The final part of this series describes how the operating factor affects per length and per weight computations. Companies that understand these welding economics and the added value of technology can successfully compete in global and domestic markets.

Duane K. Miller, Sc. D., P.E., The Lincoln Electric Company

Overhead costs usually include indirect labor, plant, and equipment costs. Some manufacturers will also include electricity, compressed air, and general maintenance.

The operating factor is used to account for welding-related activities. This includes obtaining parts, loading parts into fixtures, removing slag from welds, and more. Significant errors can be introduced when it is assumed operating factors remain constant. Usually, most changes that reduce welding time actually increase the operating factor.

In Part 1, we described three methods of computing welding costs: cost per piece, cost per length, and cost per weight. Theoretically, the resultant calculations should all yield the same values. This is not typically the case, however, because each method uses different variables, and makes different assumptions. To illustrate, the per piece methodology does not use the operating factor variable, whereas the other two methods do. If the operating factor is incorrect, the per length and per weight computations will be flawed, but the per piece cost will not be affected by this error.

The Effects of Selecting the Wrong Methodology
A common error is to use the per weight method for small, single pass welds.

The per weight method is highly dependent upon the welding deposition rate. Regardless of the weld type, it is possible to calculate the weight of weld metal for a given length of weld. Add up the lengths of welds on an assembly, convert the lengths to weights, and the cost to weld that assembly can be determined. This approach, however, may incorporate faulty assumptions.

Consider Case 1: A 1 /4 in. fillet weld is made with a welding process depositing 10 lb./hr. The travel speed is 13 in./min. A labor and overhead (L&O) rate of $45/hr. and an operating factor of 30 percent is assumed. Considering only the L&O portion of the cost, the equation from Part 1 of this article is:

L&O Cost/lb. = (L&O rate)/{(deposition rate) x (operating factor)} = ($45/hr.)/{(10 lb./hr.) x (0.30)} = $15/lb.

The approximate weight per foot of a convex 1 /4 in. fillet weld is 0.155 lb./ft. Therefore, the cost per foot of this weld can be calculated as follows:

Cost per length = (Cost per weight) x (Weight per ft.) = ($15/lb.) x (0.155 lb./ft.) = $2.325/ft.

In Case 2, the cost per length method will be used. Again, only the labor and overhead cost will be considered. The applicable equation is:

L&O cost/length = (L&O rate)/(travel speed)(operating factor) = ($45/hr.)(1 hr./60 min.) / (13 in./min.)(0.30) = $0.1923/in. or $2.308/ft.

This compares nicely (only a 1 percent difference) with the previously computed $2.325/hour.

Case 3 assumes that productivity improvements can increase the deposition rate to 20 lb./hr. This is a 100 percent increase in productivity, which should result in a 50 percent reduction in the cost of the weld. Plugging 20 lb./hr. into the above formula, the cost per pound drops to $7.50, and the cost per foot to $1.163.

For Case 4, the cost per length method will be used. A measure of the travel speed shows the new rate is 18 in./min. Inserting this value into the above equation results in a computed cost of $1.667/foot. Compared to the per weight value of $1.163/foot, the cost per length method predicts a cost that is 43 percent higher.

Where's the error, and which one is right?

The problem is that while the deposition rate doubled (from 10 to 20 lb./hr.), the travel speed increased only 38 percent (from 13 to 18 in./min.). The fillet weld weight per length increased from a close-to-the-mark 0.1538 lb./ft. to 0.2222 lb./ft. This could be the result of excessive convexity, or a slightly larger size, but the 44 percent increase in weight per length can easily go undetected.

In reality, despite the 100 percent increase in deposition rate, productivity did not double. The labor cost of welding decreased, but in the realm of 28 percent, not 50 percent.

Overwelding is a common and costly error, which can easily go undetected when costs are computed using the per weight method. Since the cost per piece and the cost per length methods do not rely on deposition rate, it is not necessary to assume a weld weight per length.

Note:
The welding procedures in the examples, as well as specific numerical values used or labor and overhead cost and for the welding materials are illustrative only. They are not presented as accurate for any specific application, and are intended only to demonstrate cost computations.

Tip:
Select the cost calculation method that most directly measures the important cost variables for the specific application.

Impact on Overhead Costs
Overhead usually includes indirect labor, plant, and equipment costs. Some manufacturers will include electricity, compressed air, and general maintenance. For most, overhead costs exceed direct labor costs, by factors of two or three times, or more.

Decreases in direct labor, however, may not result in decreases in overhead costs. In the previous examples, the $45/hr. labor and overhead rate may have accounted for $20 in direct labor cost, and $25 in overhead costs. In Case 2, the labor and overhead cost was $2.325 per foot. Of that cost, 44 percent or $1.033 is the direct labor cost, and the remaining $1.292 is overhead cost. To cover labor and overhead, the manufacturer must consider $2.325 in cost when establishing the selling price of that foot of weld.

