The Life Cycle Management Navigator Life Cycle Costing

The Life Cycle Management Navigator Life Cycle Costing Training Session 12 Life Cycle Management Navigator: 12_EXPR_LCC 1 CSCP, UNEP, WBCSD, WI, In. WEnt, UEAP ME

Life Cycle Costing Exercise Setting the Scene The original cost accounting system of “Silla Manufacturing Co. ” provides the following data. Costs � Procurement costs Costs for storage, handling, processing, collecting etc. Disposal costs Costs 500, 000 485, 000 1, 000 “Disposal costs” = 1. 5% of total costs Life Cycle Management Navigator: 12_EXPR_LCC 2 CSCP, UNEP, WBCSD, WI, In. WEnt, UEAP ME

Life Cycle Costing Exercise Question 1 According to the original accounting system of “Silla Manufacturing Co. ” life cycle costs (here: disposal costs) add up to 1. 5% of total costs. • How would you as a manager of “Silla Manufacturing Co. ” evaluate the situation? • Does life cycle cost reduction seem attractive to you? Life Cycle Management Navigator: 12_EXPR_LCC 3 CSCP, UNEP, WBCSD, WI, In. WEnt, UEAP ME

Life Cycle Costing What is Non-Product Output (NPO)? Exercise Examples for NPO: • Solid waste • Waste water • Heat losses • Emissions to air Life Cycle Management Navigator: 12_EXPR_LCC 4 CSCP, UNEP, WBCSD, WI, In. WEnt, UEAP ME

Life Cycle Costing Changing the Scene Exercise “Silla Manufacturing Co. ” came to the conclusion that they need more transparency on their life cycle costs to take appropriate action. For this reason they screened their non-product output flows and allocated respective costs. The result looks as follows. . . Life Cycle Management Navigator: 12_EXPR_LCC 5 CSCP, UNEP, WBCSD, WI, In. WEnt, UEAP ME

Life Cycle Costing Exercise Extended Information Basis The revised accounting system provides the following data: Procurement costs Costs for storage, handling Costs for production process Costs for collecting Disposal costs Costs Product output 455, 000 125, 000 310, 000 -- -- 890, 000 Nonproduct output 45, 000 15, 000 23, 000 12, 000 15, 000 110, 000 Costs 500, 000 140, 000 333, 000 12, 000 15, 000 1, 000 � “Non-product output costs” = 11% of total costs Life Cycle Management Navigator: 12_EXPR_LCC 6 CSCP, UNEP, WBCSD, WI, In. WEnt, UEAP ME

Life Cycle Costing Exercise Question 2 Consider the more detailed information on life cycle costs. • How do you as a manager of “Silla Manufacturing Co. ” evaluate the situation now? • What measures could you propose to reduce environmental costs (here: nonproduct output costs)? Life Cycle Management Navigator: 12_EXPR_LCC 7 CSCP, UNEP, WBCSD, WI, In. WEnt, UEAP ME

Life Cycle Costing Exercise Findings The new transparency on NPO-flows and associated costs helped “Silla Manufacturing Co. ” to. . . • understand that NPO costs are about 7 times higher than costs for disposal (15, 000 => 111, 000); • recognise that NPO costs are a significant component of the costs structure (11% of total costs). � This motivated “Silla” to develop improvement measures. . . Life Cycle Management Navigator: 12_EXPR_LCC 8 CSCP, UNEP, WBCSD, WI, In. WEnt, UEAP ME

Life Cycle Costing New Opportunities Exercise Based on the better information basis “Silla Manufacturing Co. ” wa able to elaborate the following improvement measures: • Reduction of wood-NPO by. . . - improving cutting process; - reuse of wood-NPO as input for other products (wood NPO costs ca. 20% of unprocessed, “new” wood). • Substitution of adhesives, use of screws - In case of a defect/error, not longer does the whole product become NPO but just the defective part. • Additional measures to avoid “NPO production” at the end of the production process, because NPO costs accumulate from production step to production step. Life Cycle Management Navigator: 12_EXPR_LCC 9 CSCP, UNEP, WBCSD, WI, In. WEnt, UEAP ME