Forecasting life-cycle costs of high quality tools

Abstract

For decades scientists have analyzed globalized sourcing strategies and discussed their impacts on economies and businesses. Companies in the production field, in particular tool-makers in high-wage countries, are struggling to compete with companies from emerging markets. Due to lower costs for labor, energy and resources, tool-manufacturers from BRICS states offer tools at a lower price level. In reference to Porter, adapting a cost leadership strategy will not be sustainable for tool-makers from of high-wage countries. Thus their focus must be on providing higher tool quality and focus on new differentiation or segmentation strategies so as to retain a leading position in the global market. Within the 11th Transnational Collective Research Project Proposals (CORNET) program, the Laboratory for Machine Tools and Production Engineering (WZL) Aachen, Germany and its research partner IFT Vienna, Austria set up the “Total Efficiency Control” (TEC) project to focus on this topic. From the beginning in 2011 the TEC project has been supported by 14 German and Austrian tool manufacturers to enhance relevance. A Resource Consumption Calculation Tool (RCCT) was developed that allows the forecasting of total costs for tools over their entire life-cycle. The main aim is to enhance competiveness for tool manufacturers of high-wage countries by providing transparency regarding costs and quality. In a first step, a generic life-cycle for the tooling industry was defined and the major resource consuming factors were identified. These were subsequently broken down into 132 cost items. In close cooperation with the tool manufacturer 11 quality clusters were developed that define specifications of every tool clearly. Taking the cost items on the one hand and the quality clusters on the other hand allowed for the development of a two dimensional matrix showing elasticity's of the interdependencies between specifications and costs. The tool manufacturer involved with the project provided input to help define the elasticity's. Based on this matrix the RCCT shows that while higher quality tools have higher initial purchasing costs their costs in the utilization phase are lower due to e.g. less maintenance. Unfortunately the entire life-cycle costs are often not considered in the purchasing processes of the customer. The RCCT enables tool manufacturer to justify the price premium of high quality tools by demonstrating that the resulting lower costs during tool utilization make up more than 50% of the entire costs and therefore lead to a rapid amortization of the initial purchase price.