LinnæusUniversity

1

Final report 22-10-2012

In the

COURSE

Life Cycle Cost Analysis

2SE014

Course coordinator: Taye Matias

Faculty: School of Engineering

Group E

Hande Madenoglu

Ka Man Yan

Serkan Alan

Kin Yan Man

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Acknowledgement

We would sincerely like to thank our lecturer Matias Taye interesting and useful

lectures. We would also like to thank for his time and providing valuable information and

continuous support and guidance through this project.

Växjö, October 2012

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Summary

This report is written for Life Cycle Cost Analysis‟s project at the autumn 2012. Our

case company which taken from Matias Taye. And the company is a fictive company.

Company name is “Company A” which is located in south part of Sweden. The factory in

“Company A” is manufacturing different kinds of machines to use in daily life for families

such as washing machines, fridges, ovens and etc.

The factory in “Company A” is over twenty years old. In the factory, “Company A” is

using a line production to manufacture the different kind of machines. We took three different

operations which are punching, edging and painting.

In this report we have generated three alternatives to help “Company A” to decrease

their downtime. There is a critical machine which is punching machine. This machine affect

whole production line because of its working performance. Our alternatives are buying a new

punching machine, do maintenance with implementing TPM methodology and no changes at

the current situation. By using the Benefit/cost analysis method we will able to compare these

alternatives to each other and select the best.

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Table of Content

1 Introduction .......................................................................................................................................... 6

1.1 Background .................................................................................................................................... 6

1.2 Assumption .................................................................................................................................... 6

1.3 Task ................................................................................................................................................ 7

1.4 Research methodolgy .................................................................................................................... 7

2 Theory ................................................................................................................................................... 8

2.1 Cost-Breakdown Structure (CBS) ................................................................................................... 8

2.2 Prensent Worth ............................................................................................................................. 8

2.3 Equivalent Annual Cost (EAC) ........................................................................................................ 8

2.4Benefit Cost Analysis (B/C Analyses) .............................................................................................. 9

2.5 Overall Equipment Effectiveness (OEE) ......................................................................................... 9

2.6 Total Productive Maintenance (TPM) ………………………………………………………………………………….….10

3 Empirical findings ............................................................................................................................... 11

3.1 Presentation of the company ...................................................................................................... 11

3.2 Production line ............................................................................................................................ 11

3.3 The current situation ................................................................................................................... 12

3.3.1 Information about the critical machine ............................................................................... 12

3.3.2 Critical components of the ciritcal machine ......................................................................... 12

3.3.3 Maintenance sturcture of the critical machine .................................................................... 13

4 Analyze ............................................................................................................................................... 14

4.1 Problem ....................................................................................................................................... 14

4.2 Alternative ................................................................................................................................... 14

4.2.1 Buying a new machine.......................................................................................................... 14

4.2.2 Implemneting TPM ............................................................................................................... 14

4.2.3 Maintain current situation .................................................................................................... 15

4.3. Cost Breakdown Structure ............................................................................................................. 15

4.4 cash Flow Diagram .......................................................................................................................... 17

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4.5 Calculation of PW,EAC,OEE ............................................................................................................. 18

4.6 Benefit Cost Analysis ....................................................................................................................... 20

5 Results ................................................................................................................................................ 21

6 Conclusion ......................................................................................................................................... 22

7 References .......................................................................................................................................... 23

Appendix I .............................................................................................................................................. 24

Appendix 2 ............................................................................................................................................. 25

Appendix 3 ............................................................................................................................................. 26

Appendix 4 ............................................................................................................................................. 28

Appendix 5 ............................................................................................................................................. 30

Appendix 6 ............................................................................................................................................. 31

Appendix 7 ............................................................................................................................................. 32

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1 Introduction

Introduction part is related to course of Life Cycle Cost, 2SE014, at Linnæus

University during the autumn semester 2012. This chapter mention about the background, a

short task description and research methodologies.

1.1 Background

Life Cycle Cost Analysis is a useful method to collect and treat all costs that occur

over the full life span or a specified period of a services or goods. Aim of the Life Cycle Cost

analysis method minimizing the costs and maximizing the turnover. The Life Cycle Cost

Analysis includes the entire life cycle regarding raw material manufacture, distribution,

transportation, maintenance. LCC provides important inputs in the decision making process.

