Serving Industry with Engineered Polymeric Solutions Since 1889
Serving Industry with Engineered Polymeric Solutions Since 1889
Serving Industry with Engineered Polymeric Solutions Since 1889
The Philpott Rubber Co. 
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Brunswick, OH 44212 
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Implementing a Coil Storage Program
 
 Abstract
This paper discusses the various elements that should be considered when selecting a storage system for steel coils. When one takes into account the impact of a properly designed system, substantial savings in an operator’s Total Cost of Ownership (TCO) can be achieved. The methodology, assumptions, rationale and results of a TCO economic evaluation are presented herein. The conclusions are that, by selecting a coil storage solution using current polymeric design, one can benefit from a net present value return on investment of more than 1,000:1 versus wood block systems over a 30-year design life.

Introduction
In today’s highly-competitive global economy, it is essential that steel coil storage facility operators take advantage of all savings opportunities available to them. Prudent business professionals now look not only at the initial cost of a system, but also at what savings such an investment can make in reducing the Total Cost of Ownership (TCO) in their operation. Formal TCO analysis was first developed in 19871 as a means of clearly and reasonably determining the true costs of owning and managing an operation or process. Initially used in the information technology market, it is now commonly applied in conducting life-cycle cost analyses for industrial applications. When evaluating TCO, it is necessary to understand all costs associated with a given activity. In this paper, we will evaluate how proper selection of a steel coil storage system can not only improve safety and prevent damage to the steel coils2, but also reduce the cost of other aspects of the storage operation.
TCO Financial Model Development 
In interviews with numerous operators in the United States, we determined that a mean design life for a steel coil storage system is approximately 30-years. Input from these operators varied between 20 and 50 years. In developing our TCO model, which compares a wood block coil storage system to a polymeric design, a common 30-year design life was used. Our methodology was to design such a model, based on a multivariate analysis, which compares the life cycle cost of each of the two systems over the 30-year life. The input parameters for this financial model are various pertinent variables provided to us by the industry participants that we interviewed. These variables are outlined in the Assumptions section of this paper. It is important to note that this model was designed to allow for changes in these input variables to reflect the specific operating TCO components of a particular facility.






Assumptions

Our TCO model includes variables typically found in a life-cycle cost analysis including:
  • System design life
  • Rate of inflation
  • Cost of money
Personnel familiar with coil storage operations suggested that the following variables also be included in the model:
  • Storage system component costs (including blocks, spacers, chains, etc.)
  • Number of floor level blocks
  • Life of each component
  • Labor for moving chains
  • Wood block disposal costs
  • Damage cost avoidance
A financial model was then created, which allowed multiple values to be entered. The model then calculates both present and future values of each system, for each year, through the end of the system design life.

Test-Case Model Variables
The intent of our test-case model was to use highly conservative input variables for each coil storage system. This evaluation assumed that standard wood-blocks would be compared to a polymeric modular system each with 50 coils to be stored at floor level.
 The following standard economic variables were common for both systems.
 
System Design Life (years) 30
Inflation Rate 10%
Cost of Money 6%
Figure 4: Common variables

For the wood block system, the variables in the following table were used:
 
Wood Block Cost $   5
Wood Blocks/Floor Coil      2
Floor level coils      50
Wood Block Life (years)      4
Wood Block Disposal Cost $   10
Chain Cost (per chain) $   50
Ave Chains per block      0.5
Chain Life (years)      7
Chain handling per shift (hours)      1
Coil Moving time saved/shift      2
Fully burdened labor rate ($/hour) $   15
Figure 5: Wood block system variables table

The following variables were used for calculating the life cycle cost of the polymeric modular system. For ease of presentation, all components (rails, spacers, connectors and blocks) of the polymeric modular system were aggregated into the cost of the polymer block.
 
