bending-the-rules

Transitioning to in-house sheet metal fabrication is a significant decision that hinges on a detailed understanding of both the upfront costs and the potential long-term savings. Let’s break down the main cost components and illustrate how these could translate into financial benefits over time.

Initial Investment

The primary expenditure in bringing fabrication in-house is the initial investment in equipment. This includes purchasing or leasing state-of-the-art machinery such as press brakes, CNC laser-cutting machines, and other necessary tools. For a mid-sized manufacturing unit, the initial cost for basic equipment can range from £100,000 to £500,000, depending on the technology’s sophistication and production capacity.

Additionally, setting up an in-house operation may require modifications to your existing facility, such as increased floor space and enhanced power supply systems, which could add an estimated £50,000 to £200,000 to your initial expenses.

Maintenance Costs

Unexpected equipment breakdowns can disrupt your operations and cost you valuable time. A service contract for your new equipment offers a proactive approach to maintenance, ensuring:

  1. Guaranteed Response Times (Minimise downtime with rapid technician response in case of an issue)
  2. Cost Savings (Benefit from discounted parts and labour on any repairs needed)
  3. Reduced Risk of Breakdowns (Regular preventive maintenance included in some contracts helps identify and address minor problems before they escalate)
  4. Peace of Mind (Relax knowing your equipment is covered, allowing you to focus on your core business)

By investing in a service contract, you can maximise your equipment’s uptime, reduce unexpected costs, and enjoy the peace of mind that comes with knowing your investment is protected.

Labour Costs

Bringing your sheet metal operations in-house can provide greater control and efficiency, even with the initial increase in labor costs due to hiring skilled technicians. While traditionally, sheet metal work required highly specialised skills for programming and operating machines, advancements in technology are changing the landscape.

Modern machine controls now handle complex calculations like cut blank size, bend radius, and sequence. Additionally, nesting software automates sheet layout for laser and punching machines. This doesn’t negate the need for intelligent operators, but the skillset required is evolving.

Instead of needing deep experience as a traditional sheet metal worker, a focus on understanding and utilising the machine’s capabilities becomes paramount. This shift can make it easier to find qualified personnel and streamline your training process.

In essence, you gain the benefits of in-house control without the same limitations in finding skilled labor thanks to advancements in technology. Hiring two skilled technicians might add £60,000 to your annual payroll, assuming a £30,000 salary per technician.

Potential Savings

  • Reduction in Outsourcing Costs: If previously outsourcing your sheet metal needs, you can eliminate these costs, which often include markups by the third party, transportation fees, and other handling charges. For many businesses, this could mean savings of up to 20-30% of the cost of outsourced parts.
  • Decreased Lead Times and Inventory: By manufacturing in-house, you reduce the lead times associated with waiting for suppliers, which can often lead to keeping lower inventory levels. This reduction in tied-up capital can significantly improve cash flow and reduce storage costs.

Increased Productivity:

With direct control over the fabrication process, productivity increases as processes are optimised and downtime is minimised. The speed and responsiveness to market demands also provide a competitive edge, potentially increasing sales.

Example Scenario

Let’s consider a hypothetical medium-sized company spending £200,000 annually on outsourcing their sheet metal fabrication. By investing £350,000 in in-house machinery and setup costs, and assuming additional annual operating costs of £60,000, the break-even point could be reached in under three years. 

After the initial payback period, the company not only saves the entire cost of outsourcing but also benefits from increased flexibility and higher quality control, further adding to potential gains.

Accelerating Payback Through Expanded Production and Supply

An effective strategy to further reduce the payback period of your initial investment in in-house sheet metal fabrication is to expand your production capabilities to not only meet your internal needs but also to supply parts to other businesses. This approach can significantly boost revenue streams and improve the overall utilisation of your new equipment.

Market Expansion

By becoming a supplier, you tap into new market segments and diversify your business model. This not only spreads operational risks but also enhances profitability. For instance, if your company primarily serves the automotive sector, supplying fabricated parts to industries like construction or aerospace can open additional revenue channels.

Optimised Equipment Use

Increasing the usage of your equipment to operate closer to its capacity can drastically improve your return on investment (ROI). More production runs mean reduced per-unit costs due to economies of scale. This optimisation can lead to better pricing in the supply chain, making your offerings more competitive.

Example Calculation

Let’s expand on the earlier scenario where your company made an initial investment of £350,000. Assume now that by supplying parts to external customers, you generate an additional £100,000 in revenue per year. This additional income stream could potentially cut the original payback period from nearly four years to about three, significantly speeding up the return on your investment.

Moreover, supplying to external parties not only provides financial benefits but also strengthens your company’s position in the industry, increasing your visibility and reputation as a versatile and reliable manufacturer.

Case Study Highlight: ProMal’s Transformation in Metal Furniture Production

A practical example of the benefits of in-housing sheet metal fabrication can be seen in the success story of ProMal, a company specialising in metal furniture production. ProMal made the strategic decision to adopt in-house fabrication, leveraging advanced RAS technology to streamline their manufacturing processes.

SEE HOW THEY DID IT

Weighing the Investment Against Long-Term Gains

The decision to bring sheet metal fabrication in-house is a significant strategic move that involves a careful evaluation of both initial expenditures and potential long-term benefits. As we have outlined, the upfront costs — comprising equipment purchase, facility upgrades, and labour — are substantial. However, the ability to control quality, reduce lead times, manage costs more effectively, and potentially serve new markets makes this investment highly worthwhile for many businesses.

By expanding your production capabilities not just to fulfil internal needs but also to supply to others, you can significantly enhance the return on your investment and reduce the payback period. This expanded capacity not only bolsters your business’s financial health but also strengthens its standing in the competitive landscape.

Moving sheet metal fabrication in-house presents more than just an opportunity to save on costs — it’s a chance to redefine your business’s operational dynamics and secure a sustainable advantage in a rapidly evolving manufacturing sector. With the right planning, execution, and strategic expansion, the real cost of bringing fabrication in-house can translate into substantial long-term gains, making it a savvy choice for forward-thinking businesses.