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

CSCP, UNEP, WBCSD, WI, InWEnt, UEAP ME Life Cycle Management Navigator: 12_EXPR_LCC 2 Life Cycle Costing Setting the Scene Exercise 1,000,00015,000485,000500,000  Costs Disposal costs Costs for storage, handling, processing, collecting etc. Procurement costs The original cost accounting system of “Silla Manufacturing Co.” provides the following data. “Disposal costs” = 1.5% of total costs

CSCP, UNEP, WBCSD, WI, InWEnt, UEAP ME Life Cycle Management Navigator: 12_EXPR_LCC 3 Life Cycle Costing Question 1 Exercise How would you as a manager of “Silla Manufacturing Co.” evaluate the situation? Does life cycle cost reduction seem attractive to you? How would you as a manager of “Silla Manufacturing Co.” evaluate the situation? Does life cycle cost reduction seem attractive to you? According to the original accounting system of “Silla Manu- facturing Co.” life cycle costs (here: disposal costs) add up to 1.5% of total costs.

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

CSCP, UNEP, WBCSD, WI, InWEnt, UEAP ME Life Cycle Management Navigator: 12_EXPR_LCC 5 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...

CSCP, UNEP, WBCSD, WI, InWEnt, UEAP ME Life Cycle Management Navigator: 12_EXPR_LCC 6 Life Cycle Costing Extended Information Basis Exercise Procure- ment costs Costs for storage, handling Costs for production process Costs for collecting Disposal costs  Costs Product output 455,000125,000310, ,000 Non- product output 45,00015,00023,00012,00015,000110,000  Costs 500,000140,000333,00012,00015,0001,000,000 “Non-product output costs” = 11% of total costs The revised accounting system provides the following data:

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

CSCP, UNEP, WBCSD, WI, InWEnt, UEAP ME Life Cycle Management Navigator: 12_EXPR_LCC 8 Life Cycle Costing Findings Exercise 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...

CSCP, UNEP, WBCSD, WI, InWEnt, UEAP ME Life Cycle Management Navigator: 12_EXPR_LCC 9 Life Cycle Costing New Opportunities Exercise Based on the better information basis “Silla Manufacturing Co.” was able to elaborate the following improvement measures: -improving cutting process; -reuse of wood-NPO as input for other products (wood NPO costs ca. 20% of unprocessed, “new” wood). Reduction of wood-NPO by... 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.