Next, let's assume a change in welding procedure is implemented, increasing the travel speed to 18 in./min., and that the weld size remains unchanged (e.g., no overwelding). The Case 4 computation showed the cost decreasing to $1.667 per foot. Of that cost, 44 percent is still direct labor ($0.733) and the remainder is overhead ($0.934). The direct labor content has obviously decreased, given the higher travel speeds. More product can be made in a given time, so a direct labor reduction from $1.033 to $0.667, or $0.366 per foot can be expected. But, the same computation suggests the overhead cost per foot has decreased from $1.292 to $0.934. Has the overhead cost per piece actually gone down?

Let's consider two extreme situations. In the first example, the plant has the capacity to make more product, but the welding operations are the bottleneck. When the welding time decreases by 28 percent, 38 percent more product can be made, and without a larger plant or a larger workforce. Nothing changes, except 38 percent more product starts to flow out of the plant.

In this extreme and unlikely situation, fixed overhead costs can be spread out over 38 percent more product, resulting in decreased overhead cost per piece.

At the other extreme, the bottleneck to greater company throughput is, let's say, the painting booth. An improvement in the welding operations enables the welding to be performed quicker, and the welder who normally has 8 hrs, of welding to do per day can now do the same amount of work in about 5.8 hours. During the other 2.2 hours, the welder is assigned to do other productive work. The direct labor costs associated with the welding operation have decreased, but plant overhead costs have not been reduced. Thus, there are no savings in overhead. In this situation, it is wise for the manufacturer to consider only the direct labor savings when analyzing welding costs.

Tip:
When evaluating the effect on overhead costs, ask: Will the changes in the welding operations affect the company throughput?

Operating Factor
The operating factor is used in the cost per length and the cost per weight methodologies. It is used to account for welding related activities for which the welder is responsible, but that do not directly involve welding. These activities may include obtaining parts, loading parts into fixtures, removing slag from welds, etc. Significant errors are introduced when operating factors are assumed to re-main constant. In fact, most changes that reduce welding time will actually increase the operating factor. Let's examine why this is the case.

Case 5 will consider a welding cycle that consists of the following:

  1. Obtain parts from bins — 22 sec.
  2. Load parts in fixture — 45 sec.
  3. Make weld #1 — 18 sec.
  4. Reposition fixture — 8 sec.
  5. Make weld #2 — 18 sec.
  6. Chip slag from two welds — 10 sec.
  7. Unload part from fixture — 13 sec.
  8. Place welded part in bin — 10 sec. Total Cycle Time = 144 sec.

The welding portion of this cycle is 18 + 18, or 36 sec., and the percentage of time when welding is being performed is 36/144 seconds, or 25 percent. Therefore, the operating factor is 25 percent.

The cost per unit method should be used for this application, but let us assume the cost per length method is used instead. For this method, it is necessary to know the travel speed, and the length of the welds. The travel speed is 12 in./min., and the welds are 3.5 in. long. Thus, the time to make the welds should be (3.5 in.)/(12 in./min.), or 0.29 minute (17.4 sec.). The measured value of 18 seconds per weld compares nicely to the calculated theoretical time (3.4 percent difference).

Using the equations presented in Part 1 of this article, we obtain the following (only the labor portion of the cost will be considered in this example):

L&O cost/length = (L&O rate)/(travel speed)(operating factor) = ($45/hr.)/(12 in./min. x 60 min./hr. x 1 ft./12 in.)(25%) = (45)/(60)(0.25) = $3/ft.

Since each part contains two welds at 3.5 in. each, then there is 7/12 or 0.58 feet of weld per part. Thus, each part costs 0.58 foot x $3/foot, or about $1.74 per piece for Case 5.

Case 6 considers changes from Case 5, where the welding speed increases from 12 in./min. to 18 in./min. Plugging the different value into the formula above, the following is obtained:

L&O cost/length = ($45/hr.)/(18 in./min. x 60 min./hr. x 1 ft./12 in.)(25%) = (45)/(90)(0.25) = $2/ft.

That seems intuitively correct — the welding speed went up by 50 percent, so the labor portion of welding costs should go down by 33 percent. But the facts will show something quite different. Consider a new welding cycle time, as follows:

  1. Obtain parts from bins — 22 sec.
  2. Load parts in fixture — 45 sec.
  3. Make weld #1 — 12 sec.
  4. Reposition fixture — 8 sec.
  5. Make weld #2 — 12 sec.
  6. Chip slag from two welds — 10 sec.
  7. Unload part from fixture — 13 sec.
  8. Place welded part in bin — 10 sec. Total Cycle Time = 132 sec.

