Machining Economics - 1

ver. 1

ME 6222: Manufacturing Processes and Systems 1

Prof. J.S. Colton © GIT 2011
 Overview

• Machine operation costs

• Single point tool costs
• Shop Practice
• Economic lot size
• Equipment replacement

ME 6222: Manufacturing Processes and Systems 2

Prof. J.S. Colton © GIT 2011
 Japanese Manufacturing Cost Structure
Machine tool company Automotive parts company

• Material costs 49% • Machinery 25%

• Personnel 16%
– Manufacturing 10% • Personnel 30%
– Other 6% • Tooling 10%
• Sales 4% • Cutting oil 5%
• Depreciation 8%
• Electricity 10%
• R&D (including
personnel) 6% • Other 10%
• Other 9% • Profit 10%
• Profit 8%

ME 6222: Manufacturing Processes and Systems 3

Prof. J.S. Colton © GIT 2011
 Machine operation costs

• Fixed
• Direct
• Indirect

ME 6222: Manufacturing Processes and Systems 4

Prof. J.S. Colton © GIT 2011
 Annual fixed costs per year (Cf)

 C B  T  I 
C0
Cf 
l

• Co = machine tool purchase cost

• l = machine life in years
• CB = book value of machine
• T = taxes and insurance rate
• I = interest rate
ME 6222: Manufacturing Processes and Systems 5
Prof. J.S. Colton © GIT 2011
 Accounting Convention
• Taxes, insurance, and interest
assessed at the end of the year on
the value at the beginning of the
year.

1  A 1 
C f  Co    1    T  I 
l  l  

• A = age of machine
ME 6222: Manufacturing Processes and Systems 6
Prof. J.S. Colton © GIT 2011
 Average Costs
• Average tax, insurance, and interest
rates over the life of the machine.
1 
C f  Co    TA  I A 
l 
T  l 1 I  l 1
TA     IA   
2  l  2  l 

• TA = average annual tax and insurance rate

• IA = average annual interest rate
ME 6222: Manufacturing Processes and Systems 7
Prof. J.S. Colton © GIT 2011
 Annual direct costs per year (Cd)

• Attributable to a particular operation:

– labor
– materials
– power
– set-up
• We’ll look at later.

ME 6222: Manufacturing Processes and Systems 8

Prof. J.S. Colton © GIT 2011
 Indirect (or Overhead) costs

• Machine • Building costs

maintenance – depreciation
• Material handling – interest
• Engineering – taxes
– insurance
• Inspection
– heat
• Office help – light
• Administration – ventilation

ME 6222: Manufacturing Processes and Systems 9

Prof. J.S. Colton © GIT 2011
 Indirect (or Overhead) costs

• Handled as a percentage (B)

of direct costs.

ME 6222: Manufacturing Processes and Systems 10

Prof. J.S. Colton © GIT 2011
 Hourly machine costs (CH)

 Co 
CH     D  TA  I A  M A   n  L  1  B 
H

• H = hours of use per year

• D = annual depreciation (= 1/l)
• MA = average annual maintenance rate
• n = number of operators per machine

ME 6222: Manufacturing Processes and Systems 11

Prof. J.S. Colton © GIT 2011
Machine operation cost per piece (Cp)
Single point tool
Cp = Cm + Ci + Cs + Cc + Cg + Cr
• Cm = machining cost
• Ci = idle cost
• Cs = set-up cost
• Cc = tool changing cost
• Cg = tool and regrinding costs
• Cr = raw material cost
ME 6222: Manufacturing Processes and Systems 12
Prof. J.S. Colton © GIT 2011
 Machining Cost (Cm)

Cm = tm x Rm

• tm = machining time / piece

• Rm = fully burdened labor rate
= Lm x (1+Bm)
• Lm = labor rate
• Bm = overhead (burden) rate

ME 6222: Manufacturing Processes and Systems 13

Prof. J.S. Colton © GIT 2011
 Idle cost (Ci)

Ci = ti x Rm

• ti = idle time/piece

• loading, unloading, adjusting

speeds, feeds, personal breaks,
etc.

