CEOs are telling their engineering staffs to redesign and
reengineer products to reduce the impact of soaring materials' costs in 2011.
Examples:
- Copper was recently trading at close to $10,000
per metric ton on the London Metal Exchange, up 50 percent from last June.
Prices ebbed slightly after the crises in Japan this month.
- Crude oil prices have jumped 54 percent in the
past year from $68 per barrel to $105 per barrel.
- Prices of plastics and other products made from
hydrocarbons are also rising. For example, in January polypropylene prices rose
15 cents per pound to around 87 cents per pound. That's a 21 percent increase.
- Cold-rolled steel prices have risen 32 percent
in the last five months to about 34 cents per pound.
"Inflation around the world is a big issue," says
David
N. Farr, CEO of
Emerson
Electric Co., a major engineering services company based in St. Louis, MO. Costs
have been rising twice as fast as what its supply chain officers had forecast.
And Farr doesn't feel that rising costs are a short-term
problem. "I think net material inflation could run at higher levels for the
next two or three years," he said following a recent board meeting where
quarterly results were reviewed.
He has asked his engineering staff to evaluate alternatives
that could reduce costs.
"In certain areas, we're definitely going through a major
redesign effort on trying to figure out how to get certain materials out and
reduce those materials," says Farr." It's an ongoing process."
Copper replacement is one specific
area he cited. Emerson Electric is an important producer of electric motors and
drive systems.
Delphi, a leading supplier of electrical and electronic
systems for cars, would also like to find aluminum replacements for copper in
wiring and cable systems. Delphi is working with the College of Science,
Technology, Engineering and Mathematics at Youngstown State University (YSU) on
opportunities for greater use of aluminum in electric vehicles.
Aluminum is lighter and less expensive than copper, but
requires more mass to conduct an equal amount of electricity.
The key technical issue is protection of the aluminum wire
and copper terminal interface from corrosion, says Chris Burns, director of global
core engineering and program management at
Delphi
Automotive Systems. YSU is providing some materials, research and testing,
and Delphi is providing manufacturing know-how.
Most electrical distribution systems in traditionally
powered cars use copper conductors without shielding, according to Burns. Electric
vehicles will require large wires with shielding to prevent electromagnetic
interference (EMI). Aluminum is a candidate because of its lower cost and lower
weight, which is more critical for electric vehicles. Reduced weight means
reduced battery power required.
Meanwhile, Alcoa is conducting research on new materials
that boost conductivity. Alcoa received a patent last year for an aluminum
alloy that contains up to 1.2 percent copper.
Some design engineers are taking a second look at the
economics of renewable sourced polymers as a way of avoiding the roller-coaster
effect of global oil markets on plastics pricing. Many producers of bioplastics
are betting that demand will grow as oil prices rise. Cereplast for example
feels
that plastics made from algae could replace 50 percent of the oil-based feedstocks
used in polyolefins such as polypropylene.
"The tipping point for us is 95 dollars a barrel (for oil),"
says Frederic Scheer, CEO of Cereplast. Designers would need to be convinced
that the price of oil would remain above that level for some time before making
significant engineering changes, however.
Major
companies,
such as DuPont, Cargill and Archer Daniels Midland (ADM), are making a similar
bet with significant investments in plastic feedstocks based on crops. So far,
interest in bioplastics has been driven more by green issues such as climate
change.
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