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Determining the Cost of Welding - Part 2

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Determining the Cost of Welding - Part 2

Duane K. Miller | Apr 1, 2004 12:00 PM

The final part of this series describes how the operating factor affects per length and per weight computations. Companies that understand these welding economics and the added value of technology can successfully compete in global and domestic markets.
Duane K. Miller, Sc. D., P.E., The Lincoln Electric Company In Part 1, w e described three methods of computing w elding costs: cost per piece, cost per length, and cost per w eight. Theoretically, the resultant calculations should all yield the same values. This is not typically the case, how ever, because each method uses different variables, and makes different assumptions. To illustrate, the per piece methodology does not use the operating factor variable, w hereas the other tw o methods do. If the operating factor is incorrect, the per length and per w eight computations w ill be flaw ed, but the per piece cost w ill not be affected by this error. The Effects of Selecting the Wrong Methodology A common error is to use the per w eight method for small, single pass w elds.

Overhead costs usually include indirect labor, plant, and equipm ent costs. Som e m anufacturers w ill also include electricity, Consider Case 1: A 1 /4 in. fillet w eld is made w ith a w elding process depositing 10 lb./hr. The travel speed is com pressed air, and general m aintenance. 13 in./min. A labor and overhead (L&O) rate of $45/hr. and an operating factor of 30 percent is assumed. Considering only the L&O portion of the cost, the equation from Part 1 of this article is: The per w eight method is highly dependent upon the w elding deposition rate. Regardless of the w eld type, it is possible to calculate the w eight of w eld metal for a given length of w eld. Add up the lengths of w elds on an assembly, convert the lengths to w eights, and the cost to w eld that assembly can be determined. This approach, how ever, may incorporate faulty assumptions. L&O Cost/lb. = (L&O rate)/{(deposition rate) x (operating factor) = ($45/hr.)/{(10 lb./hr.) x (0.30)} = $15/lb. The approximate w eight per foot of a convex 1 /4 in. fillet w eld is 0.155 lb./ft. Therefore, the cost per foot of this w eld can be calculated as follow s: Cost per length = (Cost per weight) x (Weight per ft.) = ($15/lb.) x (0.155 lb./ft.) = $2.325/ft. In Case 2, the cost per length method w ill be used. Again, only the labor and overhead cost w ill be considered. The applicable equation is: L&O cost/length = (L&O rate)/(travel speed)(operating factor) = ($45/hr.)(1 hr./60 min.) / (13 in./min.)(0.30) = $0.1923/in. or $2.308/ft. This compares nicely (only a 1 percent difference) w ith the previously computed $2.325/hour. Case 3 assumes that productivity improvements can increase the deposition rate to 20 lb./hr. This is a 100 percent increase in productivity, w hich should result in a 50 percent reduction in the cost of the w eld. Plugging 20 lb./hr. into the above formula, the cost per pound drops to $7.50, and the cost per foot to $1.163. For Case 4, the cost per length method w ill be used. A measure of the travel speed show s the new rate is 18 in./min. Inserting this value into the above equation results in a computed cost of $1.667/foot. Compared to the per w eight value of $1.163/foot, the cost per length method predicts a cost that is 43 percent higher. Where's the error, and w hich one is right? The operating factor is used to account for The problem is that w hile the deposition rate doubled (from 10 to 20 lb./hr.), the travel speed increased only w elding-related 38 percent (from 13 to 18 in./min.). The fillet w eld w eight per length increased from a close-to-the-mark 0.1538 lb./ft. to 0.2222 lb./ft. This could be the result of excessive convexity, or a slightly larger size, but the activities. This includes obtaining parts, loading 44 percent increase in w eight per length can easily go undetected. parts into fixtures, In reality, despite the 100 percent increase in deposition rate, productivity did not double. The labor cost of rem oving slag from w elding decreased, but in the realm of 28 percent, not 50 percent. w elds, and m ore. Significant errors can Overw elding is a common and costly error, w hich can easily go undetected w hen costs are computed using be introduced w hen it the per w eight method. Since the cost per piece and the cost per length methods do not rely on deposition is assum ed operating rate, it is not necessary to assume a w eld w eight per length. factors rem ain constant. Usually, m ost
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Determining the Cost of Welding - Part 2

Note: The w elding procedures in the examples, as w ell as specific numerical values used or labor and overhead cost and for the w elding materials are illustrative only. They are not presented as accurate for any specific application, and are intended only to demonstrate cost computations. Tip: Select the cost calculation method that most directly measures the important cost variables for the specific application. Im pact on Overhead Costs Overhead usually includes indirect labor, plant, and equipment costs. Some manufacturers w ill include electricity, compressed air, and general maintenance. For most, overhead costs exceed direct labor costs, by factors of tw o or three times, or more.

changes that reduce w elding tim e actually increase the operating factor.

