More than a machine monitoring system, telematics is emerging as a business analysis tool.
— Gary Olsen and Paul Iarocci
Cost per tonne is the total cost of an individual machine or a logging system divided by the total production of that machine or system. It is a simple formula but the accuracy depends on challenges related to compiling and often estimating variable and fixed costs, as well as production rates – all broken down by machine. It is an important analysis that can help contractors to improve profitability by optimizing equipment and system choices, eliminating flow bottlenecks, and identifying poor operating practices.
The process leading up to plugging numbers into this simple formula can be complex, often relying on dangerous assumptions and extrapolation outside of the known. This article discusses the basics of cost per tonne calculations as well as methods and resources to get the best quality input data and assumptions.
This is where Tigercat’sRemoteLog® telematics system comes in. RemoteLog can tell offsite owners and managers that the machines are in the right place and operating within established mechanical parameters, but users can also pull important data from the system to aid in cost per tonne calculations and other types of business analysis.
Total production should not be difficult to figure out because harvesting contractors are paid based on some type of volume or weight measurement. The unit of measurement might be tons, tonnes, cords, truckloads, cubic feet or cubic metres. Here, we use the unit tonne to represent a measure of production.
Determining the production for a particular piece of equipment or logging system can be more complex. RemoteLog telematics or the machine control system may help in some cases to provide very accurate production volume. This functionality is currently limited to stem counts for a feller buncher, volume reports from the harvester computer control system, and bunk scales that provide payload data via the forwarder’s computer control system.
For other types of machines, it is necessary to observe and count the individual machine’s production to determine the associated production volume over a fixed time period. Then divide by the total number of hours the machine actually worked. This provides a good estimate of production per working hour. The longer the sample period, the more accurate your information will be.
RemoteLog tracks important cost per tonne inputs such as production volume
for some models, and fuel consumption.
Availability and utilization
If your machine operator is running an eight-hour shift and you are keeping careful track of the number of actual productive machine hours per shift, you will very likely notice that it is some percentage of eight hours. This analysis is related to machine availability and utilization. In general, availability or mechanical availability is the proportion of time the equipment is able to be used for its intended purpose and is related to uptime.
Utilization is the proportion of the available time that the equipment is then used for its intended purpose. Employee breaks, daily maintenance, non-productive travel time, refuelling and mechanical breakdowns are all factors that reduce machine utilization. In order to get an accurate production rate per hour figure, the denominator should be utilization hours, not total shift hours.
Although machine shift length and shifts per year can likely be determined from payroll or accounting records, RemoteLog can take the analysis a step further by dividing the shift into discrete groupings – productive time, idle time, refuelling, machine shutdown and an additional optional category, service mode. The accuracy level of the utilization assumption is directly related to the accuracy level of the entire cost per tonne analysis. In addition, it is instructive to figure out what exactly are the causes of the nonproductive time in a shift.
MECHANICAL AVAILABILITY IS THE PROPORTION OF TIME THE EQUIPMENT IS ABLE TO BE USED FOR ITS INTENDED PURPOSE. UTILIZATION IS THE PROPORTION OF THE AVAILABLE TIME THAT THE EQUIPMENT IS THEN USED FOR ITS INTENDED PURPOSE.
Once you have determined how much a machine or a harvesting system is producing per hour, it is time to assign a cost per hour to that given machine or system. Good record keeping will make this process easier. There are many variables to consider when determining the cost per hour for your forestry machine.
These are the costs directly incurred by running the machine. Fuel consumption, defined by whatever date range you choose, can be accessed from RemoteLog. However, careful record keeping is required in order to get good estimates per machine for inputs such as filters, fluids and maintenance labour.
The telematics system is not going to help you with fixed costs, but your accountant or bookkeeper can. An important point to remember here is that unlike production and variable costs, which can be calculated for a time period of any duration, some fixed costs must be factored over the expected life of the machine. This is where your own experience, machine records, history and the experience of your dealer can help you to estimate a suitable machine lifespan and residual value based on your unique operating conditions. Then these fixed costs can be amortized over the life of the machine. Other fixed costs such as insurance premiums and licencing fees are annually based and thus more straightforward.
PERFORMING COST PER TONNE ANALYSIS BASED ON FIXED TIME PERIODS WILL ALLOW YOU TO COMPARE WITH PAST PERIODS TO DETERMINE IF YOUR COST-SAVING OR PRODUCTION-ENHANCING TACTICS ARE ACTUALLY WORKING.
Why is cost per tonne important?
As touched upon earlier, cost per tonne analysis is a great way to compare and evaluate different machines. The model is often used to compare different brands of machines to one another in order to make a purchase decision. However, cost per tonne can be used to help decide between a track or wheel feller buncher for a given application. The analysis may be used to decide between a full-tree or CTL system.
Like factories, mechanized logging operations must run continually, on schedule and with minimal downtime. Successful industrial manufacturers conduct some type of cost versus production program, often in real time, in an effort to improve efficiency and reduce costs. By making all your costs transparent, this exercise will allow you to determine different strategies for reducing costs or increasing production, possibly by replacing technically obsolete or troublesome equipment, or modifying processes to remove bottlenecks, and improve flow and productivity. And performing cost per tonne analysis based on fixed time periods will allow you to compare with past periods to determine if your cost-saving or production-enhancing tactics are actually working.
Tigercat has made available to its dealers a series of spreadsheet based costing models. These models are fairly easy to use and provide a solid foundation for cost per tonne analysis. RemoteLog telematics is a value adding system that is collecting vast amounts of data and processing it into actionable information. Over time as additional functionality is added to the system, this information will become more comprehensive and valuable.