Expert Article

 Johannes Messer

Johannes Messer

Owner, Johannes Messer-Consulting GmbH

Article Series – Part 1 Key EBITDA Levers in the HPDC Industry: Tool Management

| Author/ Editor: Johannes Messer / Isabell Page

The first part of the article series highlights the importance of tool management for EBITDA and shows approaches for a short-term, sustainable and significant improvement in results.

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How important is tool management for EBITDA and how can results be improved quickly, sustainably and significantly?
How important is tool management for EBITDA and how can results be improved quickly, sustainably and significantly?
(Source: Pixabay / CC0)

Due to increased customer requirements, an extension of the value added depth, flexibility and internationalization the requirement profile for the foundries has changed significantly. New opportunities but also risks have arisen.

What are the key EBITDA levers in the HPDC industry?
What are the key EBITDA levers in the HPDC industry?
(Source: Johannes Messer Consulting GmbH)

The subject of tool management, as one of the most important influence levers on the company result, has gained importance in this context as well. This article focuses on the areas of tool procurement costs, tool repair costs and OEE losses in the foundry (tool repair times). The existing "EBITDA levers" are of existential importance for every HPDC foundry. This becomes clear when we take a look at the key cost items of these levers and their impact on the profit and loss account.

Tool Procurement Costs

The procurement costs of a die casting tool are severely influenced at the earliest stage of product development. This is one of the reasons why participation in product development (simultaneous engineering) is very important for the foundries. A product and tool development, designed under casting technical and economically optimal aspects, is possible through a collaboration, e. g. between the customer and its caster. Unfortunately, this kind of collaboration is still a major weakness.

On the one hand, it is the customer who still lacks the know-how that many founders require in their development. On the other hand, not all foundries are able to contribute the necessary development know-how (tool making, casting technology and production technology). The effects of insufficient development (simultaneous engineering) are seen in many areas (production, set-up, repair) and unfortunately also in tool procurement costs.

Gallery

Gallery with 9 images

The analysis of the profit and loss account of a foundry shows that the average tool turnover (predominantly forms) between 8 to 14 % of the total turnover. As a result, tool procurement costs, as the most important cost items for tool sales, are a major lever in the profit and loss account of a die casting foundry. The relatively wide range (8 to 14 %) compared to various high pressure die casting (HPDC) foundries is essentially founded on:

  • the respective product - customer requirements (product portfolio)
  • the complexity of tools (product design → tool design)
  • the price quality in tool purchasing (even own production)
  • Foundry production philosophy (e.g. promised lifetime)

Looking at the impact of tool procurement costs on the profit and loss account, we see the significant importance and the large EBITDA leverage as an approach to Continuous Improvement Process (CIP). The following CIP help lowering the tool procurement costs:

  • Simultaneous Engineering (product development → tool design)
  • Optimized purchasing strategy (collaboration with tool makers or focus on internationalization)Standardized procurement processes
  • Forward looking tool demand management

The large EBITDA leverage (14 % tool sales/ potential) and the comparatively simple CIP projects make the topic "reduction of tool procurement costs" particularly attractive. Figure 1 in the picture gallery shows the example of the profit and loss account from a HPDC foundry.

Tool Repair Costs

In addition to the tool procurement costs, the tool repair costs are another relevant cost factor. Based on empirical values and benchmark comparisons, the average repair costs of a die casting tool can be estimated at approx. 60 % of tool sales over life time. This corresponds to approx. 5 to 8 % of the total turnover of the foundry. Again, the wide range (5 to 8 % of total sales) compared to various foundries is due to reasons similar to those associated with tool procurement costs:

  • in the respective product - customer requirements (product portfolio)
  • in the complexity of tools (product design → tool design)
  • in foundry production philosophy (e.g. promised lifetime)
  • in performance/ know-how of the own tool repair department

In contrast to the procurement of the tools, the tool repair is mainly carried out internally. The corresponding cost items can therefore be found in different places in the profit and loss account. Due to the fact that the tool repair is internal, there are many possibilities with CIP to design repair processes as needed and to improve their results.

Looking at the impact of repair costs on the different positions within the profit and loss account, the significant importance and the large EBITDA leverage as an approach for CIP projects can also be seen in Figure 2 in the picture gallery:

  • Forward looking tool demand management
  • Optimized processes in the tool repair (time and cost specifications)
  • Standardized tool repair orders
  • Optimized spare parts management (make or buy decisions)

The smaller EBITDA leverage, as well as a greater need for know-how, resources and time within the CIP projects compared to the "reduction of procurement costs", should not prevent die casting foundries to tackle the issue of reducing tool repair costs with high priority.

Production Costs

Another important result lever is the Overall Equipment Efficiency (OEE). Here the focus is on the OEE with the greatest potential within the foundry. This becomes clear, when taking a look at the key figures added value/ hourly wage (in Figure 3 named WS/ LS) and OEE of a die casting foundry in comparison of foundry, CNC machining and conventional machining.

The largest EBITDA lever (potential OEE = 66 % and influence value/ hourly wage = 100 €) is in the foundry area. The loss of availability (shown in Figure 4) is the most important lever for improving the OEE in a die casting foundry.

That loss is essentially divided into the following three areas:

  • Reduction of setup time (increased flexibility: decision of tool repair on the machine or tool change)
  • Reduction of tool repair times (Tool repair on the machine)
  • Repair and setup optimized tool design (Simultaneous Engineering)

The position "Tool defects" shows a very high potential (15 %) and should be elaborated in every die casting foundry as a "permanent" improvement project. With an improvement of 1 % OEE, the operating result can be influenced by an EBITDA margin of approx. 0.3 %.

Evaluation of Tool Management CIP

The complex topic of tool management shows huge EBITDA levers as shown in Figure 5. Some of the projects can be implemented with manageable effort, such as time, resources, financial resources and CIP know-how requirements. A comparison to other CIP projects shows the particular attractiveness (large earnings effect, low effort) for all die casting foundries (see Figure 6). Comparable positive effects on the profit and loss account of other CIP projects are difficult to find in a die casting foundry (see Figure 7). The implementation of the CIP potentials in the field of tool management are existential for all die casting foundries.

Foundries now have to:

  • review the previous CIP strategy
  • focus projects with the largest EBITDA levers
  • align the corporate structure and its culture to the new requirements
  • initiate and lead the change process from top management (leadership)

Gallery

Gallery with 9 images

Cost Reduction

The analysis of the main cost factors in tools or tool management has shown the enormous potential and the economic importance for every die casting foundry. Processing or focusing as part of the continuous improvement process is an existential one for all HPDC foundries as shown in Figure 8 and 9 in the Picture Gallery.

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About the author

 Johannes Messer

Johannes Messer

Owner, Johannes Messer-Consulting GmbH