Decreases in direct labor, how ever, may not result in decreases in overhead costs. In the previous examples, the $45/hr. labor and overhead rate may have accounted for $20 in direct labor cost, and $25 in overhead costs. In Case 2, the labor and overhead cost w as $2.325 per foot. Of that cost, 44 percent or $1.033 is the direct labor cost, and the remaining $1.292 is overhead cost. To cover labor and overhead, the manufacturer must consider $2.325 in cost w hen establishing the selling price of that foot of w eld. Next, let's assume a change in w elding procedure is implemented, increasing the travel speed to 18 in./min., and that the w eld size remains unchanged (e.g., no overw elding). The Case 4 computation show ed the cost decreasing to $1.667 per foot. Of that cost, 44 percent is still direct labor ($0.733) and the remainder is overhead ($0.934). The direct labor content has obviously decreased, given the higher travel speeds. More product can be made in a given time, so a direct labor reduction from $1.033 to $0.667, or $0.366 per foot can be expected. But, the same computation suggests the overhead cost per foot has decreased from $1.292 to $0.934. Has the overhead cost per piece actually gone dow n? Let's consider tw o extreme situations. In the first example, the plant has the capacity to make more product, but the w elding operations are the bottleneck. When the w elding time decreases by 28 percent, 38 percent more product can be made, and w ithout a larger plant or a larger w orkforce. Nothing changes, except 38 percent more product starts to flow out of the plant. In this extreme and unlikely situation, fixed overhead costs can be spread out over 38 percent more product, resulting in decreased overhead cost per piece. At the other extreme, the bottleneck to greater company throughput is, let's say, the painting booth. An improvement in the w elding operations enables the w elding to be performed quicker, and the w elder w ho normally has 8 hrs, of w elding to do per day can now do the same amount of w ork in about 5.8 hours. During the other 2.2 hours, the w elder is assigned to do other productive w ork. The direct labor costs associated w ith the w elding operation have decreased, but plant overhead costs have not been reduced. Thus, there are no savings in overhead. In this situation, it is w ise for the manufacturer to consider only the direct labor savings w hen analyzing w elding costs. Tip: When evaluating the effect on overhead costs, ask: Will the changes in the w elding operations affect the company throughput? Operating Factor The operating factor is used in the cost per length and the cost per w eight methodologies. It is used to account for w elding related activities for w hich the w elder is responsible, but that do not directly involve w elding. These activities may include obtaining parts, loading parts into fixtures, removing slag from w elds, etc. Significant errors are introduced w hen operating factors are assumed to re-main constant. In fact, most changes that reduce w elding time w ill actually increase the operating factor. Let's examine w hy this is the case. Case 5 w ill consider a w elding cycle that consists of the follow ing: 1. 2. 3. 4. 5. 6. 7. 8. Obtain parts from bins 22 sec. Load parts in fixture 45 sec. Make w eld #1 18 sec. Reposition fixture 8 sec. Make w eld #2 18 sec. Chip slag from tw o w elds 10 sec. Unload part from fixture 13 sec. Place w elded part in bin 10 sec. Total Cycle Time = 144 sec.

The w elding portion of this cycle is 18 + 18, or 36 sec., and the percentage of time w hen w elding is being performed is 36/144 seconds, or 25 percent. Therefore, the operating factor is 25 percent. The cost per unit method should be used for this application, but let us assume the cost per length method is used instead. For this method, it is necessary to know the travel speed, and the length of the w elds. The travel speed is 12 in./min., and the w elds are 3.5 in. long. Thus, the time to make the w elds should be (3.5 in.)/(12 in./min.), or 0.29 minute (17.4 sec.). The measured value of 18 seconds per w eld compares nicely to the calculated theoretical time (3.4 percent difference). Using the equations presented in Part 1 of this article, w e obtain the follow ing (only the labor portion of the cost w ill be considered in this example): L&O cost/length = (L&O rate)/(travel speed)(operating factor) = ($45/hr.)/(12 in./min. x 60 min./hr. x 1 ft./12 in.)(25%) = (45)/(60)(0.25) = $3/ft.
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Determining the Cost of Welding - Part 2

Since each part contains tw o w elds at 3.5 in. each, then there is 7/12 or 0.58 feet of w eld per part. Thus, each part costs 0.58 foot x $3/foot, or about $1.74 per piece for Case 5. Case 6 considers changes from Case 5, w here the w elding speed increases from 12 in./min. to 18 in./min. Plugging the different value into the formula above, the follow ing is obtained: L&O cost/length = ($45/hr.)/(18 in./min. x 60 min./hr. x 1 ft./12 in.)(25%) = (45)/(90)(0.25) = $2/ft. That seems intuitively correct the w elding speed w ent up by 50 percent, so the labor portion of w elding costs should go dow n by 33 percent. But the facts w ill show something quite different. Consider a new w elding cycle time, as follow s: 1. 2. 3. 4. 5. 6. 7. 8. Obtain parts from bins 22 sec. Load parts in fixture 45 sec. Make w eld #1 12 sec. Reposition fixture 8 sec. Make w eld #2 12 sec. Chip slag from tw o w elds 10 sec. Unload part from fixture 13 sec. Place w elded part in bin 10 sec. Total Cycle Tim e = 132 sec.

