Design for Manufacture. DfM Manufacturing Costing

Transcription

1 Manufacturing cost Brian Griffiths Design for Manufacture DfM Manufacturing Costing Introduction. For any company, the manufacturing cost is the basic starting point for the determination of the cost of a product. Simplistically, the manufacturing cost is made up of four things. These are the cost of the part, the cost of processing, (ie the cost of the people, tooling and equipment), the cost of assembling and the additional costs associated with the running of the manufacturing system producing the product and the factory in which it is made: Manufacturing cost = (raw material/parts) + (labour, tooling and equipment) + (assembly) + (overhead) These may be summed up in the table of figure 1 in which typical elements that make up the four things can be seen. This is a real life example of the relative values of these, as suggested by Bakerjian [1992]. Part cost Processing cost Assembly cost Overhead material design volumes process accuracy tolerances surface finish standard parts etc process machine/s tooling size accuracy tolerances surface finish volumes control monitoring labour etc type layout time control handling labour rate automation sub-assembly etc indirect labour quality purchase dispatch sales & marketing HR Buildings etc 25% 15% 10% 50% = 100% Figure 1 Table showing typical manufacturing costs. These figures are very general but they do give a rough guide to the cost of manufacture to a company. This is a very useful rule-of-thumb that enables us to state some generalities. Firstly, part costs are high - one quarter of the total manufacturing cost. Secondly, the overhead costs are even higher one half of the total. Of interest is that the overhead cost is often called the burden since it is the additional cost that the manufacturing function has to support. Thirdly, the processing cost and the assembly costs are roughly the same. A more accurate breakdown of the costs is shown in the schematic of figure 2. Here the various elements are divided further. The second row of the diagram shows three divisions, the cost of the components, the cost of assembling them and the overheads. The components can 1 of 9

2 be divided into two sets. Firstly, those parts which are custom made and secondly, those which Manufacturing Cost are standard. The former are novel parts, made from Components Standard Assembly Overhead raw material of some form, either by the company itself or by a supplier. The latter are standard parts, which are uneconomical for the company itself to make since others specialise in Raw Materials Custom Labour Equipment Support & Tooling Processing Tooling Indirect Allocation their manufacture. Standard parts are such things as nuts, bolts, motors, switches, hinges, springs etc. Figure 2 The major cost elements of manufacture. Assembly costs are those associated with the joining together of all the custom and standard parts to make the product. This includes the assembly of/into packaging. Low product volumes are normally labour intensive because the high investment in assembly machinery cannot be justified. High volumes, very specialist products (electronic) or heavy products are assembled by dedicated machines or robots. Overhead costs divide into two categories, direct and indirect. Direct are those operations/ facilities that support production. They are not actually part of the manufacturing processes themselves but are related to it, indeed, manufacture could not take place if it wasn t for these supporting facilities. Examples of supporting facilities are materials handling, quality assurance, tool and equipment refurbishment, goods in and out, maintenance etc. These direct operations would also come under the heading of DfM. They often support and are shared by more than one product line. Hence, costing systems need to reflect how to allocate these costs in a reasonable and fair manner to each product that relies on them. Indirect overheads are associated with those things that the company needs to do to operate and keep in business, above and beyond the manufacturing facilities themselves. In theory manufacturing doesn t need them but the business would quickly grind to a halt if they did not occur. Examples of indirect overheads are the cost of security, advertising, the secretariate, maintaining the grounds and the building, HR and finance. Such indirect costs are not associated with manufacture and so it is not possible to apply DfM principles to them, hence they will not be referred to again in the context of the subject of these notes. The custom made parts are made within the company. The raw material is the starting point, which is then converted to the required finished shape using tools, equipment and machines, see the last row of figure 2. The raw material can be in a variety of forms. Invariably it comes into the company in some pre-processed state, not in its true raw state. Typically it could be in the form of plastic granules or rolled steel sheet or steel cylindrical bar stock or planks of wood. This raw material is purchased from suppliers who specialise in such things. Of significance is that these companies have also been through a raw material to finished product conversion route. For these suppliers, their raw material will be, for example, the yet to be polymerised ethylene plastic or the scrap metal fed to a blast furnace or tree trunks. This rawraw material is also converted using tools, equipment and machines, as per the last row of 2 of 9

