SIMTech technical reports (STR_V10_N1_12_STA)
Cost modelling of the aluminium extrusion process
J. S. C. Low
Abstract – In this study, a cost model based on the
Process-Based Cost Modelling (PBCM) methodology
was developed for and customised to the production
of aluminium extruded heat sinks. A base case sce-
nario for aluminium extruded heat sinks weighing 198
g produced on an 1800 US Ton extrusion system is
used as the input for the cost model. It was found that,
economies of scale is achieved at an annual produc-
tion volume of above 25,000 parts and costs S$1.75
per part at an optimum production volume of 200,000
parts. The four major cost drivers identified are the
material/consumable at 66.64%, equipment at 13.73%,
tooling at 9.94%, and energy at 5.6%. In addition, a
1% increase in material recovery rate will contribute
to a saving of S$0.0027 in the unit cost at the annual
production 200,000 parts, which is effectively
S$40,000 savings per annum at a material recovery
rate of 75%.
Keywords: Aluminium extrusion, Heat sink, Proc-
ess-based cost modelling
1 BACKGROUND
The aluminium extrusion process has been iden-
tified as one of the existing competing technologies to
the Liquid Forging (LF) process developed by the
Forging Technology Group in the production of heat
sinks. The aluminium extrusion process has the ability
to create very complex cross-sections while producing
parts with excellent surface finish. To benchmark the
cost of liquid forged heat sinks against the aluminium
extruded heat sinks, a study on the economic per-
formance and a cost modelling of the aluminium
extrusion process for the production of heat sinks has
to be carried out.
As previous cost models developed are for the
cost assessment of the specific technologies (e.g.
machining, roller embossing and injection moulding
processes) [1], some customisation is needed for the
cost model of the aluminium extrusion process.
Therefore, a separate cost model based on the same set
of cost structure and relationships must be developed
specifically for the aluminium extrusion process in the
production of heat sinks.
2 OBJECTIVE
In order to study and analyse the economic per-
formance of the aluminium extrusion process in the
production of heat sinks, a cost model must be de-
veloped specifically to this manufacturing technology.
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Volume 10 Number 1 Jan-Mar 2009
This model is based on the cost structure and rela-
tionships developed in the previous models so that the
results obtained from the cost model can provide
relevant data for consistent benchmarking between
technologies (i.e. liquid forging and aluminium ex-
trusion).
3 COST MODEL DEVELOPMENT
A top-down approach, namely the Process-Based
Cost Modelling (PBCM) methodology, is used to
model the aluminium extrusion process in the pro-
duction of heat sinks. Fundamentally, the concept of
the methodology is to map the operation cost based on
the process description [2]. The key steps involved in
the development of the cost model are: understanding
the processes and parameters involved in the manu-
facturing process (aluminium extrusion); identifying
the cost elements; and establishing the cost structure
and relationships (based on previous existing cost
models) [1].
Aluminium Billets
Heating
Extrusion & Shearing
Quenching
Stretching
Sawing
Aging
Heat Sinks
Fig. 1. Process flowchart of the aluminium extrusion proc-
ess in the production of heat sinks.
3.1 Structuring the Cost Model
To understand the aluminium extrusion tech-
nology, each process step is diagrammed on a process
flowchart as shown in Fig. 1. With this, the cost ele-
ments are identified for each of the process in the next
stage of the cost model development. Generally, these
cost elements can be classified under the fixed cost
and variable cost as shown in Table 1.
 Cost modelling of the aluminium extrusion process

