Cost of Ownership- A Business Tool with Multiple Applications

Business metrics, in one context, represent organizational goals or targets for achievement over a given period of time. They can be used provide a benchmark for how well a company is refreshing their product line and sustaining their market position versus competition. These metrics are primarily derived from internally generated, quantitative data which adds value to the results being reported.

Another application for metrics is its use in guiding management decisions on potential changes in the manufacturing process. In this case, the total cost of ownership model can be used as a tool for analyzing the cost impact of a change in the manufacturing process. This article is focused on exploring cost of ownership use in automated manufacturing applications including coatings.

Background

Total cost of ownership (TCO) is a methodology that has traditionally been used for evaluating the relative merits of alternative manufacturing elements in terms of their comparative net impact on total use cost. TCO modeling has had a long legacy of use in the electronics industry. Its history can be traced back to Intel in the mid-1980s as a way to evaluate the cost of acquiring, maintaining, and operating various alternative equipment used in semiconductor fabrication.

The TOC goal was to implement a quantitative approach for decision making on a potential change in the manufacturing process. The major elements of the total cost of ownership model are illustrated in Figure 1.

The objective in applying a TCO model was to quantify (as much as possible) the total cost of using a given piece of equipment by examining detailed data collected on all elements of the manufacturing process and then being able to look at the net value of making the change.

The value of using the TOC model (in semiconductor manufacturing) is aided by its trade association - SEMI (Semiconductor Equipment and Materials International), which provides a strong interface between suppliers and manufacturers. One of their important functions is the establishment of standards including those that define the cost of ownership methodology and how to calculate it. These standards provide a basis for suppliers to accurately target and validate improvements for their product or equipment development efforts. The SEMI standards ensure suppliers and manufacturers are also using the same playbook for the development of data on use-cost for a given product or technology.

Key SEMI standard related to TOC:

• E35- Guide to Calculating Cost of Ownership Metrics
• SEMI E10- Equipment Reliability and Maintainability
• E79- Measurement of Equipment Productivity

Key Criteria for Using a Total Cost of Ownership Model for Manufacturing

Cost of ownership, as a source of metrics for decision making, is a tool that has its best fit for markets or segments of markets that have the following characteristics.

First, automation needs to be used in the manufacturing processes. Automation brings with it opportunities for tracking many individual process variables in a controlled set of conditions that are repeated over an extended period of time. In this regard, the ability to generate data, where many process variables remain constant, results in better management decisions when an individual variable is introduced into the manufacturing process and compared to existing data on the current process.

Second, having measurable performance standards or specifications provides manufacturers with industry benchmarks from which a new product result can be judged. This gives suppliers of equipment, materials, etc., a framework for what is expected in documentation by manufacturers when developing new products. Standards support an environment of continuous improvement.

Third, the competitive landscape and/or the supply chain is complex and demanding and the cost of entry is high. In these business conditions, the risks associated with any change are extremely high for the manufacturer. The risks as also very high for suppliers who must make a large investment in research and development to position a new product for market entry. Relevant manufacturing metrics derived from the cost of ownership approach reduces risk in both situations.

Fourth, data is collected using production scale equipment in actual or simulated manufacturing processing conditions. This element differentiates it from other methodologies in its value in decision making.

Adaptability of TOC In Coatings, Adhesive And Ink Markets

The semiconductor industry has used the metrics derived from the cost of ownership model to advance the state-of-the-art in chip manufacturing. New equipment designs have been evaluated and benchmarked against current systems in their total value as a replacement.

Beyond its traditional role, the cost of ownership model is also being used for other purposes and in markets outside of semiconductor manufacturing.

For example, manufacturers can develop metrics, using the cost of ownership approach, to make decisions on a variety of materials technologies. New material science is frequently introduced with data generated in the laboratory or in smaller, pilot scale operations.

Depending on the circumstance, some of the features and benefits identified are supported by quantitative data while others rely on a qualitative assessment of expected results.

TOC also can provide a compelling sales and marketing tool for materials suppliers attempting to introduce new, innovative technologies to a given market.

In this regard, manufacturers and suppliers serving global markets involving high volume production have either used or contemplated using variations of the TOC model to validate alternative technology or new manufacturing equipment.

The need for more real-world data to support management decisions in large dynamic markets such as these is driven by two key factors. First is the significant investment required by suppliers at all levels of the supply chain to even participate as a legitimate competitor in their area of expertise. Second is the risks and liabilities that come with being a supply chain participant. For these reasons, the cost of ownership approach, in some form, has a definite value.

Cost of Ownership: An Example in a Coating Application

Cost of ownership methodology has been used in coating applications. This is mainly in applications where the four key criteria identified earlier exist. These criteria include: (a) automation is used in the manufacturing process, (b) measurable performance standards or specifications exist (c) the competitive landscape is complex, demanding and the market is very cost competitive and (d) production scale data can be generated.

For coatings, one example is its use of conductive coatings (that incorporate silver and other high-value-added pigments) in applications such as cell phones or other mobile electronics. Among the key elements of TOC that come into play with regard to equipment and materials in coating applications such as this are listed in Table 2.
TOC as a Strategic Market Assessment Tool
Variation in the total cost of ownership model allow it to be adapted to fit into a number of business situations.

• Suppliers with new technology can use the cost of ownership model as a marketing tool to quantify the value of a change in real terms versus one or more competitive benchmark technologies
• Management can use TOC data to assess competing products or technologies and develop a “SWOT” analysis that is supported by relevant, quantified data. Long-term business strategies can be implemented with a much higher degree
of confidence
• Manufacturers can use the data generated from a cost of ownership effort for sales and marketing purposes. For example, manufacturers of electric vehicles can compare the total cost of ownership of all electric vehicles, to hybrid vehicles and conventional gas vehicles
• Research and development of new equipment or new materials can use TOC to more fully characterize the product(s) they plan to bring forward to commercialization and introduce to potential customers.
In summary, cost of ownership has a number of potential uses in business when the manufacturing process involved is suited for collection of real time data on the process.