The common financial term “value-in-use” is something to consider carefully when discussing investments. However, it can also be used to explain the benefits of using different materials in manufacturing – especially within the automotive industry where sourcing materials is a complex operation with many important factors.
An industry of standards
The automotive industry often has its own standards for what properties each advanced high-strength steel grade must have. These alone can be very demanding. By sourcing a material according to these standards, purchasers can ensure that they have chosen the right material for their intended manufacturing condition. The mechanical properties that make up a standard also provide a good basis for price comparison, to ensure cost efficiency for the raw material.
However, in addition to the raw material price, the final cost per unit for applications in a car depends on production. The production rate, for example, depends on many parameters including run time, defect rate and down time, to mention a few. For the full picture, you also need to add the time for initial setup or post-processing operations, energy consumption and potential waste.
All of these factors will determine the final cost of an application for the car and thereby the profitability, whether for the sub supplier or for the automotive company. Here, the choice of material can make a big difference when the price per kg of raw material will transfer to a cost per unit when the part is manufactured.
Maximizing run time, minimizing energy and waste
Run time, for example, can depend on whether the production method/machine has a short or long startup process. This also steers bigger/smaller batches, which can affect total cost.
Run time also depends on downtime. Machines may stand still due to issues with a material not working as expected, increased tool wear or the need for change in settings due to inconsistent material properties, for example.
Energy costs depend on the production method, which often depends on the choice of material. By selecting a material that can be produced with less energy consumption, you can improve profitability – or as we see it, increase your value-in-use of the material.
Waste, just like its name, is a complete waste of time and money. By using a material that works as expected over a long period and without failure, waste will decrease.
Considering network capital, an important parameter for profitability, the more material that needs to be in stock for a secured production flow, the more capital tied up in production.
The total output of items that can be sent to the assembly line for a new car depends on all of the above. To fulfill these conditions, the initial choice of material as well as supplier can make a difference.
At SSAB, we face the same challenges in our steel production. With our lean management philosophy, we look into all details that can improve our delivery output. We are committed to staying with our partners throughout the entire process in order to ensure the best result, all the way to final assembly.
There have been many cases where our experience and knowledge has helped automotive companies in improving on small details when it comes to their choice of material, design or production – details that can have an impact on the total cost. This is what we call value-in-use for our customers and partners.