Investment and Management Decisions in Aluminium Melting: A Total Cost of Ownership Model and Practical Applications

Abstract

The well-established Total Cost of Ownership (TCO) concept has been applied to several durable goods industries, including machinery. However, none of the existing TCO models explicitly focus on such highly energy-intensive equipment as metal melting furnaces. In this paper, an application of the TCO concept to aluminium melting furnaces is explored. A TCO model is created and tested through seven case studies in the aluminium die casting industry. Results indicate that the capital expenditure (CAPEX) incurred by the sample companies accounts for only 3–5% of a furnace TCO. Moreover, the melting technology implemented in the furnace highly impacts its TCO, as both the furnace’s thermal efficiency and melting loss (i.e., the fraction of aluminium burnt during the melting process) significantly affect the costs incurred. Moreover, the sample furnaces’ cost effectiveness clearly relies on scale. This evaluation leads to identify technological and managerial levers to reduce a furnace TCO, e.g., by adopting energy-efficient furnaces and by installing centralized, large-sized furnaces to pursue scale economies.

Total Cost Analysis in Logistics : Practical Execution, Learning, and Teaching in Higher Education

“…These authors include the definition of alternatives as an important early step in the process. In addition, IEC (2017) and Bacchetti et al (2018) point out the need for specifying the alternatives, something that can be difficult, especially for novice investigators according to the teachers from Case Linköping and Case Chalmers.…”

“…Actually, the 'returns' could be overestimated as well, even though this is not discussed by White et al Since the system boundaries could be set differently, it is important to be explicit about the implications of the chosen system. Examining a selection of production equipment, Bacchetti et al (2018) for example, clearly state that certain parts of the manufacturing activities were excluded from their analysis, as these parts did not affect (and were not affected by) what was focused in the study.…”

“…The ability to make good estimations and assumptions increases with experience, but even for experienced investigators, new situations will pose problems. To avoid making such assumptions out of the blue, using external sources of information might be helpful, a strategy suggested by Bacchetti et al (2018). In their investigation in the healthcare field, Turchetti et al (2017) Step 7 -Defining required input data Lambert and Mentzer (1980) state that "If cost tradeoffs are at the heart of the logistics concept, then adequate cost information is at the heart of cost tradeoffs" (p. 18).…”

“…Nato (2009) suggests that when preparing a cost analysis, analysts should consider all credible data sources. Bacchetti et al (2018) argue that the retrieval of data should involve several people: "Collecting [cost] data in a company is a cross-functional and complex process, as it usually involves know-how of different corporate departments" (p. 12).…”

“…For example, Hasselt et al (2015) admit that their chosen system does not cover all relevant costs actually connected to patient care, the topic of their study. Bacchetti et al (2018) also address the limitations of the applicability of their findings due to the system boundaries they set.…”