machining of parts. Simultaneous machining at the main and counter spindles and up to three tool carriers can reduce cycle times significantly. The Y/B-axis option permits inclined, off-center drilling and milling.
For bar to 32-mm diam, the classic Swiss-type machines are popular choices, especially for medical devices, electrical connectors, and other precision-machined parts. It must be noted that fixed-headstock CNC lathes to 32-mm diam are becoming increasingly popular, because about 70% of the work in this size range doesn't require the sliding headstocks of Swiss machines.
At our company, most of the time, we see the flexibility and efficiency of multispindle machines imitating five single-spindle CNC lathes, and we find that an operator can set up a multispindle machine faster than a twin-spindle, two-turret machine. For example, if you do from 20,000 to 25,000 parts a week on the twin-spindle turret lathe, changing over four or five times a week, the CNC multispindle machine makes sense.
Assume that there are 15,000 parts run on the multispindle CNC. While you set up during the day, you run the machine at night. The next morning you come in and have 15,000 pieces. So you set up the next job the next day and let it run the next night. In one week you have one-month's production of a twin-spindle lathe. Obviously, numbers vary due to cycle time and part quality, but this provides an example of how the manufacturing concept works.
Choosing the right machine for your operation depends on the nature of your business. Don't let price alone drive your decision. At the end, what matters is how many good parts you have in the bucket per day.
Justifying new technology is a multi-step process, no matter what type of machine you consider purchasing. After selecting the right CNC equipment for your operation, the next step is using a transparent costing system that makes it possible to understand and evaluate all the cost factors and the influence of the new technology on cash flow for the all-important cost justification.
Calculating piece cost and evaluating the impact of new technology on return on investment (ROI) are natural starting points. Two types of cost benefits must be considered: tangible and intangible.
- Tangible benefits include production cost and improved productivity, setup and toolchange time, throughput, scrap rate, and tooling, maintenance, and preparation cost.
- Intangible benefits include improved quality, accuracy, and flexibility that result when CNC equipment is used, and such process improvements as single-setup drop-off of completed parts, quick-change tooling, standardized tooling, and single-point turning vs. form tools.
There are a number of ways to evaluate the payback of new technology. ROI analysis gives an indication of how much money will be generated from investing in a machine, based on the revenues and expenses associated with the project. The answer is given as a percentage rate of return. Acceptable ROI is strongly influenced by inflation and prevailing interest rates. An acceptable rate of return is determined by the person or company management doing the analysis.
An ROI analysis is only as accurate as the information that is supplied. If the assumptions that the ROI analysis is based on prove to be incorrect, the ROI number will not reflect reality. A common example of this is the case where a customer tells you a part will run for five years, and then cuts it off at three years.
As manufacturers change designs and products more frequently and part requirements change, this scenario is playing out more often these days. Consequently, it's important to buy versatile CNC machines that are appropriate for the project, but that can be changed over quickly to other parts.
This analysis is based on my own experience in running a machine shop in Germany, where companies have historically run on much smaller margins—and a tight cash flow. They have adopted a mix of CNC multispindle machining technology, single-spindle CNC production lathes, and millturn centers that fits their competitive requirements.
A total cost of ownership for the machine you select can be calculated using a two-page Excel spreadsheet that compares making the higher-value part on different types of equipment. The total cost of ownership includes the purchase price of the new equipment, all tooling costs, measurement equipment, operators, and depreciation. It is all spelled out and calculated based on cycle time and steps in the manufacturing process, such as setup and material handling between machines.
There is a simple "noncomputer" method that gives a ROI answer that is the same as, or very close to, what the Excel cost method gives. Using a Present Value Table of the type found in many college accounting books, multiply the Net Cash Flow for each year by the discount factors underneath a Discount Rate column. (Do not include the initial machine investment in year one).
This is a trial-and-error process. If you have already done an ROI analysis on Excel, you can easily "zero in" on a Discount Rate and verify your Excel answer. The Discount Rate column, which causes your future cash flows to be about equal with your initial machine investment, gives an approximation of the investment ROI.
ROI is not necessarily the same as the profitability of running a job on that machine. Profitability depends on the Machine Hour Rate that your company would place on the machine being considered for purchase.
Depending on how a company comes up with its Machine Hour Rates, the profitability based on this measure can be quite different from the ROI. It is possible to have a high ROI and a low profit, and the opposite is also true. You can have a low ROI and a high profit.
A new machine purchase should be considered from both standpoints. Do an ROI analysis, then also look at the projected profitability based upon the measures your company uses, which for most companies involves a Machine Hour Rate. Although one will probably be higher than the other, if both are acceptable, then the machine purchase is worth considering.
While the ROI analysis method has traditionally been used to analyze high-volume multiyear 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.
In conclusion, justifying the higher purchase price of CNC multispindle equipment of the type offered by our company is a logical, cost-based process. Price should not be the only consideration; also consider the tooling cost, the labor cost, and the cost of material handling. Shops that understand this approach know that multispindle technology provides a much easier way to produce higher volumes of precision-machined parts, are less dependent on labor, and have higher quality output because parts drop off the machine complete, without requiring secondary operations. These same observations also apply, of course, to other types of flexible manufacturing equipment that deliver lower-volumes of complete parts, such as mill-turn machines and Swiss-turn machines.
This article was first published in the December 2007 edition of Manufacturing Engineering magazine.