If your aluminum costs are sky high and you’re struggling to understand why, fear not. There’s a long a list of things you can do – or stop doing – to generate significant savings on your
scrap metal expenses and raw material expenditures. Even better, most of the actions 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 or recycler, then now is the time to do something about it.
Know your price
If you sell your scrap aluminum by the pound, but price your extrusions in your purchase orders and bill of materials by the foot, how do you determine your yield? You can’t. Say you have 1,000 linear ft. of extrusions at $2.50 a ft. After you cut all this material, you’re left with 500 lbs. of scrap. What is the yield? Who knows?
TigerStop, a leader in sawing automation solutions, has been helping customers reduce scrap for more than 25 years. They determine that the only way to really calculate what you’re throwing away as scrap is to know how much per pound you’re paying for your aluminum extrusions and then calculate how many pounds go out to the recyclers.
Make sure you price your bill of materials and purchase orders by both the pound and linear foot. 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.
Know your numbers
Most manufacturers see the scrap number at the end of the month on their profit and loss statements as a revenue number. Well, it’s not. This is something the team at TigerStop can’t stress enough. If you purchase and account 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 lb. Typically, scrap brings in about $0.50 per lb. Therefore, the real cost of scrap is $2.00 per lb. So that 10,000 lbs. of scrap you received $5,000 for is really $40,000 of lost profits.
Let’s assume a scrap rate of 18 percent. For every 10,000 lbs. of material, you’re losing 1,800 lbs., or $3,600. If you reduce your scrap rate from 18 percent to 12 percent, for a net savings of 600 lbs. or $1,200, you could put a net of $1,200 per 10,000 lbs. directly on your bottom line. That’s a discount of close to 5 percent on your raw material costs.
How much do you spend in a year on aluminum? Would a 5 percent rebate be a pleasant surprise? To help reach 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 scrap percentage is a measure of overall organizational efficiency from the sales team all the way to the installation guy. Everyone needs to own and understand this number.
Defective materials
When it comes to defective raw materials, stop returning them to your supplier. While it may seem counterintuitive, this common practice is a poor use of resources. At minimum, 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 time calling the supplier and getting a return material authorization. At the end of the day, their time isn’t cheap, and it quickly adds up.
So, cut yourself a break. Lower your raw material costs by discussing the real costs to your operation and your suppliers that are associated with returns. The defects you encounter in aluminum extrusions are typically:
- Drag from extruding
- Mar on exposed faces from bad anodizing or mishandling
- Transportation damage
In 90 percent of the cases, these common defects in the material only affect a relatively small portion of the profile. It’s likely you can still cut parts from a defective profile; the remaining portion can be thrown into a supplier scrap bin. At the end of the month, you weigh the supplier’s scrap, they credit you an agreed-upon amount per pound on that material, and you keep the scrap for your recycler. This will save both you and your supplier a bucket of money and actually end up with you getting compensated for some of the costs associated with their errors.
Best to nest
Many companies use nesting software programs and their brightest manufacturing engineers to determine the best cutting orders and the maximum yield from their raw material. They send the cut lists directly to the cutting stations on the shop floor. The obvious reason for doing so is to reduce creating scrap in the first place.
At TigerStop, this strategy is referred to as 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, change in the field or shortage of a given raw material length disrupts the entire cut list and forces your engineering department to redo the optimization.
This leaves 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 downstream. 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 and remnants. But the work to track and store these materials adds significant time, cost and confusion to the operator’s day. Ultimately, pre-optimization systems do increase yield, but they simultaneously increase labor costs.
Conversely, optimization eliminates the need to track remnants and raw materials and reduces the heavy costs associated with pre-optimization. Optimization also opens up the ability to cut around defects in the raw material (forklift stabs, discoloration, mars, knots, etc.) and scan raw material lengths to maximize yield right at the machine. In turn, when you use an automated cutting and material positioning system, like an optimizing saw with nesting software available at the machine, you can expect better yield, lower labor and rework costs.
That’s a whole lot of capability available at the operator’s fingertips. All the operator needs to do is remember “worst first.”
Taking all of that into consideration, the bottom line comes down to introducing your worst parts first, that is, using the drops remnants, and defective materials, at the beginning of the cut list. Doing so will eliminate the need for your engineering department to do pre-optimization because it’s done at the saw without any added labor. It will also eliminate 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.