The Life Cycle Cost Model is a method to calculate the Life Cycle Costs in a company.

“Life Cycle Costs are summations of cost estimates from inception to disposal for both

equipment and projects as determined by an analytical study and estimate of total costs

experienced during their life.” (P.Barringer, D.P. Weber, 1996)

1.2 Assumptions

In this paper, all the given information in the task paper is used as a primary data for

evaluating fictive data which is taken Matias Taye. Assumptions are made only if there is lack

of information. All the assumptions that are made are listed below.

Assumption for buying a new machine

Assume the condition of the new machine at the first ten years and no external

maintenance at the first 10 years.

Assume internal maintenance performs every year.

Assume the new machine is energy saving, so the overhead cost can be lowered

Assume the up time of the new punching machine is 92 %.

Assume max- production = 300000 units/ year

Assume average production = 250000 units/ year

Assume the scrap rate is 1%

Assumptions for implementing TPM:

Assume the external maintenance performs every 2 years.

Assume the internal maintenance performs every year.

Assume the up time of the punching machine after implementing TPM is 76%.

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Assume the maximum production of the punching machine after implementing TPM

is 265,000 units/year

Assume the average output is 190,000 units/year

Assume the scrap rate =6%

Assume each operator has to participate in the training for 4 hours/week

Assume there are 45 working weeks per year

The rest of the paper is organized as follows: In the second section, the relevant

theories, methods and tools are described. In this section, the methods that are used in the

paper are explained. Third section focuses on the tasks empirical findings. Fourth section is

analyzed to decide best alternative.

1.3 Task

First of all the aim of task is to analyze the selected production line and choose critical

machine. Project goal is mainly to come up with three alternatives for improving the working

performance for whole production line. There are three alternatives. One of them is buying a

new machine and the other one is implementing TPM. By following the Life Cycle Costing

LCC methodology and use Benefit /Costs analysis method it is possible to select the best

alternative for the company.

1.4 Research methodology

As mention above “Company A” is a fictive company. Thus, we had all data about the

company and production line which are given by Matias Taye. Whole used methods are

gathered by lecture notes, books, some data bases such as Emerald, Science direct and Google

scholar.

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2 Theory

In this project, we are going to provide 3 alternatives which are adapting current

situation (no change), purchasing new machine and implementing TPM. We are going to

evaluate these alternatives by using:

1. Cost Breakdown Structure (CBS)

2. Present Worth (PW)

3. Equivalent Annual Cost (EAC)

4. Benefit Cost Analysis (B/C analysis)

5. Overall Equipment Effectiveness (OEE)

6.Total Productive Maintenance (TPM)

After computation, we can choose the best alternative by comparing the results obtained.

2.1 Cost Breakdown Structure (CBS)

CBS is very important for life cycle cost analysis. This is because the main detailed

costs of different alternatives can be obtained through cost breakdown structure, and be

classified into different cost categories which cover labor force, materials, energy,

transportation, etc. (Zhu Hong, Hu Wenping,2010)

The Cost Breakdown Structure can be divided into three phases which are cost of

acquisition phase (CBO), cost of operation and maintenance phase (COM) and cost of

decommissioning and disposal phase (CD). The cost can be further breakdown for analysis

purpose. (Zhu Hong, Hu Wenping,2010)

There are basic characteristics should take care when using CBS. These are:

-It should include internal costs and relevant costs

-Important to identify all cost elements and their context

-CBS should be compatible.

-CBS should be categorized costs to allow monitoring

-CBS should be devised to see different levels of data

-CBS should be flexible enough to allow cost allocation

LCC= CBO + COM + CD

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2.2 Present Worth

The present worth method is used to find out the most economical alternative. Present

worth assumes that future investment has a value in today‟s dollars and that value is

determined by the cost of money over a fixed period of time. Therefore, the present worth

method is used to indicate the value of money which the company would gain. The value of

present worth should be positive in order to be attractive because negative value means there

will be a loss if the project is launched. (Mark Shaw, DennisE. Snyder,2001)

2.3 Equivalent Annual Cost (EAC)

EAC is an approach to calculate how much a project costs annually. Engineering

design and projects often consider costs and thus it is crucial to find out the annual cost. It is

also very important to present the EAC of a project to the management personnel because

they have to plan the annual budget before launching a new project.