The bolded items are the changes that have occurred due to the increased welding speeds. Now, to make the 3.5 in. weld, the time is (3.5 in.)/(18 in./min.) or 0.194 minutes (11.6 sec., rounded to 12 sec.). The cycle time has decreased from 144 to 132 seconds, reflecting improved productivity. The new operating factor is 24/132 seconds, or 18 percent. The decrease in welding time, while all the nonwelding operations remained constant, actually resulted in a decrease in the operating factor.

If the new, decreased operating factor were used in the above computation, the cost per length is determined as follows:

L&O cost/length = ($45/hr.)/(18 in./min. x 60 min./hr. x ft./12 in.)(18%) = (45)/(90)(0.18) = $2.78/ft.

The cost per length has decreased 9.3 percent from $3/ft. to $2.78/ft. versus the previously calculated 33 percent decrease.

Tip:
Carefully evaluate the impact of the proposed change on the operating factor. Some changes will decrease this variable, others will increase it.

Actual vs. Theoretical Results
This situation is simple: the manufacturing specifications call for welds to be made with a travel speed of 18 in./min. When the part and the welding cell were new, this travel speed was used. With time, however, "things" changed. The tooling for making the part wore and fitup isn't what it used to be. The fixture is a bit sloppier because of spatter accumulation. The brand and type of filler metal used has changed, and even though the AWS classification is the same, the new electrode doesn't run quite the same as before. And the new operator doesn't have the same skills as the veteran who was previously on the job. To compensate for these changes, the travel speed was incrementally decreased from 18 in./min. to 12 in./min.

It is unlikely, however, that the manufacturing standards have ever been changed, and less likely that anyone has recalculated the welding costs. Thus, the actual costs are significantly higher. Why? Because what is actually being done in production differs from the manufacturing specifications.

The solution, of course, is to get production back to the 18 in./min. rate. Perhaps the tooling will need to be reworked, and the fixture rebuilt. Maybe the lower-cost electrode is really not the bargain it promised to be. Perhaps the welder needs some more training. In reality, incremental declines in productivity occur all the time, and unfortunately, such changes often go undetected for years.

Digital communication technology can help manage this challenge. Today, welding cells throughout a plant can feed data to a central location, providing almost instantaneous feedback about welding operations. The data from plants in other locations, including overseas, can be monitored and used to ensure that manufacturing standards are being met in actual operations. The greatest potential of digital technology lies in using it to maintain and control weld quality.

Tip:
Make sure the data used for cost computations reflect reality.

Assumptions Regarding the Labor Content of Welding Costs
Although the time associated with welding operations and the wages paid to skilled personnel typically dominate welding costs, there are exceptions that reverse the typical trend. Failure to consider the potential impact of non-labor costs in unique situations can lead to faulty conclusions.

One example is an application requiring high-cost alloy electrodes. Let's use the cost per weight example from Part 1 of this article, in which labor and overhead contributed $3.516/lb. to the cost, while welding consumables added $1.70/lb. Of the total cost of $5.216/pound, 67 percent was labor and overhead. This accurately reflects a particular automatic application that used high deposition rates, but most semiautomatic and manual welding applications will have labor contents closer to 85-90 percent.

Instead of a mild steel electrode costing $0.80/lb., an alloy electrode costing $10/lb. is required. With the assumption everything else is the same, the consumable cost is now $10.90/lb., raising the total to $14.41/lb. of deposit. The consumable cost is now 75 percent of the cost of welding — not unusual when expensive alloys are required.

The second example considers the impact of the operating factor. Again, the cost per pound example from the first part of this article will be used for comparison. In that example, a 40 percent operating factor was assumed. Table 1 shows what happens as the operating factor is varied from 10 percent to 90 percent, all other factors remaining the same.

For lower operating factors, the labor content is a more significant portion of the cost, but as the operating factor increases, this percentage decreases. For highly automated operations, the labor content becomes less significant while material cost accounts for a greater proportion of the overall cost.

Conclusion
As Peter Drucker said, "If you can't measure it, you can't manage it." Manufacturers who use welding in their operations must know how to calculate and track welding costs. The real power in capturing welding cost data is that it enables the innovative manufacturer to evaluate alternate means of fabrication, incorporating new technologies to reduce welding costs, while maintaining or improving the quality of the welded product. When this is done, the promise of the AWS/EWI study cited in last month's article will be realized: Companies with an understanding of welding economics and the value added by technology can and will compete successfully in domestic and global markets.

Operating Factor Labor and Overhead percent of Total Cost
10 89
20 81
30 73
40 67
50 62
60 58
70 54
80 51
90 48

Duane Miller is the manager of engineering services for The Lincoln Electric Company, Cleveland, OH.