3 figure 1. The costs associated with the conversion of each part in a product or assembly is monitored via a Bill of Materials. Bill of Materials A bill of materials (BOM) is a list/table of all the parts of a product or assembly and the costs of their conversion to finished form. Each line in the BOM corresponds to a part. Along each line are entries for the basic three parts of the manufacturing cost (last row of figure 2) the raw material cost, the cost of conversion and the cost of assembly. The conversion cost is broken down further into sub-costs associated with labour, fixed costs and variable costs. A typical BOM for an automobile intake manifold is shown in the table of figure 3. Component Purchased materials or raw materials Processing (M/c & Labour) Assembly (labour) Total Variable Costs Mould tooling & other NRC Mould tool life Total Fixed Costs Manifold = k 1.5M =0.23 =5.64 housing Runner = k 1.5M =0.10 =2.16 insert Steel inserts =1.32 =1.32 (16) EGR =1.83 =1.83 adapter PCV valve: Valve =0.89 =0.89 O-rings =0.18 =0.18 Spring =0.18 =0.18 Cover =0.12 =0.12 Vacuum =0.10 =0.10 block Total direct =12.09 =0.33 =12.42 costs Overhead =9.03 =0.50 =9.53 cost (=15%) (=180%) (=260%) (150%) Total Cost =21.12 =0.83 =21.95 Total Cost Figure 3 A Bill of Materials for a Thermoplastic Composite Inlet Manifold [Ulrich & Eppinger]. After all the direct costs have been summed, the support overhead costs are added (see the penultimate row of the table) at a level appropriate to the burden on that direct part/activity. For example, the burden associated with the purchase of purchased materials is very low (only 15%) to support the purchasing function of the company. In contrast, the burden on assembly is high (260%) because of the hands on nature of assembly and the indirect costs necessary to support it. Fixed Costs and Variable Costs A helpful cost distinction is between those costs that are constant and those that are variable. Fixed costs are those costs that are incurred, irrespective of the number of parts that are made. A good example is the cost of a mould. Irrespective of whether that mould is made in-house or purchased from a supplier, the cost to the company is a fixed amount. The mould has to be paid for whether ten or one million parts are produced from it. The word fixed applies to the fact that the amount the company has to pay for the mould on an order is fixed. However, in terms of the amount that needs to be added to the cost of the part to pay for the mould, it is not 3 of 9

4 a fixed cost. It will reduce as the number of parts that can be produced from that mould increases. The difference in terminology reflects the fact that one is looking at the cost from the company point of view rather than the part point of view. Variable costs are costs that increase as the number of parts produced increases. Typical examples are the cost of raw materials or the cost of labour. If the cost of the raw material for a part is X then if ten are produced the cost is 10X. It is similar with the labour cost. If it takes Y seconds (and hence Z) for a man to assemble that part into the product then it will take 10Y seconds (= 10Z) for him/her to assemble ten parts. Variable costs are in direct proportion to the number of parts produced. Note that again the terminology is with respect to the company s view of the cost. The cost on the purchase order the company raises will increase as the number of parts intended to be produced increases whereas the raw material cost per part is the same. However, having said all the above, a fixed cost is never totally fixed and a variable cost is never always directly proportional. If a company wants to double production and order two moulds, then it is likely that the second will be cheaper than the first. If they want to double production then it may be necessary to build another production line. Variable costs may not be directly proportional, for example, when buying bulk, the cost per unit can decrease. In the above inlet manifold example, only two parts have both fixed and variable costs. These are the manifold housing itself and the runner insert. In order to form these two parts, the company has had to purchase moulds and associated tooling. The mould tool and other nonrecurring costs (NRC) for the former are $350k and for the latter are $150k. When these are amortised over the mould life of 1.5M parts, the mould or tooling or fixed costs are only $0.23 and $0.10 respectively. The cost of the plastic raw material for the housing (including wastage) is $3.85. The labour and machine rate for the moulding process is $1.56. When summed, the total variable cost for the housing is $5.41, which with the total fixed cost of $0.23 gives the total housing cost of $5.64. The cost of the plastic raw material for the runner insert is $0.83 and it costs $1.10 in labour and machine time to mould it. However, it needs to be assembled into the housing and this costs $0.13 in labour costs. Thus, the total variable cost for the runner is $2.06, which with the above fixed cost of $0.10 gives the total runner cost of $2.16. All the other parts in the housing assembly are bought-out items so have a purchase cost attached to them but no processing cost, but have to be assembled into the housing so there is an assemble cost for each. Cost of Standard Components The cost of small or minor components like springs, washers, seals, screws, nuts etc are fairly easily obtained from manufacturers publicity literature (pamphlets, booklets, internet, Farnell etc) or from a simple phone call. Many of these standard parts are covered by ISO or BS standards and one can see the specifications of such components by selecting from lists such as those given in BS8888. Access to the BSI set of standards, which includes a large number of the relevant ISO standards, is available through the University of Wolverhampton Learning Centre. BS8888 costs about 200, the cost of others is dependant on what set of standards you want. The cost of more complex or specialist components like motors or boards may require more searching but are generally not particularly difficult to obtain provided you can find the relevant manufacturers or indeed contacts. The key is to find the right company/person to talk to. 4 of 9