2.4 Benefit Cost Analysis (B/C analysis)

Benefit and cost analysis involves identifying costs and benefits for each alternative

investment and selecting the best alternative according to a pre-specified criterion. Benefit

cost analysis is used to show how much return there is per money of investment. It helps

predict whether the benefits of an alternative outweigh its costs, and by how much relatives to

other alternatives. (Schniederjans, Marc J. Hamaker, Jamie L. Schniederjans, Ashlyn M).4

Depreciation

2.5 Overall Equipment Effectiveness (OEE)

OEE measures the actual performance of a tool or machine relative to its performance

capabilities. Its constituents include Availability, Performance Efficiency and Rate of Quality.

(S.E. Gouvea da Costa, E. Pinheiro de Lima,2002)

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OEE= Availability* Performance Efficiency* Rate of Quality

Availability is a comparison between the amount of time the machine is actually

producing and the amount of time it was planned to produce. Performance Efficiency is a

comparison between the real production rate of the machine and the expected production rate.

Rate of Quality is a comparison between the number of produced units that fits the

specifications and the total units produced. (S.E. Gouvea da Costa, E. Pinheiro de Lima,2002)

By calculating the OEE of different alternatives, we can compare which alternative has

the highest performance capabilities. For example, we can find out the OEE of an operation

after implementing TPM. If the OEE of the operation after implementing TPM is higher than

doing nothing, then TPM should be adapted in terms of OEE.

2.6 Total Productive Maintenance (TPM)

TPM involves the participation of all employees in the company because top

management plays an important role in creating supportive environment to implement TPM

and operators plays an important role in finding and solving problems in the production line.

TPM puts emphasis on the operator‟s duty on maintenance known as Autonomous

Maintenance. Operators can have a better understanding on how equipment works, notice the

abnormalities of the equipment and tell if quality is decreasing through training, exchange of

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advanced experience, discussion, etc. Therefore, operators can have a better insight into TPM

and enhance their enthusiasm to participate in the production process. Hence, the maintenance

group can concentrate on more complicated problems.

Autonomous Maintenance work includes (Li u Yile, Xu XueHang, ZouLei, 2008):

1) Clean up including seiri(sort), seiton(set in order), seiso(shine or sweep),

seiketsu(standardize) and shitsuke(sustain).

2) Identify and eliminate root cause of machine failure

3) Establish data collection and standards to prevent the problems found in step 1 and 2 from

happening again.

4) Develop standards to verify key operating parameters.

5) Train operator on equipment function and the key elements for good operation.

6) Identify spare parts and tools needed and availability.

7) Repeat the above steps for continuous improvement.

3 Empirical findings

3.1 Presentation of the company

Company A is a leading company in Sweden and it produces appliances. It produces

products for families with simple request in their ordinary day such as tumble dryers, ovens,

fridges and washing machines. Company‟s facilities are in south part of Sweden. There are

about 490 employees. In 2009 their endorsement was about 1.5 billion SEK. They produce

mainly professional washing machines, dryers, drying cabinet something like that as well as

they improve booking/paying system about laundry rooms for real estate owners.

3.2 Production line

Production is composed of different sections. Different sections produce different

parts. They produce some major parts and also they purchase a lot of electrical components

which they cannot produce. And these components are kept in inventory. All parts have

different cycle time so production of different parts starts at different time. Manufacturing

processes are planned so that all parts can be ready during assembly. Also all stations have

assigned TAKT times. They use 5S and lean manufacturing methods to eliminate non-value

activities and decrease major wastes. If all parts cannot be produced at the right time, there

will be production delay and this affects the whole production process.

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There are three chosen production lines and they are punching machine, edging press

and painting.

First, there is WIP (work-in-progress) storage of steel sheets in different sizes with

different depth used for altered products. These sheets will be loaded into the three punching

machines to do modification. The punching machine will perform one kind of job each time.

After that, the processed sheets will be transferred to the edging machines. The edging

machines are operated manually and this causes heavy lifting to the operators.

Finally, the sheets are painted and will be dried for two to three days in store.

