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1.1 The importance of reducing production costs

Contrary to popular belief, a reduction of a few percentage points of the production cost/scrap does not translate into the same percentage of increase in profits. The increase is a more complicated function. To study the relationship further see Figure [*] where profits are plotted as a function of the scrap. A linear function describes the relationship when the secondary operations are neglected. The maximum loss occurs when all the material turned out to be scrap and it is referred to as the ``investment cost''. On the other hand maximum profits occur when all the material becomes products (no scrap of any kind). The breakeven point (BEP) has to exist somewhere between these two extremes. Typically, for the die casting industry, the breakeven point lies within the range of 65%-75% product (or 25%-35% scrap). Typical profits in the die casting industry are about 20%.

    (1.1)



This is a very substantial difference. Therefore a much bigger reduction in scrap will result in much, much bigger profits.

to put figure about this point (relative profits)


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Genick Bar-Meir ||| www.potto.org
copyright Dec , 2006

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