5 Machining Cold rolling Hot forging Extrusion Casting & moulding Sintering Utilasation (%) Brian Griffiths However, one must be aware that the cost of components can vary significantly depending upon the number you are prepared to purchase. You only have to glance at a Screwfix magazine to see this. Prices drop significantly when you order in bulk. It may be a wise investment to consider purchasing with a long term view rather than a short term. Cost of Custom Parts Custom made parts are often more difficult to cost than standard parts. An assembly will be made up of a number of single parts, so to proceed, assume just one part and the principles will apply to every part in an assembly. Simplistically, the cost is made up of the two elements of raw material cost and conversion cost/s as per the first equation and figures 1, 2 & 3 - MANUFACTURING COST = PART COST (raw material or initial part) + CONVERSION COST (labour, tooling and equipment) The raw material cost can be calculated from the cost of the raw material or the initial part. The cost of the raw material can be calculated from: PART COST = (mass of the part to be made) x (raw material unit cost [ /unit mass]) There will always be some loss of material, even with Near Net Shape (NNS) processes so an utilisation factor must be included in the mass element of the equation. Typical utilisation 100 figures are given in the graph of figure 4. The NNS processes are obviously the more efficient and give utilisation coefficients approaching %. The archetypal NNS process is powder metallurgy where the raw material is a metallic powder. This is compacted into a form as close 60 as possible to the shape of the final component. The powder is then locked into the final shape by sintering but some finish machining is 40 invariably needed so the utilisation will not be 100%. Casting and moulding are other NNS processes because the raw material is in liquid 20 form which is frozen in a mould into a shape which is as close as possible to the shape of the final component. Moulding tends to produce more wastage than powder metallurgy because Processes of sprue and gating losses etc. The least NNS processes are those like cutting, machining, Figure 4 Process utilisation values. blanking and piercing because significant amounts of material can be removed, so much so that with machining, the utilisation can be as low as 25%. The cost of the material can be found from books, data sheets given by suppliers or the internet. However, the actual cost of raw materials is changing all the time because markets are dynamic and fluctuating. A useful way of costing material is to use a unit-cost approach. Figure 5 shows a graph with the base cost of mild steel as unity. Using this, a designer has a first-order method of determining the relative cost of any other material given on the graph. Mild steel is one of the most commonly available materials and the actual cost of mild steel raw material can be found fairly easily from manufacturer s literature or tables, relevant newspapers which give 5 of 9

