As a diamond wheel manufacturer, we are constantly asked by customers to reduce their wheel costs or increase the life of the wheel.
In the following example, we simulated a business’s costs and potential production to see how increasing the life of a wheel or decreasing the cost of a wheel would affect the net income of the business.
Then we offered a different alternative that we may be able to offer (depending on the process and the machines used). The numbers can be eye opening.
Maybe you are not sharpening saws, maybe you are cutting tubing, and the same principles apply.
| Saw Sharpening Cost | $20.00 |
| Typical production rate per day | 40 |
| Cost of Diamond Wheel | $200.00 |
Let’s look at two scenarios where Customer A receives a discounted wheel at 15% markdown and Customer B would like a wheel to last 30% longer.
Revenue Breakdown – Typical Production: A single person can do 40 saws per day, at roughly 220 days per year. The manufacturing rate is equal to 8,800 saws. When breaking down the revenue for that single person, which is 8,800 saws multiplied by the saw sharpening cost of $20, the revenue for the year, based on a single individual is $176,000.
Assuming a wheel lasts approximately 5 days and with 220 working days in the year, we take 220 / 5, the operator uses 44 wheels a year.
Customer A: Customer A would like us to save them some money and ask us to make a wheel that is 15% cheaper. If we reduce the cost of the wheel by 15%, they will save $30, making the diamond wheel $170. This will result in the following savings – 44 wheels per year x $30 = $1,320.00 in savings. Note : It is likely the wheel would have a lower concentration to save money resulting in less blades sharpened per day or a shorter wheel life.
Customer B: Customer B asks for a wheel that will last 30% longer. The wheel will last 6.5 days instead of 5 days. 220 days / 6.5 = 34 wheels used. Customer B uses 10 less wheels, compared to customer A. 10 less wheels per year, multiplied by the cost of the diamond wheel ($200), yields an annual saving of $2,000! Note : It is likely that, due to the harder bond, the wheel will not be able to run as fast as it was, so production could also decrease.
The Alternative. Customer C: Customer C decided he would take a different route. Rather than looking at making the wheels cheaper or last longer, he asked us if we could design a wheel to allow him to grind faster, ideally 10 additional blades per day. The original 40 saws per day now became 50. Daily manufacturing revenue now increased from $800 to $1000. Looking at the revenue over a year $200/day x 220 working days is equal to $44,000 increase in revenue.
Due to the wheel being more aggressive, it only lasted last half as long, so the wheel usage went from 44 wheels into 88 wheels per year.
The additional 44 wheels will cost $8,800. However, you are still $35,200 ahead if the wheel is made to be more aggressive.
For Customer C, revenue increased from $176,000 / year to $220,000 per year per machine.