Investment and Management Decisions in Aluminium Melting: A Total Cost of Ownership Model and Practical Applications

The well-established Total Cost of Ownership (TCO) concept has been applied to several
durable goods industries, including machinery. However, none of the existing TCO models
explicitly focus on such highly energy-intensive equipment as metal melting furnaces. In this
paper, an application of the TCO concept to aluminium melting furnaces is explored. A TCO model is
created and tested through seven case studies in the aluminium die casting industry. Results indicate
that the capital expenditure (CAPEX) incurred by the sample companies accounts for only 3–5%
of a furnace TCO. Moreover, the melting technology implemented in the furnace highly impacts
its TCO, as both the furnace’s thermal efficiency and melting loss (i.e., the fraction of aluminium
burnt during the melting process) significantly affect the costs incurred. Moreover, the sample
furnaces’ cost effectiveness clearly relies on scale. This evaluation leads to identify technological
and managerial levers to reduce a furnace TCO, e.g., by adopting energy-efficient furnaces and by
installing centralized, large-sized furnaces to pursue scale economies.