ME 6222: Manufacturing Processes and Systems 14

Prof. J.S. Colton © GIT 2011
 Set-up cost (Cs)

Cs = ts x Rs / Ns

• ts = set-up time
• Rs = fully burdened set-up labor rate
= Ls x (1+Bs)
• Ns = number of pieces made per set up

ME 6222: Manufacturing Processes and Systems 15

Prof. J.S. Colton © GIT 2011
 Tool changing cost (Cc)

Cc = tc x Rm x (tm / T)

• tc = tool changing time

• tm = machining time per piece
• T = tool life

ME 6222: Manufacturing Processes and Systems 16

Prof. J.S. Colton © GIT 2011
 Tool and regrinding costs (Cg)

Cg = [tg x Rg + Dg] x (tm/T)

• tg = tool regrind time

• Rg = fully burdened regrind labor rate
= Lg x (1+Bg)
• Dg = cost per tool edge
– regrind = tool cost  # permissible regrinds
– insert = tool cost  # edges
ME 6222: Manufacturing Processes and Systems 17
Prof. J.S. Colton © GIT 2011
 Raw material cost (Cr)

• We saw how to handle it in the

economics module.

Cr = CM = [Part weight + Scrap weight x (1-S)]

x Cost/weight

S is the “salvage” value of the scrap

ME 6222: Manufacturing Processes and Systems 18

Prof. J.S. Colton © GIT 2011
 Total cost per piece (Cp)

Cp = tm x Rm
+ ti x Rm
+ ts x Rs/Ns
+ tc x Rm x (tm/T)
+ [tg x Rg + Dg] x (tm/T)
+ Cr

ME 6222: Manufacturing Processes and Systems 19

Prof. J.S. Colton © GIT 2011
 Machining time (tm)
• For a turning operation:

tm = L/fN

• L = axial length of cut

• f = feed rate [ipr]
• N = V/pD [rpm]
• VTn = C
ME 6222: Manufacturing Processes and Systems 20
Prof. J.S. Colton © GIT 2011
 Cost per piece (Cp)

 π  L  D  V 1 
Cp     Rm  ti  Rm
 f 
 1
1 
 Rs   π  L  D V n 
 t s     tc  Rm   1 
 Ns    
 
n
f C
 1
1 
 π  L  D V 
 t g  Rg  Dg  
n

1   Cr
  
 
n
f C
ME 6222: Manufacturing Processes and Systems 21
Prof. J.S. Colton © GIT 2011
 Optimization
• Vcm = cutting velocity for the
minimum cost per piece
• Tcm = tool life for minimum cost
per piece
or
• Vtm = cutting velocity for
maximum production rate
• Ttm = tool life for maximum
production rate
ME 6222: Manufacturing Processes and Systems 22
Prof. J.S. Colton © GIT 2011
 Cost components
Total

Tool changing

Min Tool
COST

Machining
Raw material
Material handling

CUTTING VELOCITY

ME 6222: Manufacturing Processes and Systems 23

Prof. J.S. Colton © GIT 2011
 Minimum cost cutting velocity (Vcm)
C p  Cp
2
• Calculate 0 0
V V 2
C  Rmn
Vcm  n
 1 
 
  1  tc  Rm  t g  Rg  Dg  
 n  

ME 6222: Manufacturing Processes and Systems 24

Prof. J.S. Colton © GIT 2011
Minimum cost tool life (Tcm)

Tcm

 1  tc  Rm  t g  Rg  Dg
   1 

n  Rm

ME 6222: Manufacturing Processes and Systems 25

Prof. J.S. Colton © GIT 2011
 Production time (tp)

tp = tm + ti + ts/Ns + tc x (tm/T)

• Note: tool regrinding and material

costs do not contribute time.

ME 6222: Manufacturing Processes and Systems 26

Prof. J.S. Colton © GIT 2011
 Maximum production rate
(minimum production time)
t p  2t p
• Calculate 0 0
V V 2

C
Vtm  1 
 1  
n Ttm    1  tc
  1  tc  n 
 n  

ME 6222: Manufacturing Processes and Systems 27

Prof. J.S. Colton © GIT 2011
 Note:

• S (V), f are typically discrete, not

continuous, variables.

ME 6222: Manufacturing Processes and Systems 28

Prof. J.S. Colton © GIT 2011
 Cutting cost - Ex. 1-1

For the following cut, determine the

velocity for the minimum cost (Vcm)
and for the maximum production
rate (Vtm) per piece using a HSS
tool.

