Daniel J. Williams
President and CEO

Ellen F. Kominars
Marketing Manager
Welduction Corp.
Farmington Hills, Mich.

Heat treating products and components improves strength and wear resistance. Induction heat treating is usually the method of choice for thermally hardenable parts (with carbon content above 0.20%) that will be produced in large volume and must have minimal distortion with selective hardening. But should induction treatments take place in-house or be outsourced? The decision is not nearly as easy as it may appear. Although many decision makers would base their determination solely on price, this can be a costly mistake.

A quick comparison pegs the average cost of induction machinery at $250,000. A 2.5-year payback on an annual 50,000-part volume translates to $250,000 for 125,000 parts, or $2.00 per part. Commercial heat treating might run $1.85 a part, so bottom-line driven managers would select any commercial firm that will do the job for less than $2/part.

But there are hidden costs of commercial processing, including longer turnaround times, freight costs, and a long-term contract commitment.

Hidden benefits of purchasing equipment must be also considered. The equipment might be used for additional projects, for example, and having the capability inhouse would let companies control their own quality and meet tight specifications. Once benefits and costs have been uncovered, they need to be quantitatively measured and then considered.

A simplified formula can be used for fast estimates or gross cost ups. The machine cost is multiplied by 1.38 to cover the onetime costs, such as connecting the machine to an electrical source. Add about another $1.50/part to cover variable costs, such as labor, energy, repairs, and maintenance. Mathematically, this is represented as:

x = CM/V2.5 + CN/V2.5 + CAR/VA
x = CM(1.38)/V2.5 + $1.50

where x is the cost per piece; CM is the cost of the machine; V2.5 is the number of pieces made in 2.5 years; CN is the nonrecurring utility costs; CAR is the annual recurring cost; and VA is the annual volume.

Accompanying tables outline various costs and breaks it all down into costs per piece. It makes the decision seems obvious — if it’s based solely on price (in house at $2.79/piece versus outside at $2.32/piece). Other factors to consider include the volume. It significantly effects costs because higher volumes let the capital investment be spread out over more parts. In this example, costs drop from $2.79/part to $1.95, then to $1.26, as volume increases.

Even with these considerations, if funds aren’t available for a large capital investment, then commercial heat treating may be the only choice. Likewise, the cost of setting up a metallurgical lab (including staff and equipment) could prohibit the purchase. Buying used machinery could be another option.

Other questions that should be considered before outsourcing induction heat treatments include:

Is a metallurgist currently on staff? An experienced metallurgist familiar with induction heat treating may already be employed within your organization. If not, it could be expensive to locate and recruit one. This process could take six months or more.

Is a metallurgical laboratory presently in the facility? If not, add $30,000 to $100,000 for basic setup costs.

Is induction equipment in use in your facility? Adding a piece of equipment similar to others on the factory floor always goes more smoothly than buying and operating the “first.”

Is process development needed and are prototype parts available? Most equipment manufacturers will help develop processes for you and will credit a portion of the cost toward the purchase of capital equipment.

Is the part currently in production? If the current process is acceptable, then costly and timely process development might be unnecessary.

Is there available floor space at the facility?

Are the needed electrical utilities available?

Did the sales staff base cost estimates on collected quotes for capital equipment and processing? Were budgets set? Costs must be compared to budgets.

Is there time to go through the procurement cycle of the capital equipment? Typically, delivery times range from 24 to 40 weeks. If process development is needed, add another four to six weeks.

By now, it’s obvious that buying heat-treating equipment involves a lot of time and legwork. Information must be collected on a variety of costs (some obvious, some not), such as quality, delivery, chance of garnering future projects, staff costs, repairs, and turnaround time. One step in the data-collection process is to send out a request for quotation (RFQ) to equipment manufacturers. A staff member with a background in capital- equipment purchasing should be assigned the task of writing and sending out the RFQ and evaluating quotations.

The RFQ on buying induction equipment should contain:
• Who responses should be directed to and who should be contacted for technical questions. Include addresses, phone and fax numbers.
• When the quotation is due with details about the number of copies and the way the finished quote should be returned (via fax, overnight mail, regular mail, etc.).
• Name, number, material and prior microstructure of part to be heat treated. Annual part volume, expected maximum monthly volume, expected lot sizes, and number of work shifts/day.
• Metallurgical specifications. Graphically indicate desired case depth pattern. Specify final hardness (temper, if expected) and final microstructure.
• Process sheets, product FMEA, and process FMEA.
• Whether automatic or manual loading is preferred.

An RFQ to commercial heat treaters should include:
• Questions about whether the commercial heat treater currently has the proper equipment in operation.
• Questions about their experience in induction heat treating.
• Questions to assure they currently have the skills and equipment. (Don’t let anyone experiment with your project or use your job as a “learning experience.”)
• Questions detailing internal quality systems.
• Delivery time.
• Lot size requirements.
• Contract commitments (short and long term). • Estimated turnaround time.
• Estimated cost of shipping parts to and from your facility.

This team approach to decision making should increase estimating accuracy and lead to the best solution. Remember, costs are not solely part specific, but are greatly effected by volume, preexisting equipment, and current expertise within the facility.

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