Cost/Polymer Block (all components) $    155
# Polymer Blocks/Floor Coil        4
# Floor Level Coils        50
Polymeric System Life (years)        30
Figure 6: Polymeric storage system variables table

Because there was no consensus among those that we interviewed regarding a value for coil damage due to the use of chains, no such costs were used in the financial model. Further, our analysis did not take into account costs related to property or casualty costs resulting from coil related accidents.

Results
The analyses that make up the results in this section are detailed in Appendix A with graphs illustrating the break even values in Appendices B and C. Based on the variables shown above, the future value TCO savings from the Polymeric modular system were significant when compared to a wood storage system. As shown in Figure 6, although the polymeric modular is initially more costly than the wood system, its future cash savings over the 30-year design life approaches $2.0 million (6,400%) for the 50 floor level coil storage system. The Future Value, break even for the polymeric modular system versus the wood blocks is approximately 2½ years.
 
Cumulative FV: Cash Expenditures (Year)
PV Results: 1 10 20 30
Wood System 14,450 124,000 245,250 369,250
Polymer System 31,000 31,000 31,000 31,000
Savings: (16,550) 93,000 214,250 338,250
  -53% 300% 691% 1091%
Figure 8: Cumulative, present value cost comparison

Most financial professionals prefer to compare the present value costs over the life of the system, which are provided in Figure 7. On a present value basis, the polymeric modular system provides a TCO savings of almost $340,000 (1,100%) over the system life. The Present Value, break even for the polymeric modular system versus the wood blocks is approximately 3 years.
 There have also been operators who chose the option to lease the polymer system through a third party. This has allowed them to gain the use of the entire polymer coil storage system throughout the facility, while paying for it over 5 to 10 years. Figure 9 shows the present value costs of a polymeric modular system, leased for 7 years, with an 8% lease rate, to a wood system. Experience has shown that certain leasing companies provide attractive rates for the polymeric system because it is a long-life, tangible assets that is viewed as valuable collateral. In this and most cases, the polymeric modular system is immediately more cost effective than the wood system, while allowing the owner to preserve precious capital for other purposes. Appendix D includes both the data analysis and present value graph for this leasing option scenario.
 
Cumulative Net Present Value (Year)

PV Results: 1 10 20 30
Wood 14,450 124,000 245,250 369,250
Poly w/Lease 5,954 47,634 47,634 47,634
Savings: 8,496 76,366 197,616 321,616
  143% 160% 415% 675%
Figure 9: Cumulative, present value cost comparison assuming 7 year lease of polymetric system

Summary
In evaluating the true cost of a coil storage system, one must consider more than just the cost of the coil storage components. When operators take into account other real costs associated with a coil storage system by conducting a life cycle analysis, prudent business judgment often guides a purchasing decision to using what may initially seem to be a more expensive solution. Once all appropriate costs are considered, a well-designed system using state-of-the art materials usually results in a more financially beneficial decision over the design/useful life of the coil storage system.       

Alternative Coil Storage Systems:
Wood System
Year
 FV
 PV
Blocks Chains
 Ongoing Labor TTL Cost Cummulative Net Cash
 Cumulative
1 1,500  1,250  11,700  14,450   14,450  14,450
2      12,870  12,870   27,320
 11,700  26,150
3      14,157  14,157  41,477  11,700  37,850
4      15,573  15,573   57,050  11,700  49,550
5 2,196    17,130  19,326   76,376  13,200  62,750
6      18,843  18,843   95,219  11,700  74,450
7      20,727  20,727  115,946  11,700  86,150
8    2,436  22,800  25,236   141,182  12,950  99,100
9 3,215    25,080  28,295  169,477  13,200  112,300
10      27,588  27,588   197,065  11,700  124,000
11      30,347  30,347   227,412  11,700  135,700
12      33,381  33,381   260,794  11,700  147,400
13 4,708    36,720  41,427   302,221  13,200  160,600
14      40,392  40,392  342,612  11,700  172,300
15    4,747  44,431  49,178   391,790  12,950  185,250
16      48,874  48,874   440,664  11,700  196,950
17 6,892    53,761  60,654  501,317  13,200  210,150
18      59,137  59,137   560,455  11,700  221,850
19      65,015  65,051   625,506  11,700  233,550
20      71,556  71,556   697,062  11,700  245,250
21 10,091    78,712  88,803  785,865  13,200  258,450
22   9,250  86,583  95,833  881,698  12,950  271,400
23      95,241  95,241   976,939  11,700  283,100
24      104,765  104,765  1,081,705 11,700  294,800
25 14,775    115,242  130,016   1,211,721  13,200  308,000
26      126,766  126,766  1,338,487   319,700
27      139,443  139,443  1,477,930 11,700 313,400
28      153,387  153,387  2,025,298 11,700   343,100
29 21,631  18,026  168,726  208,383   1,631,317  14,450  357,550
30      185,598  185,598   1,839,700  11,700  369,250
Totals  65,009  35,709  1,924,580  2,025,298    369,250  