ME 6222: Manufacturing Processes and Systems 29

Prof. J.S. Colton © GIT 2011
 Cutting cost - Ex. 1-2

• f = 0.008 ipr • Number of regrinds

• d = 0.075” per tool = 15
• Lm = $13/hr • tg = 3 mins
• Bm = 115% • tc = 2 mins
• Lg = $10/hr • VT0.1 = 175
• Bg = 120% – V = ft/min
– T = min
• Tool cost = $3.75
• ti = 1.5 mins/part

ME 6222: Manufacturing Processes and Systems 30

Prof. J.S. Colton © GIT 2011
 Cutting cost - Ex. 1-3
• Rm = (13.00 (1+1.15)) / 60
= $0.466/min
• tc = 2 mins
• tg = 3 mins
• Rg = (10.00 (1+1.2)) / 60
= $0.366/min
• Dg = 3.75/15 = $0.25/edge

ME 6222: Manufacturing Processes and Systems 31

Prof. J.S. Colton © GIT 2011
 Cutting cost - Ex. 1-4

175  0.466 0.1

Vcm  0.1
 1  
  1  2  0.466  3  0.366  0.25
 0.1  
 120 sfpm

175
Vtm  0.1
 131 sfpm
 1  
  1  2
 0.1  

ME 6222: Manufacturing Processes and Systems 32

Prof. J.S. Colton © GIT 2011
 Cutting cost - Ex. 2-1
Suppose now you are using a carbide insert
with 8 edges, that costs $2.50. Do again.
• tc = 0.75 min
• VT0.2 = 400
• Rm = $0.466/min
• tg = 0
• Rg = $0.366/min
• Dg = $2.50/8 = $0.3125/edge

ME 6222: Manufacturing Processes and Systems 33

Prof. J.S. Colton © GIT 2011
 Cutting cost - Ex. 2-2

400  0.466 0.2

Vcm  0.2
 1  
  1  0.75  0.466  0.3125 
 0.2  
 283 sfpm

400
Vtm  0.2
 321 sfpm
 1  
  1  0.75
 0.2  

ME 6222: Manufacturing Processes and Systems 34

Prof. J.S. Colton © GIT 2011
 Cutting cost - Ex. 2-3
• HSS:
– Vcm = 120 sfpm
– Vtm = 131 sfpm
• Carbide
– Vcm = 283 sfpm
– Vtm = 321 sfpm

ME 6222: Manufacturing Processes and Systems 35

Prof. J.S. Colton © GIT 2011
 Cutting cost - Ex. 3-1
Now calculate the minimum costs for both
previous cases.

• Cr (material cost/piece) = $0.85

• Cs (setup cost/piece) = $0.05
• D (workpiece diameter) = 2.5”
• L (length of cut) = 10”

ME 6222: Manufacturing Processes and Systems 36

Prof. J.S. Colton © GIT 2011
 Cutting cost - Ex. 3-2
• For HSS tool:
• N = V / pD = 12 x 120 / 2.5p
= 183 rpm

• (T)0.1 = 175 / V = 175 / 120

• Tcm = 43.5 mins

– check
• tm = L/fN = 10/(0.008 x 183)= 6.83 mins

ME 6222: Manufacturing Processes and Systems 37

Prof. J.S. Colton © GIT 2011
 Cutting cost - Ex. 3-3

• Cm = tmRm
= 6.83 x 0.466 = $3.1831

• Ci = tiRm = 1.5 x 0.466 = $0.6990

• Cs = $0.05

ME 6222: Manufacturing Processes and Systems 38

Prof. J.S. Colton © GIT 2011
 Cutting cost - Ex. 3-4

• Cc = tcRm (tm/Tcm) =
2 x 0.466 x (6.83 / 43.5) = $0.1463

• Cg = [tgRg+Dg](tm/Tcm) =
[3 x 0.366 + 0.25] x [6.83 / 43.5] =
$0.2117

• Cr = $0.85
ME 6222: Manufacturing Processes and Systems 39
Prof. J.S. Colton © GIT 2011
 Cutting cost - Ex. 3-5

