LIFE CYCLE COST. Marcus Bengtsson
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1 LIFE CYCLE COST Marcus Bengtsson
2 History Five years to remember
3 Today, we manufacture strategic drivline components, transmissions and axles Volvo has an unbeatable advantage with its own in-house developed drivetrains designed for optimal performance
4 Processing of material The factory in Eskilstuna is on of Europe s largest plant that performs machine processing Over 400 different machines performs processing of cast and forged material. For example: turning, milling, drilling etc. The factory is built of separate departments called Cells where either processing or assembly takes place. The factory contains of 32 cells
5 Assembly of components The factory contains of 8 line assemblys - 4 where we manufacture axles - 3 where we manufacture transmissions - 1 where we manufacture PTO (Power Take Out) Line assembly contains of standard structure which provides a standard way of working Each line contains of different stations and a standard pace
6 LCC Definitions 1. LCC is a measure of a systems or equipments total economical consequenses during its entire life cycle 2. LCC is a comparative measure for a systems or equipments total economical consequenses during its entire life cycle where some simplifications and omissions have been performed in order to make the calculation easier Source: Wååk,
7 Life cycle cost LCC Product price Automation Education and training Spare parts Quality Washing fluids Tools Rent Logistics Maintenance Personnel Programming Scrapping Overtime cost
8 LCC Objective To enable investment options to be more effectively evaluated To consider the impact of all costs rather than only initial capital costs To assist in the effective management of completed buildnings and projects To facilitate choice between competing alternatives Source: Woodward,
9 Theoretical model 100% 95% 85% 65% 50% Tied up cost in future LCC Cost outcome 20% 5% 10% Planning/ concept design System design Detailed design Manufacturing Use Time Source: Hagberg and Henriksson,
10 Theoretical model CAPEX Capital cost OPEX Operational cost Development cost Investment cost Acquisition Operations cost Design Operations + planned maintenance Scrapping Investigation Corrective maintenance + Safety + Environment + Production loss = Non-reliability cost = Risk Construction Time (years) Source: Márquez et.al.,
11 LCC procedures 1. Establish operating profile 2. Establish the utilisation factors 3. Identify all the cost elements 4. Determine the critical cost parameters 5. Calculate all costs at current prices 6. Escalate current costs at assumed inflation rates 7. Discount all costs to the base period 8. Sum discounted costs to establish the net present value (NPV) Sources: Kaufman in Woodward,
12 Discounting methods in investment calculations Payback method Annuity method Net present value (Internal rate of revenue)
13 Payback method r n r 3 r 2 r 1 r 1 r 2 r 3 r n Y1 Y2 Y3 Yn C A T = C A r
14 Payback method Example: Machine price: SEK Capacity: details/year Selling price: 62,5 SEK/detail Operator salary: SEK Operating costs: SEK/year Economic life: 5 years Residual value: SEK Interest rate: 10% T = C A r C A = SEK Rev = x 62,5 = SEK/year Cost = = SEK r = = SEK/year T = = 2,86 years
15 Payback method Even though the payback method is rather simplified, many companies use it at least as a method for a first assessment of the profitability of an investment. Also, the payback method is a rapid method for assessment of feasibility in pre-studies
16 Annuity method S (1+i) n S r 1 r 2 r 3 r n Y1 Y2 Y3 Yn S C C C C C A C = C A - S (1+i) n x i x (1+ i) n (1+i) n
17 Annuity method Example: Machine price: SEK Capacity: details/year Selling price: 62,5 SEK/detail Operator salary: SEK Operating costs: SEK/year Economic life: 5 years Residual value: SEK Interest rate: 10% C = C A - S (1+i) n x i x (1+ i) n (1+i) n -1 C A = SEK S = SEK Rev = x 62,5 = SEK/year Cost = = SEK r = = SEK/year i = 10% C = x (1+0,1) 5 0,1 x (1+ 0,1) 5 (1+0,1) 5-1 = 256 < 350 => Profit = SEK /year
18 S (1+i) n r n (1+i) n Net present value r 2 (1+i) 2 r 1 (1+i) r 1 r 2 r 3 r n S Y1 Y2 Y3 Yn C A NPV = r -C A (1+i) r 2 (1+i) r n (1+i) n + S (1+i) n NPV = (1+ i) -C A + r x n -1 + ix (1+i) n S (1+i) n