3.3 The current situation

Our critical machine is one of the punching machines which have been used for more

than 20 years and it has gone through many failures during its usage. Now the punching

machine has no any book value. Since different punching machines have different working

performances a breakdown in the punching machine will cause delays for the whole

production line as no replacements of other machines can take place. So we are going to do an

analysis on this machine by using different approaches and evaluate it.

3.3.1 Information about the critical machine

A similar machine at present time costs around 10 million SEK on the market. The

average output from the punching machine is 3400 details per work week. The machine

operates at 65% so the maximum output from the punching machine will be 5230 details per

work week. The costs for the punching machine will be estimated as 25 % of the total cost

specified for the production line. The salvage value is assumed to be 15000 and declining

balance depreciation method is used with a machine life length is 10 years. The company uses

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an internal interest rate of 8 %. There will be costs for tools and spare parts after the first year

and the costs are assumed to rise with 10 % per annum.

3.3.2 Critical components of the critical machine

The software program used in the machine is old and there are some minor problems.

Failure of the system must be fixed before the machine starts working again.

Loading of the steel sheets are the raw materials for the punching machine to proceed.

The steel sheets should be of good quality for the punching machine to operate.

The adaptor tool holder should be in good conditions for the machine to produce

quality items.

3.3.3 Maintenance structure of the critical machine

There are 3 technicians working for the reparation and maintenance of punching,

edging and painting production line. Operators are responsible for minor maintenance tasks.

The punching machine will have an ordinary maintenance service outsourced annually

to ensure the machine operation follows the safety regulations.

A thorough maintenance of the machine will be carried out every second year or after

25000 operating hours.

It is known that the punching machine is at the end period of its life cycle as it breaks

down frequently and minor unplanned stoppages take place.

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4 Analyze

In the analyze part some methods are mentioned in the theory section. These methods

are Cost Breakdown Structure (CBS), Benefit Cost Analyses which helps to make decision.

We have compared the three alternatives and compare each other by using Present Worth,

Equivalent Annual Cost as decision criteria.

4.1 Problem

A main goal at “Company A” is to increase working performance for the whole

production line and also decrease the downtime. We choose the punching machine as our

critical machine which has been used for several years and has experienced many breakdowns

during its usage. Failure of this machine can also affect the whole production line. Thus, we

have tried to find a solution for this machine.

4.2 Alternative

There are three alternatives we have come up with to increase working performance

for the whole production line. Alternatives are:

Buying a new machine,

Implementing TPM,

Maintain the current situation.

4.2.1 Buying a new machine

According to fictive data about “Company A” punching machine is the bottleneck in

the production line. Thus buying a new machine is chosen as an alternative to increase the

working performance and decrease the downtime.

The hard thing when buying a new machine is, pay the cost of machine. But on the

other the company is being able to purchase new machines cost in the future, if they have

higher benefit. Buying a new machine will result in an increase of the performance on the

production line and production capacity will be increased.

4.2.2 Implementing TPM

There are some data about “Company A” and some of these are about maintenance and

some cost of maintenance. In the company maintenance department spend most of their time

on corrective maintenance. Thus, it cause waste money and time, also it can cause to stop

whole production line. As well there is more problem because of using corrective

maintenance. When the failures occur, technicians try to solve problem during the operation

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time so it will be able to downtime. In addition to “Company A” has mainly outsourced

maintenance for this reason outsourced maintenance contributed to addiction to other

company which makes maintenance for them. “Company A” could not manage themselves

their maintenance, during the last year they spend about 1.5 million SEK on external

maintenance.

As a result, implementing TPM helps to manage their maintenance activities. Also

thanks to implementing TPM to eliminate their external maintenance costs.

4.2.3 Maintain current situation

Today “Company A” has three punching machines but still they have not enough

working performance due to one of the punching machine gives error frequently. So that

punching machine is chosen as a critical machine. To deal with that problem there are two

alternatives besides current situation are analyzed to find a solution. If these alternatives

benefits are not going to more than costs, current situation will be maintained.

4.3 Cost Breakdown Structure

Cost breakdown structure is done for three alternatives. As you can see Figure.1 there

is a cost breakdown structure table for „buying a new machine‟. Recurring cost and non-

recurring cost are shown for the buying new machine on the Figure.1.