The bolded items are the changes that have occurred due to the increased w elding speeds. Now , to make the 3.5 in. w eld, the time is (3.5 in.)/(18 in./min.) or 0.194 minutes (11.6 sec., rounded to 12 sec.). The cycle time has decreased from 144 to 132 seconds, reflecting improved productivity. The new operating factor is 24/132 seconds, or 18 percent. The decrease in w elding time, w hile all the nonw elding operations remained constant, actually resulted in a decrease in the operating factor. If the new , decreased operating factor w ere used in the above computation, the cost per length is determined as follow s: L&O cost/length = ($45/hr.)/(18 in./min. x 60 min./hr. x ft./12 in.)(18%) = (45)/(90)(0.18) = $2.78/ft. The cost per length has decreased 9.3 percent from $3/ft. to $2.78/ft. versus the previously calculated 33 percent decrease. Tip: Carefully evaluate the impact of the proposed change on the operating factor. Some changes w ill decrease this variable, others w ill increase it. Actual vs. Theoretical Results This situation is simple: the manufacturing specifications call for w elds to be made w ith a travel speed of 18 in./min. When the part and the w elding cell w ere new , this travel speed w as used. With time, how ever, "things" changed. The tooling for making the part w ore and fitup isn't w hat it used to be. The fixture is a bit sloppier because of spatter accumulation. The brand and type of filler metal used has changed, and even though the AWS classification is the same, the new electrode doesn't run quite the same as before. And the new operator doesn't have the same skills as the veteran w ho w as previously on the job. To compensate for these changes, the travel speed w as incrementally decreased from 18 in./min. to 12 in./min. It is unlikely, how ever, that the manufacturing standards have ever been changed, and less likely that anyone has recalculated the w elding costs. Thus, the actual costs are significantly higher. Why? Because w hat is actually being done in production differs from the manufacturing specifications. The solution, of course, is to get production back to the 18 in./min. rate. Perhaps the tooling w ill need to be rew orked, and the fixture rebuilt. Maybe the low er-cost electrode is really not the bargain it promised to be. Perhaps the w elder needs some more training. In reality, incremental declines in productivity occur all the time, and unfortunately, such changes often go undetected for years. Digital communication technology can help manage this challenge. Today, w elding cells throughout a plant can feed data to a central location, providing almost instantaneous feedback about w elding operations. The data from plants in other locations, including overseas, can be monitored and used to ensure that manufacturing standards are being met in actual operations. The greatest potential of digital technology lies in using it to maintain and control w eld quality. Tip: Make sure the data used for cost computations reflect reality. Assum ptions Regarding the Labor Content of Welding Costs Although the time associated w ith w elding operations and the w ages paid to skilled personnel typically dominate w elding costs, there are exceptions that reverse the typical trend. Failure to consider the potential impact of non-labor costs in unique situations can lead to faulty conclusions. One example is an application requiring high-cost alloy electrodes. Let's use the cost per w eight example from Part 1 of this article, in w hich labor and overhead contributed $3.516/lb. to the cost, w hile w elding consumables added $1.70/lb. Of the total cost of $5.216/pound, 67 percent w as labor and overhead. This accurately reflects a particular automatic application that used high deposition rates, but most semiautomatic and manual w elding applications w ill have labor contents closer to 85-90 percent. Instead of a mild steel electrode costing $0.80/lb., an alloy electrode costing $10/lb. is required. With the assumption everything else is the same, the consumable cost is now $10.90/lb., raising the total to $14.41/lb. of deposit. The consumable cost is now 75 percent of the cost of w elding not unusual w hen expensive alloys are required. The second example considers the impact of the operating factor. Again, the cost per pound example from the first part of this article w ill be used for comparison. In that example, a 40 percent operating factor w as assumed. Table 1 show s w hat happens as the operating
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Determining the Cost of Welding - Part 2

factor is varied from 10 percent to 90 percent, all other factors remaining the same. For low er operating factors, the labor content is a more significant portion of the cost, but as the operating factor increases, this percentage decreases. For highly automated operations, the labor content becomes less significant w hile material cost accounts for a greater proportion of the overall cost. Conclusion As Peter Drucker said, "If you can't measure it, you can't manage it." Manufacturers w ho use w elding in their operations must know how to calculate and track w elding costs. The real pow er in capturing w elding cost data is that it enables the innovative manufacturer to evaluate alternate means of fabrication, incorporating new technologies to reduce w elding costs, w hile maintaining or improving the quality of the w elded product. When this is done, the promise of the AWS/EWI study cited in last month's article w ill be realized: Companies w ith an understanding of w elding economics and the value added by technology can and w ill compete successfully in domestic and global markets. Operating Factor 10 20 30 40 50 60 70 80 90 Labor and Overhead percent of Total Cost 89 81 73 67 62 58 54 51 48

Duane Miller is the manager of engineering services for The Lincoln Electric Company, Cleveland, OH.

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