The High Cost of Penny Production

Posted on November 17, 2012 | in Lean Wastes, Manufacturing, Quality, Safety | by

pennies copper zinc high cost production lean blitz consulting nbc 26 augusta georgia

In recent years I’ve heard rumors that the production costs and materials of a penny are greater than the value of the penny itself. In high school chemistry I recall a “side experiment” with a friend where we scraped the edge of a new zinc-filled penny and heated it so the liquid zinc would flow out of the copper cover.

(Safety note: molten zinc is hot. Don’t let molten zinc fall from a high distance onto a petri dish. It splashes and hurts. Just a quick heads-up.)

Liz Hill of NBC 26, Augusta’s NBC affiliate, did some research on the potential disappearance of the one-cent coin:

So in the current state of penny (and nickel!) production, here are the costs.

Penny: 2.4 cents (240% of the coin’s currency value)
Nickel: 11 cents (220% of the coin’s currency value)

I did not realize the costs of materials and production were that high relative the the coins’ values. So how does this make sense?

In a situation where the value of what is being produced is lower than the costs of producing it, things have to change. Here are the options for any of these scenarios:

– Increase the value of the product so it exceeds the costs of producing it
– Reduce the production costs so they are below the product’s value
– Cease production

Looking at each scenario one at a time:

– The currency value of a penny is one cent. That cannot and will not change, so that option is out.

– Old pennies used to be comprised of more expensive materials. Now pennies are solid zinc with a copper coating. Material costs can probably be reduced, but by how much is unclear. Copper costs continue to escalate, and pennies already have very limited amounts of it today. Can production costs be cut? Can the production processes be made more efficient?

– Ceasing production all together is now being considered.

So what is the United States Treasury and United States Mint considering for the production processes? To me, it appears that evaluating processes for waste activities is the only way to save the penny.

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