Maintenance cost, overhead cost and operational cost is selected for recurring cost.

When new machine is bought, it has to be need maintenance; also it needs some operating

activities. Of course there will be an overhead cost too. So we focused these three costs and

find sub-heading for them.

Capital cost is under the non-recurring cost headline. We found two sub-heading first

cost and installation cost. Capital cost is the essential cost to find the benefits of buying a new

machine. There are also other alternative‟s tables is done by cost breakdown structure

(Appendix1, Appendix2).

There are some cost which are in CBS listed in Appendix 7.

LinnæusUniversity

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Figure-1: Buying a new machine (Cost Breakdown Structure)

Buying a new machine

Recurring Cost

Maintenance Costs

Spare parts

internal maintenance

Overhead Costs

insurance

facility

electricity

Operational Costs

labour

tools

materials

training

Non-Recurring

capital costs

first costs

installation costs

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4.4 Cash Flow Diagram

Cash flow diagram is a tool used for show all costs and incomes like investment, salvage

value, maintenance costs.

Cash Flow Diagram for buying a new machine

Other cash flow diagrams and cash flow table for other alternatives are in appendix 3,

appendix 4

Also table below are showed costs and revenue.

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Cash flow table for buying a new machine

Revenue= 250000*100*0.92=23millions

Yea

r

Labour cost

(millions)

Tools

cost

(millions)

Spare parts

cost

(millions)

Other costs

(millions)

Revenue

(millions)

Total cost

(millions)

0 10.08

1 0.619 0.062 0.690 12.07 23 13.441

2 0.638 0.068 0.759 12.07 23 13.535

3 0.657 0.075 0.835 12.07 23 13.637

4 0.676 0.083 0.918 12.07 23 13.747

5 0.697 0.091 1.010 12.07 23 13.868

6 0.718 0.100 1.111 12.07 23 13.999

7 0.739 0.110 1.222 12.07 23 14.141

8 0.761 0.121 1.345 12.07 23 14.297

9 0.784 0.133 1.479 12.07 23 14.466

10 0.808 0.146 1.627 12.07 23 14.651

4.5 Calculation of Present Worth, Equivalent Annual Cost, OEE

Present worth, EAC, OEE are calculated for three alternatives. Buying a new machine

is shown for an example in this part. We assumed that 23 million SEK is income of the

company per year for ten years. We also calculate our incomes and cost‟s present worth. After

that we found net present worth.

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Buying a new machine

PW= -10.08 – 12.07(P/A,0.08,10)- 0.619(P/A,3%, 8% ,10)- 0.062(P/A,10%, 8 %,10)-

0.69(P/A,10%, 8 %,10)+ 23(P/A,0.08,10) = 51.01 Millions SEK

EAC = 10.08(A/P, 0.08, 10) – 23 + 12.07 + 0.619(P/A, 3%, 8%, 10)(A/P, 0.08, 10) +

0.062(P/A, 10%, 8%)(A/P, 0.08, 10) + 0.69(P/A, 10%, 8%)(A/P, 0.08, 10)

= 10.08(0.149) – 23 + 12.07 + 0.619(7.550133691)(0.149) + 0.062(10.07023086)(0.149) +

0.69(10.07023086)(0.149)

= -7.6 millions

Calculating OEE when buying new machine

Availability= 92%

Average production= 250000 units/year

Maximum production= 300000 units/year

Performance= 250000/300000= 83.3%

Quality rate=250000(1-1%)/250000=99%

OEE= 76%

Values are used for calculations:

Tied up capital: 10.08 (million SEK)

Labor cost: 0.619 (million SEK)

Tools cost: 0.062 (million SEK)

Spare parts cost: 0.69 (million SEK)

Other cost (these are presented in CBS part): 12.07 (million SEK)

Revenue: 23 (million SEK)

Other calculations are in the appendix (Appendix5, Appendix6)

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4.6 Benefit Cost Analyses

Alternatives Total

Cost(PW)

OEE B/C

Alternative-1(buying a new machine) 103.32

million SEK

76% 0,7356

Alternative-2(implementing TPM) 155.46

million SEK

39% 0,2529

Alternative-3(maintain current situation) 101.60

million SEK

51% 0,5020

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5 Results

In our project, we use present worth (PW), equivalent annual cost (EAC), benefit-to-cost ratio

(B/C ratio) and overall equipment effectiveness (OEE) to help to determine which alternative

(no changes, buying a new machine or implementing TPM) we should choose. We use the

cost break down structure to show all the cost which includes the recurring cost and non-

recurring cost incurred each year for each alternative. Cash flow diagrams are also drawn to

show the revenue and cost. They are shown in the Appendix. Then the present worth and

equivalent annual cost is calculated.