Table 1. Cost elements classified into fixed and variable. process’s cost model.
Fixed Cost Variable Cost Table 2. Process utilisation of each process step.
Equipment Materials/Consumable
Process cycT Utilisation
Floor space Tooling
Heating 0.5 s 22.86%
Fixed Overheads Labour
Extrusion & Shearing 0.59 s 26.67%
Energy
Quenching 0.59 s 26.67%
Maintenance
Stretching 0.59 s 26.67%
Sawing 2.2 s 100% (bottleneck)
Using these cost elements, the cost structure and
Aging 1.92 s 87.47%
relationships in the model can then be established.
Again, as mentioned earlier, a similar set of cost
structure and relationships from previous models are The 22.86% utilisation of the heating process in-
used to allow consistent assessment between the dicates that 77.14% (100%-22.86%) of the time when
technologies for benchmarking. The general cost the production line is running, this station is idle and
structure relating the cost elements is given by: waiting for parts or material to be processed. On the
contrary, the sawing process at 100% utilisation in-
C Total = C Fixed + C Variable (1) dicates that the station is continuously at work with
zero idle time, thus making it the bottleneck. With this
C Fixed = C Equipment + C FloorSpace + COverhead (2) functionality, simple line-balancing simulation can be
achieved on the cost model by just changing the
CVariable = CMaterial / Consumable + CTooling ‘process capacity’ parameter of each process step.
(3)
+ CLabour + CEnergy + C Maintenance 4 BASE CASE SCENARIO
where C represents the unit cost per good part. This In order to generate the necessary data from the
cost structure and relationships are essentially the cost model, a base case scenario for the input has to be
basis of the cost model’s functionality to compute the established. Once the cost model has been built, the
cost performance data required for the benchmarking. input for the model, as in the process parameters based
3.2 Added Functionality: Process Utilisa- on industrial practices in the domain of aluminium
tion and Bottleneck Indicators extrusion technology was referenced from literature
[3], textbooks [4,5], equipment datasheets and com-
In the course of developing the cost model, a panies. Table 3 summarises the categories of process
unique feature derived from the parameters of the parameters collected for the base case scenario in the
process conditions was incorporated to streamline the manufacture of aluminium extruded heat sinks.
computation of the line cycle time per part (overall
cycle time per part of the production line). As the Table 3. Categories of process parameters collected for the
cycle time per part of the overall production line is base case scenario.
dependant on its slowest process step in series, the line
Category Parameter
cycle time per part is governed by
Production Conditions • Working Hours per Shift
cycT Line = max{ cycT Pr ocess } (4)
• Shifts per Day
• Working Days per Year
PT
cycTPr ocess = (5) • Average Line Productivity
pc
Economic Conditions • Discount Rate
where cycT is the cycle time per part, PT the time for • Accounting Life
the process to complete a cycle, and pc the process Cost Element Parameters • Part Weight
capacity or the number of parts effectively processed
• Raw Material Price
per cycle. This implies that the process step with the
longest cycle time per part will effectively be the • Consumable Price
bottleneck and thus, the overall line cycle time. • Equipment Price
From this, the utilisation percentage of each • Tooling Price
process step can be computed by: • Labour Salary
cycTPr ocess • Floor Space Rental
Util = × 100% (6)
• Energy Price
cycTLine
• Cost Factor for Overheads
where Util is the process utilisation or the amount of Process Parameters for • Capacity
time when the process station is doing useful work each Process Step • Cycle Time
when in the line is in production mode. Table 2
represents the actual values of the process utilisation • Material Scrap Rate
indicators integrated into the aluminium extrusion • Part Reject Rate

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J. S. C. Low

5 RESULTS & DISCUSSION performance. Therefore, a cost breakdown by cost

The analysis in this section is done for a base case
scenario of aluminium extruded heat sinks weighing
198 g per part done on an 1800 US Ton extrusion
system with an aggregate material scrap rate of 14.5%
and production yield of 89.41%.
5.1 Impact of Production Volume on Cost
The production cost as a function of the number
of parts produced is one of the critical economic pa-
rameters to consider [6]. Figure 2 is a graph showing
the relationship of the fixed, variable and total unit
cost to the annual production volume in the range of
5,000 parts per year to 300,000 parts per year.
As observed, the significant drop in the unit fixed
cost as the annual production volume hits 25,000 parts
indicates that the large investment in capital cost like
equipments will start to be evened out as the produc-
tion volume begins to satisfy the economies of scale
criteria. The total unit cost eventually levels out at
S$1.75 at an annual production volume of 200,000
parts.
5.2 Identifying the Cost Driver
More detailed information about the aluminium
extrusion process’s critical cost drivers has to be ex-
plored to gain a better understanding of its economic
elements as shown in Fig. 3 is done to identify these
cost drivers. At the annual production volume of
200,000 parts, the material/consumable cost consti-
tutes the largest portion of the total cost at 66.64%.
This is followed by equipment at 13.73%, tooling at
9.94%, energy at 5.6%, overhead at 2.11% and main-
tenance at 1.2%. At 0.45% and 0.33%, the labour and
floor space respectively are relatively insignificant.
A further breakdown by processes of the four
major costs identified, namely the material consum-
able, equipment, tooling and energy as shown in Fig. 4
is done to investigate the influence of these cost driv-
ers in each of the process steps. Almost the whole of
the total material cost is incurred at the heating proc-
ess as expected. This is due to it being the start of the
raw material processing (aluminium billets heating),
as in the process step where the initial input of the raw
material is.
As the extrusion press is the core of the alumin-
ium extrusion system, the extrusion (and shearing)
process is where a large part of the equipment cost and
the tooling cost (due to the high price of the extrusion
die) is distributed. The energy cost however, is mostly
distributed between the heating and aging processes
because of the high energy consumptions of the
heating elements in the furnaces.

