If your aluminum costs are sky high and you’re struggling to understand why, fear not! TigerStop has compiled a list of things you can do, or stop doing, to help you save big time on your raw material expenditures. Most items on the list are simple things that you can implement today to realize immediate savings. If your bottom line is hurting, and you feel like a slave to your aluminum supplier, then check out the below tips.
1. Get the price per pound of raw materials in your bill of materials.
If you sell your scrap aluminum by the pound but are pricing your extrusions in your purchase orders and BOMs by the foot, how do you determine your yield? You can’t. Say you have 1,000 linear feet of extrusions at $2.50 a foot. After you cut all of this material, you’re left with 500 pounds of scrap. What is the yield? Who knows?
The only way to really determine what you’re throwing away as scrap is to know how much per pound you’re paying for your extrusions and then calculating how many pounds go out to the recyclers. Make sure you price your BOMs and purchase orders by both the pound (kilo) and linear foot (meter). Then, when you sell your scrap each month, you can easily deduct its weight from the total weight of the material you used in the same period and get an accurate picture of your yield.
For example, if you used 50,000 lbs. of aluminum in a given month and 10,000 lbs. end up as scrap, you know you’re getting an 80 percent yield. Once you know your yield, you can work toward reducing scrap to improve your bottom line. If you can’t see a problem, you can’t fix it.
2. Stop looking at scrap as a source of revenue.
Most operators see the scrap number at the end of the month on their Profit and Loss statements as a revenue number. Well—it’s not. We cannot stress this more. Now that you’re purchasing and accounting for material by the pound, you can see your scrap number as a measure of inefficiency.
When you purchase by the pound, your aluminum costs are most likely in the range of $2.50 per pound. Typically, scrap brings in about $0.50 per pound. Therefore, the real cost of scrap is $2.00 per pound. So that 10,000 pounds of scrap you received $5,000 for is really $40,000 of lost profits. Not such a fun number now!
Let’s assume a scrap rate of 18 percent. For every 10,000 pounds of material, you’re losing 1,800 pounds, or $3,600! If you reduce your scrap rate from 18 percent to 12 percent, for a net savings of 600 pounds or $1,200 (keep reading to find out how!), you could put a net of $1,200 per 10,000 pounds directly on your bottom line. That’s a discount of close to 5 percent on your material costs.
How much do you spend in a year on aluminum? Would a 5 percent rebate be a pleasant surprise? To help get those savings, you should view your scrap rate as a trackable metric. Your monthly scrap percentage should be posted where every member of your organization can see it. Your percentage of scrap is a measure of overall organizational efficiency from the sales team all the way to the guy installing the job. Everyone needs to own and understand this number.
3. Stop returning defective materials to your supplier.
This is the absolute worst use of resources. Your operator has to take the piece of raw material, move it to a separate location, account for it, and notify purchasing. Purchasing then has to waste valuable time calling the vendor and getting an RMA. The show goes on and on. At the end of the day, it is you who pays for this.
Cut yourself a break. Lower your costs by discussing the real costs to both your operation and your vendors associated with returns. The defects you encounter in extrusions are typically:
- Drag from extruding
- Mar on exposed faces from either bad anodizing or mishandling
- Transportation damage
In 90 percent of the cases, it only affects a relatively small portion of the profile. It’s likely you can still cut parts from a defective profile. The remaining portion you throw into a vendor scrap bin. At the end of the month, you weigh the vendor’s scrap, he credits you an agreed-upon amount per pound on that material, and you keep the scrap. This will save both of you a bucket of money and actually end up with you getting compensated for some of your costs associated with their errors.
4. Use nesting software and optimize at the machine.
Many companies use software programs and their brightest manufacturing engineers to determine the best cutting orders and the maximum yield from their raw material. They send either paper or electronic cut lists directly to the cutting stations on the shop floor. The obvious reason for doing so is to reduce scrap waste.
Here at TigerStop, we call this pre-optimization. The problem with pre-optimization software is that it’s often batch-based, meaning it creates cutting patterns based on the entire job. One miscut part, one change in the field, or one shortage of a given raw material length disrupts the entire cut list and forces your engineering department right back into the back office to redo the optimization.
Now you have your best and brightest minds (most likely those who are paid the most) scrambling and working overtime to redo labor they have already performed. This also halts any activity at the cutoff or drilling station and affects all of the additional manufacturing processes down the line. Imagine this happening every single time there is a tiny hiccup on the shop floor.
Additionally, pre-optimization requires companies to track their inventory and drops/remnants. But the work to track and store these parts adds significant time, cost, and confusion to the operator’s day. Ultimately, pre-optimization systems do increase yield, but they simultaneously increase your labor costs.
Optimize Instead of Pre-Optimize
Optimization and the ability to cut around defects (forklift stabs, discoloration, mars, knots, etc.) and scan raw material lengths to maximize yield is available at the machine. An automated cutting and material positioning system, like an optimizing saw with nesting software available at the machine, gives you a better yield and lower labor and rework costs. It also eliminates the need to track remnants and raw materials and reduces the heavy costs associated with pre-optimization. That’s a whole lot of capability available at the operator’s fingertips. All your operator needs to do is remember “worst first.”
The bottom line: introduce your worst parts first, that is, remnants, defects, and drops, at the beginning of the cut list. Doing this will:
- Eliminate the need for your engineering department to do pre-optimization because it’s done at the saw without any added labor.
- Eliminate any bottlenecks. If there’s an issue in the field or a shortage of material, the operator can quickly solve it at the machine without the entire manufacturing process coming to a halt down the line.
- Eliminate the hassle of keeping track of drops and defective material—they’re placed in bins and used later on in the manufacturing process.
- Improve the overall raw material yield.
For the rest of the tips download the free guide today!