Comparing the present worth of the three alternatives, “Buying a new machine” has the

highest present worth and it is a positive value. However, the other two alternatives have a

negative present worth value and this means these two alternatives may suffer a loss. And

“Buying a new machine” is more attractive to choose.

Comparing the equivalent annual cost of the three alternatives,” buying a new machine” does

not have equivalent annual cost because the annual revenue is larger than the annual cost.

However, the other two alternatives have an equivalent annual cost which cannot be covered

by the annual revenue.

Applying the present worth and OEE to calculate the benefit-to-cost ratio, we find that

“buying a new machine” attains the highest B/C ratio, and based on all the above factor, we

conclude that our company should choose the alternative of buying a new machine because it

will bring more benefits to the company. The company can gain more compared with the

other alternatives.

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6 Conclusions

To increase their OEE we have generated three alternatives. We have decided that

“Buying new machine” alternative is the best results for “Company A”. By using “Buying

new machine” alternative provides the most return. We considered all three alternatives by

using benefit cost method to choose most optimal alternative. Overall Equipment

Effectiveness, Equivalent Cost annual, total cost‟s present values are considered for benefit

cost method.

If “Company A” choose “implementing TPM” alternative, total cost would be lowest

total costs but OEE would not increase so much. Also implementing TPM is so hard in a short

term because TPM is working culture and changing companies culture can take so long times.

If “Company A” chose maintain current situation , punching machine which is critical

machine continue causing problem and OEE would be low level because of delaying whole

production line.

Recommendations: To be able to achieve increasing OEE and working performance

around 30 % we recommended “Company A” to buy new machine alternative.

Recommendation is based on whole analysis and decision making methods.

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7 References

1. Adedeji B. Omitaomu, Olufemi A.,Computational,2007, Economic Analysis for

Engineering and IndustryBadiru,

2. Christopher A. Mattson, Anoop A. Mullur & Achille Messac,2007,Engineering

Optimization

3. H.P. Barringer and D.P. Weber,1996, “Life cycle cost tutorial”

4. Marc J. Schniederjans,Ashlyn M. Schniederjans,Dara G. Schniederjans, 2005,

Outsourcing and insourcing in an international context, p.100ff.

5. Mark Shaw, Dennis E. Snyder,C ,2001,Selection of Wood Pole Alternatives by Means

of Present-Worth Analysis,. H. Guernsey & Company, Oklahoma City, OK

6. Nancy R. Tague, 2004, The Quality Toolbox, Second Edition, ASQ Quality Press,

pages 376-378

7. S.E. Gouvea da Costa, E. Pinheiro de Lima ,2002,Uses and Misuses of the “Overall

Equipment Effectiveness” for Production Management, ,PUCPR-Pontifical Catholic

University of Parana- Brazil, Production and Systems Engineering Group

8. Zhu Hong, Hu Wenping 2010,An instance based on a 3-dimensional model of Life

Cycle Cost for overhead lines

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Appendix1-Implementing TPM

Implementing TPM

Recurring Cost

Training Costs

Hiring experts

Overtime Costs

Overhead Costs

insurance

facility

electricity

Operational Costs

labour

tools

materials

training

resource

teaching material

documentation

maintenance & repair

spare parts

internal maintenance

external maintenance

Non- Recurring

Labour Costs

Consulting Cost

resource

software

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Appendix2-Maintain current situation

No changes, current situation

Recurring Cost

Maintenance Costs

Spare parts

internal maintenance

external maintenance

Overhead Costs

insurance

facility

electricity

Operational Costs

labour

tools

materials

training

Non-Recurring

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Appendix 3- Cash Flow Diagram for implementing TPM