Polymeric System
Year FV PV
Rollblocks Chains Ongoing Labor Net Cash Cummulative Net Cash Cummulative
1 31,000 - - 31,000 31,000 31,000 31,000
2 - - - - 31,000 - 31,000
3 - - - - 31,000 - 31,000
4 - - - - 31,000 - 31,000
5 - - - - 31,000 - 31,000
6 - - - - 31,000 - 31,000
7 - - - - 31,000 - 31,000
8 - - - - 31,000 - 31,000
9 - - - - 31,000 - 31,000
10 - - - - 31,000 - 31,000
11 - - - - 31,000 - 31,000
12 - - - - 31,000 - 31,000
13 - - - - 31,000 - 31,000
14 - - - - 31,000 - 31,000
15 - - - - 31,000 - 31,000
16   - - - 31,000 - 31,000
17   - - - 31,000 - 31,000
18   - - - 31,000 - 31,000
19   - - - 31,000 - 31,000
20   - - - 31,000 - 31,000
21   - - - 31,000 - 31,000
22   - - - 31,000 - 31,000
23   - - - 31,000 - 31,000
24   - - - 31,000 - 31,000
25   - - - 31,000 - 31,000
26   - - - 31,000 - 31,000
27   - - - 31,000 - 31,000
28   - - - 31,000 - 31,000
29   - - - 31,000 - 31,000
30   - - - 31,000 - 31,000
Totals 31,000 - - 27,200   31,000  






Polymer w/Lease
Year
 FV PV
Lease Pmt Chains Chain Labor Net Cash Cummulative Net Cash
Cummulative
1 5,945 - - 5,945 5,945 5,945 47,634
2 5,945 - - 5,945 11,908 5,945 47,634
3 5,945 - - 5,945 17,863 5,945 47,634
4 5,945 - - 5,945 23,817 5,945 47,634
5 5,945 - - 5,945 29,771 5,945 47,634
6 5,945 - - 5,945 35,725 5,945 47,634
7 5,945 - - 5,945 41,680 5,945 47,634
8 5,945 - - 5,945 47,634 5,945 47,634
9 - - - - 47,634 - 47,634
10 - - - - 47,634 - 47,634
11 - - - - 47,634 - 47,634
12 - - - - 47,634 - 47,634
13 - - - - 47,634 - 47,634
14 - - - - 47,634 - 47,634
15 - - - - 47,634 - 47,634
16 - - - - 47,634 - 47,634
17 - - - - 47,634 - 47,634
18 - - - - 47,634 - 47,634
19 - - - - 47,634 - 47,634
20 - - - - 47,634 - 47,634
21 - - - - 47,634 - 47,634
22 - - - - 47,634 - 47,634
23 - - - - 47,634 - 47,634
24 - - - - 47,634 - 47,634
25 - - - - 47,634 - 47,634
26 - - - - 47,634 - 47,634
27 - - - - 47,634 - 47,634
28 - - - - 47,634 - 47,634
29 - - - - 47,634 - 47,634
30 - - - - 47,634 - 47,634
Totals 47,634 -   47,634   47,634