4
Unit Cost (S$)

3 Total Cost

2 Fixed Cost

1 Variable Cost

0
0 25 50 75 100 125 150 175 200 225 250 275 300
Annual Production Volume (000's)

Fig. 2. Unit cost versus annual production volume.

$1.40
Material / $1.20
Consumable
$1.00 Energy
Unit Cost (S$)

66.64% Tooling
Tooling $0.80
9.94% Material /
$0.60 Consumable
$0.40 Equipment
$0.20
Labour
0.45% $0.00
Quenching

Stretching

Aging
Sawing
& Shearing
Extrusion
Heating

Overhead
Equipment Maintenance
2.11% Floor Space Energy
0.33% 13.73% 1.20% 5.60%

Fig. 3. Cost breakdown by cost elements at 200,000 parts.

Fig. 4. Cost breakdown by process based on top four major
cost drivers.

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5.3 Impact of Material Recovery Rate on
Cost
As identified in section 5.2, material cost (i.e.
Al6061 aluminium billets) makes up a large part of
the unit cost. The possibility of recycling the scrap and
the waste from rejected parts by channelling the alu-
minium back into the process (closed loop) can reduce
the amount of raw material required, hence reducing
the cost. The rate of material recovery from the scrap
and waste examined is to observe its effect on the unit
cost. The unit cost at the annual production volume of
200,000 parts is plotted against the material recovery
rate of 0% up to 75% in Fig. 5. From the graph, it
shows that for an increase of every 1% in material
recovery, there is a unit cost saving of S$0.0027 at the
annual production volume of 200,000 parts. This in
effect gives a total of S$40,000 in savings per annum.
6 CONCLUSION
In modelling the economic performance of the
aluminium extrusion process in the production of heat
sinks, the unit cost related to the annual production
volume was studied, the cost drivers were identified
and the impact of material recovery rate on the unit
cost was investigated.
Based on the findings, with the high initial capital
investment in items like the equipments, economies of
scale for aluminium extruded heat sinks can only be
achieved at a minimum annual production volume of
25,000 parts while reaching optimum annual produc-
tion volume at 200,000 parts at a unit cost of S$1.75 at
0% material recycling rate. The four major cost ele-
ments at the annual production volume of 200,000
parts with 0% material recycling identified are the
material/consumable cost at 66.64%, equipment at
13.73%, tooling at 9.94% and energy 5.6%. Due to the
high contribution of material cost, it was also found
that for every 1% increase in material recycling rate,
there is a unit cost saving of S$0.01 and a total cost
$1.80
$1.75
Unit Cost
$1.70
$1.65
$1.60
$1.55
$1.50
0% 10% 20%
Material Recovery Rate
Fig. 5. Unit cost versus material recovery rate.
Cost modelling of the aluminium extrusion process
savings of S$40,000 per annum for an annual pro-
duction volume of 200,000 parts.
In addition to these findings, an integrated proc-
ess utilisation and bottleneck indicator has been in-
corporated to provide simple line-balancing func-
tionality to the cost model. This in effect offers an-
other option of setting technical performance targets
for the technology being assessed.
7 INDUSTRIAL SIGNIFICANCE
This cost study provides a comprehensive and
close representation of the aluminium extrusion
process in the production of heat sinks and also a
platform for the Forging Technology Group to
benchmark the liquid forging process.
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