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Cash flow table for TPM

Revenue=190000*100*0.76=14.44millions

Yea

r

Labor cost

(millions)

Tools

cost

(millions)

Spare parts

cost

(millions)

Other costs

(millions)

External

maintenan

ce cost

(millions)

Revenue

(millions)

Total cost

(millions)

0 0.1

1 0.619 0.062 0.690 12.58 0 14.44 13.951

2 0.638 0.068 0.759 12.58 1.5 14.44 15.545

3 0.657 0.075 0.835 12.58 0 14.44 14.147

4 0.676 0.083 0.918 12.58 1.5 14.44 15.757

5 0.697 0.091 1.010 12.58 0 14.44 14.378

6 0.718 0.100 1.111 12.58 1.5 14.44 16.009

7 0.739 0.110 1.222 12.58 0 14.44 14.651

8 0.761 0.121 1.345 12.58 1.5 14.44 16.307

9 0.784 0.133 1.479 12.58 0 14.44 14.976

10 0.808 0.146 1.627 12.58 1.5 14.44 16.661

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Appendix 4- Cash Flow Diagram for no changes

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Cash flow table for no changes

Revenue= 153000*100*0.65=9.95 millions

Yea

r

Labor cost,

(millions)

Tools

cost

(millions)

Spare parts

cost

(millions)

Other costs

(millions)

External

maintena

nce cost

(millions

)

Revenue

(millions

)

Total cost

(millions)

0 1.12 0.417 4.64 12.47 1.5 9.95 20.1

1 1.15 0.459 5.11 12.47 0 9.95 20.7

2 1.19 0.505 5.62 12.47 1.5 9.95 21.3

3 1.22 0.555 6.18 12.47 0 9.95 21.9

4 1.26 0.611 6.80 12.47 1.5 9.95 22.6

5 1.30 0.672 7.48 12.47 0 9.95 23.4

6 1.33 0.739 8.22 12.47 1.5 9.95 24.3

7 1.37 0.813 9.05 12.47 0 9.95 25.2

8 1.42 0.894 9.95 12.47 1.5 9.95 26.2

9 1.46 0.984 10.9 12.47 0 9.95 27.3

10 1.50 1.082 12.0 12.47 1.5 9.95 28.6

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Appendix5- Calculation of Present Worth, EAC, OEE for Implementing TPM

PW=-0.1+14.44(P/A,0.08,10)-0.619(P/A,3%,8%,10)-0.062(P/A,10%,8%,10) -

0.69(P/A,10%,8%,10) -1.5(P/F,0.08,2)-1.5(P/F,0.08,4)-1.5(P/F,0.08,6) -

1.5(P/F,0.08,8)-1.5(P/F,0.08,10) 12.58(P/A,0.08,10)

=-0.1+14.44(6.710)-0.619(7.550133691)-0.062(10.07023086)

-0.69(10.07023086)-1.5(0.8573)-1.5(0.7350)-1.5(0.6302)

-1.5(0.5403)-1.5(0.4362)-12.58(6.710)

=-4.71 millions

EAC=-14.44+0.1(A/P,0.08,10)+12.58+1.5(P/F,0.08,2)(A/P,0.08,10)

+1.5(P/F,0.08,4)(A/P,0.08,10)+1.5(P/F,0.08,6)(A/P,0.08,10)+1.5(P/F,0.08,8)

(A/P,0.08,10)+1.5(P/F,0.08,10)(A/P,0.08,10)+0.619(P/A,3%,8%,10)(A/P,8%,10)+

0.062(P/A,10%,8%,10)(A/P,8%,10)+0.69(P/A,10%,8%,10)(A/P,8%,10)

=0.695 millions

Calculating OEE when implementing TPM

Availability= 76%

Average production= 190000 units/year

Maximum production= 265000 units/year

Performance= 190000/265000= 71.7%

Quality rate= 190000(1-6%)/190000=94%

OEE= 51%

31

Appendix 6-Calculation of Present Worth , EAC, OEE for Maintain current situation