6 Cost ($) Comparative Price per unit weight of material Cast iron Polystryene Mild Steel Structural Steel Brass Copper Tool Steel ABS Stainless Steel Nylon Polycarbonate Graphite Titanium Brian Griffiths Material Figure 5 The unit cost of a range of materials based on the cost of mild steel Machining Investment Casting Sand Casting Injection Moulding Forming Volume Figure 6 The effect of production volumes on the cost of a part. financial information (e.g. Financial Times) or the internet. Once the base cost of mild steel has been found, the data in figure 5 can be used to calculate the cost of another material, knowing the weight or mass of the part. Referring to figure 5, one can make general cost approximations that can be used as a rough guide. For example, the cost of a range of steels is about unity, except for the very expensive tool steels. In other words, typical steels are all approximately the same cost order the bars heights of the steel costs of figure 5 are all about the same. In comparison, the cost of plastics is approximately about 10 times the cost of the steels, whereas the cost of specialist or premium materials like titanium (with its high strength to weight ratio) is about 100 times that of steel. Thus, the basic raw material cost to be determined from the weight or mass of the part plus data from sources like figures 4 and 5 enable. This is the basic cost of a part as given in the first column of the BOM, entitled Purchased materials or raw materials. The next step is for the designer to calculate the cost of processing that part. This is easier said than done! Every part is different and the processing route will be different. So, to make it clearer, and to see how the cost of processing works, let us take three examples. Firstly, that of an injection moulded part; secondly, a CNC machined part and thirdly a part which is produced manually. a) An injection moulded part - there at typically four parts to the processing cost of an injection moulded part. These are the set-up cost of preparing the machine and the mould, 6 of 9

7 the cost of an operator per part, the cost of the use of the moulding machine per part [machine rate plus energy and maintenance costs] and the amortised cost of the mould/die per part. The operator will tend the machine. Typically, s/he: will ensure that the input hopper is full of the raw plastic material pellets; will supervise the machine cycle; will operate the machine controls and will take the final moulded part out at the end of the cycle. The operator will be paid an hourly rate (UK minimum wage from October 2006 is 5-35/hr) depending on their skill level and it is the floor to floor time which is translated into an operator cost per part. Hourly wage rates can be found from the internet there is a massive amount of wage/salary information out there, especially to help people assess their own job situation, e.g. Note that the operator wage cost to the employer and thus the cost to be allocated to the part is not just the wages. To the basic pay must be added all the other costs incurred by the employer. These will include the employer's social contributions (including national insurance, contributions and pensions, which are paid on behalf of the employee) and other non-wage costs including sickness, maternity and paternity costs, vocational training costs, recruitment costs and benefits in kind, e.g. things like company cars, mobile phones and accommodation. The cost of the machine to operate per part is the machine rate multiplied by the setup time amortised over the production run plus the time taken to produce each part. The cost of moulding machines is rated mostly by the tonnage/pressure and range from 20/hour up. The cost of manufacturing moulds (the tooling) will depend on a factors such as the number of cavities, the size of the parts (and therefore the mould), the complexity of the pieces, the expected tool longevity and things like the surface finishes. Moulds range from 10k to many 100k s. The mould cost per is the mould purchase and maintenance cost over the volume of parts obtained from that mould. Typically, a mould will produce a few million parts. The figures and information given in figure 6 regarding the effect of plastic moulding production volumes on the cost of a part should be helpful in understanding this example. b) A CNC machined part - there at typically three major elements to the cost of CNC machining the cost of programming, the cost of setting up the machine for the batch of parts and the cost of machining each part. The cost of programming is at least 40 to 60/hour and specialist programmes are used which translate the design coding into machine and machining instructions. Highly trained programmers/operators are a necessity. A CNC programmer is a very different operator from the operator of the moulding machine mentioned above and the wage rate will reflect this. CNC machining centres are very expensive machine tools and 5-axis machines are fairly commonplace. They cost anything from 40K to over 200k. As an example of some of the latest CNC machines and equipment, see the manufacturer DMG. This company has some excellent publicity material which provides detailed information about the latest CNC machining centres, lathes, mills, laser machines and inspection machines. Their website is well worth a visit: < The CNC machine operator is paid from 20 to 40/hour. 7 of 9