• Cp = 3.1831 + 0.6990+ 0.05

+ 0.1463 + 0.2117 + 0.85
= $5.14 / piece

ME 6222: Manufacturing Processes and Systems 40

Prof. J.S. Colton © GIT 2011
 Cutting cost - Ex. 3-6

For the carbide insert:

– only Cm, Cc and Cg differ

ME 6222: Manufacturing Processes and Systems 41

Prof. J.S. Colton © GIT 2011
 Cutting cost - Ex. 3-7

• N = 12 x 283 / 2.5p = 432 rpm

• T0.2 = 400 / 283

Tcm= 5.64 mins
– check
• tm = L/fN = 10/(0.008*432)= 2.89 mins

ME 6222: Manufacturing Processes and Systems 42

Prof. J.S. Colton © GIT 2011
 Cutting cost - Ex. 3-8

• Cm = 2.89 X 0.466 = $1.3484

• Cc = 0.75 x 0.466 x (2.89 / 5.64) =

$0.1793

• Cg = (0 + 0.3125) x (2.89 / 5.64) =

$0.1603

ME 6222: Manufacturing Processes and Systems 43

Prof. J.S. Colton © GIT 2011
 Cutting cost - Ex. 3-9

• Cp = 1.3484 + 0.6990+ 0.05

+ 0.1793 + 0.1603 + 0.85
= $3.29 / piece

ME 6222: Manufacturing Processes and Systems 44

Prof. J.S. Colton © GIT 2011
 Cutting cost - Ex. 3-10

• Cp(HSS) = $5.14 / piece

• Cp(carbide) = $3.29 / piece

• Note: HSS has

– higher Cm ($3.18313 vs. $1.3484)
– lower Cc ($0.1463 vs. $0.1793)
– higher Cg ($0.2117 vs. $0.1603)

ME 6222: Manufacturing Processes and Systems 45

Prof. J.S. Colton © GIT 2011
 Cutting cost - Ex. 3-11

• In this one case, we should cost the

entire tool to the one part.
• Cc = 0.75 x 0.466 x (1) = $0.3495
• Cg = (0 + 0.3125) x (1) = $0.3125
• Cp = 1.3484 + 0.6990+ 0.05
+ 0.3495 + 0.3125 + 0.85
= $3.61 / piece
ME 6222: Manufacturing Processes and Systems 46
Prof. J.S. Colton © GIT 2011
 Cutting cost - Ex. 3-12
HSS Carbide Carbide all
Vcm Vtm Vcm Vtm Vcm Vtm
N (rpm) 183 200 432 490 432 490
T (min) 43.5 18.1 5.64 3 5.64 3
Cm 3.1831 2.9125 1.3484 1.1888 1.3484 1.1888
Cc 0.1463 0.3218 0.1793 0.2972 0.3495 0.3495
Cg 0.2117 0.4655 0.1603 0.2657 0.3125 0.3125
Ci 0.699 0.699 0.699 0.699 0.699 0.699
Cs 0.05 0.05 0.05 0.05 0.05 0.05
Cr 0.85 0.85 0.85 0.85 0.85 0.85
Total ($) 5.14 5.30 3.29 3.35 3.61 3.45
ME 6222: Manufacturing Processes and Systems 47
Prof. J.S. Colton © GIT 2011
 Cutting cost - Ex. 3-12

• So, one should minimize the cost per

part, rather than maximize the
production rate.
• But, can you make enough parts to
meet demand? or do you need to add
shifts or equipment?

ME 6222: Manufacturing Processes and Systems 48

Prof. J.S. Colton © GIT 2011
 Cutting cost – Ex. 3-13

• Process is discrete
– fractions of a cut are lost in terms of time
and cost
• So what to do with lost tool cutting time?
– ignore
– add into cost
• distribute over whole cuts / tool

ME 6222: Manufacturing Processes and Systems 49

Prof. J.S. Colton © GIT 2011
 Summary

• Machine operation costs

• Single point turning costs
• Shop practice
• Economic lot size
• Equipment replacement

ME 6222: Manufacturing Processes and Systems 50

Prof. J.S. Colton © GIT 2011
ME 6222: Manufacturing Processes and Systems 51
Prof. J.S. Colton © GIT 2011