19 Net present value Example: Machine price: SEK Capacity: details/year Selling price: 62,5 SEK/detail Operator salary: SEK Operating costs: SEK/year Economic life: 5 years Residual value: SEK Interest rate: 10% NPV = (1+ i) -C A + r x n -1 + ix (1+i) n S (1+i) n C A = SEK S = SEK Rev = x 62,5 = SEK/year Cost = = SEK r = = SEK/year i = 10% (1+ 0,1) NPV = x + = SEK 0,1 x (1+0,1) 5 (1+0,1)
20 LCC vision To develop a model that provides best balance between usability and accuracy
21 LCC model Expected cost per cost allocation and year are entered into the document. Account is taken to: - Aquisition cost (incl project cost) - Maintenance cost - Operations cost - (Down time cost) Project cost Machine/equipment Tools Spare parts Installation Renovation Education/training Maintenance - wages - external services - spare parts Rent/space Energy Media/emulsions Employee cost (wages) - operators - measuring technicians - prod. eng
22 LCC testing of the model The test was performed with a cross-functional group, representatives from Production engineering Maintenance Engineering Logistics Production (Finances & Purchasing)
23 LCC testing of the model Makino a92 Machining center Located in a production cell with 5 similar machines, all are served from a FMS and cooling system In order to simplify, the test have been performed as the machine was a stand alone machine
24 LCC testing of the model In the test, the maintenance cost where extracted from the maintenance system for three similar machines and for five years, an average was then calculated and used in the model
25 NPV and total cost
26 LCC testing of the model Machining center, todays production volume Washing fluid vs Energy Maintenance vs Tools Wages vs Machine Rent vs Project MSEK 15 year horizon
27 LCC testing of the model Machining center, projected production volume Project Wages Machine Maintenance Washing fluid Tools MSEK 15 year horizon Energy Rent
28 LCC use of the model Two gear hobbing machines in dire need of remanufacturing or replacement due to old control system Flow according to blue arrow 1. Turning 2. Broaching operation 3. Gear Hobbing 4. Deburring/Shaving/Washing 5. Manually loading on hardening fixtures
29 LCC use of the model Three alternatives exists: 1. Replace the two machines with another used machine 2. Optimize process (replace as alt 1 + redesign production cell + purchase and install robot) 3. Remanufacture the two old machines Cost for the alternative: % % %
30 LCC use of the model Three alternatives exists:
31 LCC use of the model
32 Life cycle cost down side (only takes into consideration cost, not profit) Cost of ownership Total cost Purchase price Operating cost Source: Woodward,
33 Life cycle cost / Life cycle profit SEK OEE Maximum income Maximum resource utilization 100% Life cycle loss Losses Life Cycle Profit 90% 80% 70% Increase life lenght Life Support Cost Life cycle cost Life Operation Cost Aquisition cost Time Sources: Hans Ahlmann LTH, Per-Erik Johansson DIS
34 Life cycle cost / Life cycle profit Stable market, stable Income/cost OEE Booming maket, 1 Income/cost OEE volumes 2 increasing volumes Life Cycle Loss Life Cycle Loss Life Cycle Profit Life Cycle Profit Life Cycle Cost Life Cycle Cost Time Time 3 Income/cost Recession, decreasing volume OEE Life Cycle Loss Life Cycle Profit Life Cycle Cost Time Source: Ahlmann,
35 LCC in academic publications Number of LCC/TCO case studies published in Scopus Source: Bengtsson and Kurdve,
36 LCC useful links
37 References Ahlmann H. Maintenance effectiveness and economic models in the terotechnology concept. Maintenance Management International; 1984; 4: Bengtsson, M. Kurdve M. Machining Equipment Life Cycle Costing Model with Dynamic Maintenance Cost. 23rd CIRP Conference on Life Cycle Engineering, 2016, Hagberg L, Henriksson T. Underhåll i världsklass (in Swedish). 1st ed. Lund: OEE Consultants; Márquez AC, de León PM, Fernández G, Márques CP, Campos ML. The maintenance management framework A practical view to maintenance management. J of Quality in Maintenance Eng., 2009; 15.2: Woodward DG. Life cycle costing-theory, information acquisition and application. Int J of Project Management; 1997; 15.6: Wååk, O. LCC Ett beslutsverktyg som ger effektivare tekniska utrustningar med lägre totalkostnad (in Swedish). Systecon Luleå University, Sweden
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