Dollars and Sense: How a focus on profitability and productivity can sharpen the competitive edge of American manufacturing

How do you aim to reduce the cost of your machining process? If you are like most, tools, coolant and other perishable inputs take center stage. While these elements are an important consideration, there’s another alternative that can have a far greater impact.

The challenge of keeping American manufacturing competitive in today’s global economy is serious. Low-cost emerging markets present a tempting substitute to domestic production; a focus on fixed costs, however, can generate substantial productivity gains that make it easier to choose U.S. production.

The typical economic breakdown of a machined component is as follows: 25 percent variable costs (tooling, coolant and material); 55 percent fixed costs (real estate, equipment and labor); and 20 percent profit.

To increase the profit margin, manufacturers must create more components in the same amount of time, on the same equipment. By doing this, manufacturers only incur increased variable costs. Involving cutting tool experts early in the machine investment process—or, if the process is already in production, inviting experts in to help with optimization—manufacturers can reach this goal.

While the above cost breakdown assumes the sale of the additional components, it’s easy to see how producing more with existing investments can have a far greater impact on profitability than simply choosing cheaper inputs—a strategy that low-cost foreign markets typically rely on.

While cutting tools represent only 3 to 6 percent of the cost of typical metal component production, the proper planning and application of cutting tools and production logistics and machining strategies can lower overall production costs by as much as 50 percent.

This is what the upcoming imX event is all about: addressing the challenges that American manufactures face through education, interaction and networking. As a proud imX partner, Sandvik Coromant has seen firsthand how the application of this knowledge can fuel the engines of growth—making global competition far less daunting.

If you would like to hear more about this topic, be sure to visit our Learning Lab and attend the “Production Dollars and Sense” session, happening every day from 2 – 2:45 p.m.

By Mike Verkamp, Director of Business Services and presenter of Production Dollars and Sense