PW= [-1.12(P/A, 3%, 8%, 10) - 0.417(P/A, 10%, 8%, 10) – 4.64(P/A, 10%, 8%, 10) – 12.47

(P/A, 0.08, 10) + 9.95 (P/A, 0.08, 10)] *(1+0.08) – 1.5 – 1.5(P/F, 8%, 2) – 1.5 (P/F, 8%,

4) – 1.5(P/F, 8%, 6) – 1.5(P/F, 8%, 8) – 1.5(P/F, 8%, 10)

= [-1.12(7.550133691) – 0.417(10.07023086) – 4.64(P/A, 10%, 8%, 10) – 12.47(6.17) +

9.95(6.71)]– 1.5 – 1.5(0.8573) – 1.5(0.7350) – 1.5(0.6320) – 1.5(0.5043) – 1.5(0.4632)

= -88.7millions

EAC= -9.95 + 12.47 + 1.12(P/A, 3%, 8%, 10)(A/P, 8%, 10)(1+0.08) + 0.417(P/A, 10%, 8%,

10)(A/P, 8%, 10)(1+0.08) + 4.64(P/A, 10%, 8%)(A/P, 8%, 10)(1+0.08) + 1.5(A/P, 8%,

10) + 1.5(P/F, 8%, 2)(A/P, 8%, 10) + 1.5(P/F, 8%, 4)(A/P, 8%, 10) + 1.5(P/F, 8%,

6)(A/P, 8%, 10) + 1.5(P/F, 8%, 8)(A/P, 8%, 10) +1.5(P/F, 8%, 10)(A/P, 8%, 10)

= -9.95 + 12.47 + 1.12(7.550133691)(0.149)(1.08)+ 0.417(10.07023086)(0.149)(1.08) +

4.46(10.07023086)(0.149)(1.08) + 1.5(0.149) + 1.5(0.8573)(0.149) +

1.5(0.7350)(0.149) + 1.5(0.6302)(0.149) + 1.5(0.5403)(0.149) + 1.5(0.4632)(0.149)

= 13.02 millions

Calculating OEE with no changes

Availability= 65%

Maximum production: 235000 units/ year

Average production: 153000 units/ year

Performance rate=153000/235000= 65%

Quality rate= 153000*(1-8%)/ 153000= 92%

OEE= 39%

LinnæusUniversity

32

Apendix7

Buying new machine

Buying New Machine Cost Table

Recurring Costs Non-Recurring

-Operational Costs -Capital Costs

Labor = 619000 SEK /year , raise 3

% annually

First Costs= 10 Millions SEK

Tools = 62000 SEK/ year , raise 10

%

Installation Costs = 80000 SEK

Materials = 60 SEK / unit ,

9180000/ year

Training = 20000 SEK/ year

-Maintenance Costs

Spare parts= 690000 SEK/ year ,

raise 10 % annually

Internal maintenance = 270000

SEK/year

-Overhead Costs

Insurance

Facility

Electricity = 300*24h *5d*45w =

2600000 SEK/year

LinnæusUniversity

33

Implementing TPM Cost Table

Recurring Costs Non-Recurring

-Training Costs -Labor Costs

Hiring experts = 30000 SEK/years Consulting Experts = 60 000 SEK

Overtime Costs = 320 SEK/hour Software= 40000 SEK

-Resource

Teaching material= 20000/year

Documentation= 5000/year

-Overhead Costs

Electricity

Facility

Insurance = 300*24h *5d*45w =

2600000 SEK/year

-Maintenance &Repair

Spare Parts = 690000 SEK/year

Internal Maintenance = 270000

SEK/year

-Operational Costs

Labor = 619000 SEK /year , raise 3 %

annually

Tools = 62000 SEK/ year , raise 10 %

Materials = 60 SEK / unit , 9180000/

year

Training = 20000 SEK/ year

34

Maintain current situation

Recurring Costs

-Operational Costs

Labor = 619000 SEK /year , raise 3 % annually

Tools = 62000 SEK/ year , raise 10 %

Materials = 60 SEK / unit , 9180000/ year

Training = 20000 SEK/ year

-Maintenance Costs

Spare Parts = 690000 SEK/year

Internal Maintenance = 270000 SEK/year

External Maintenance = 1500000 SEK/year

-Overhead Costs

Electricity

Facility

Insurance = 300*24h *5d*45w = 2600000 SEK/year

35