8 Total Assembly time (s) Brian Griffiths The figures and information given in figure 6 regarding the effect of CNC machining volumes on the cost of a part should be helpful in understanding this example. c) A manually produced part. In this case no heavy machines are involved, just an operator working at a bench, performing an operation on a part, usually using either hand tool/s or a small machine. There will be three parts to calculating the processing cost of such a part the cost of setting up the station and equipment, the labour cost and the amortised cost of the tool &/or machine. For convenience, let us consider a specific example an operator de-burring a part produced by a machine shop. Assume that the part is a machined plate with holes in it and that a single operator sits at a bench. For each part, the operator reaches into a box, picks up one part and places it in a jig. Taking the first tool, they be-burrs the edges then taking a second tool, de-burrs the holes. Finally, the part is removed from the jig and placed in the finished parts box. There are three parts to the processing cost of this part. Firstly, there is the cost associated with the purchase of the station, the bench and the equipment. These could be used again for say another part in which case the equipment costs can be spread over more than one part. However, if the equipment cannot be used again, the purchase costs must be borne by that one part and the costs amortised over the production run. Secondly, there will be the costs of setting up the station, the associated equipment, the bench etc in readiness for production to begin. Finally, there are the wages of the operator- this will be the wage rate of the operator related to the floor to floor time per part. Cost of assembling parts to make a product Few products consist of only one part, so usually some form of assembly is required. Bearing in mind the high initial cost of machine assembly systems, unless the product volume is high enough to justify the initial outlay of automation, assembly is done manually. Machine assembly only becomes viable when the product volume is in the order of 100k s. The exception is electronics assembly and flexible assembly of product families where, even though the cost of one product is insufficient, there is common product Total assembly time for product familiarity such that the added volumes justify the outlay Number of parts in product Slowest part assembly time Figure 7 Assembly times for a range of products. The method of costing machine assembly systems is, in principle, little different from the costing example given above for moulding or CNC machining. There will be the four parts - the set-up cost of preparing the assembly machine or system as well as tooling associated with each assembly station, the cost of operator/s and the cost of the use of the machine. The price of assembly machines ranges from the 10k s for a small dedicated rotary transfer table to the 100K s of in-line transfer lines. 8 of 9

9 The method of costing manual assembly is, in principle, little different from the example given above of the manually produced part. There will be three parts the cost of setting up the station and equipment, the labour cost and the amortised cost of any assembly tooling or machinery. The labour cost will be the summed assembly time for all the parts multiplied by the wage rate. Labour rates will range from the minimum wage to 40/hour, depending on the skill level required. The assembly time per part can be estimated from Motion Time Standards or the equivalent like the Boothroyd et al [1994] approximation. To get an idea of typical assembly times, I did a survey of a range of examples for bench-type consumer products from the literature and came up with the data in the graph of figure 7. From this, the average assembly time is 7s. This is quite different from the 3s of Boothroyd et al [1994] explained above, but of course remember this was the assembly time for an ideal part a ball in a hole. Thus, in the cases I used for figure 7, the maximum assembly time per part was 31s (see figure) and the minimum was 2.6s. Overhead Costs Calculating the overhead costs is notoriously difficult. How far back along the system do you go when assigning things and what about overlap with other products and say the start-up complications of a new product? A simplistic way is to say the overheads are simply 200% of the manufacturing cost but for accurate costing, this is too crude. Each company has their own preferred technique which is driven by the type of industry they are in and their market situation. A useful way to understand the principle of allocating overheads is to think about the burden the company has to bear with respect to each manufacturing cost element. The term burden is more commonly used in the USA. The additional costs associated with each activity will bear a burden associated with each element within the costing equation. Thus, the burden associated with purchasing the raw materials or standard parts will be different and certainly different for the on-line labour costs or the tooling and/or machine rate. This is the basis of the technique called activity-based costing (ABC) used by many. As a first order guess I suggest you use the technique of having two overheads equations for material and processing. This is the traditional way to calculate overheads in general industry, where the overhead cost is: 1.20 x [raw material and bought-out part costs] x [direct labour costs] This is still fairly crude but gives a rough idea. When you work in industry, they will have highly tuned systems and these will need to be followed. A specific company example is seen in the BOM table of figure 3. Here the overhead for raw materials and bought-out parts is 115%, the processing (m/c & labour) overhead is 180%, the assembly labour overhead is 260% and the fixed costs overhead is 150%. References: Bakerjian R (editor), Tool and Manufacturing Engineers Handbook, Vol 6, Design for Manufacturability, Society of Manufacturing Engineers, Michigan, Boothroyd G, Dewhurst P and Knight W, Product Design for Manufacture and Assembly, Marcel Dekker, BS8888:2006. Technical Product Specification. British Standards Institution CIA, 2006, accessed July Gardner, 2006, accessed July Ulrich KT & Eppinger SD, Product Design and Development, 3 rd Ed, McGraw-Hill, of 9