Aalto University A!School of Engineering. Cost. Prof. Kevin Otto Department of Mechanical Engineering
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1 Aalto University A!School of Engineering Cost Prof. Kevin Otto Department of Mechanical Engineering 1
2 Lecture Topics Product Cost Structure Cost Analyses Part Costs Assembly Costs Cost Sensitivities
3 Reading Chapter 14 Chapter 7 Chapter 13
4 Product Cost Unit Manufacturing Cost Total manufacturing expenses divided by the number of units produced over a time period UMC= Factory Operations Expenses Units Built Complications: Boundaries of the manufacturing operations? - Product development costs? - Office parties? - Equipment that is only partially used for this product? - Equipment inherited from past products?
5 Detail Levels of Cost Models Level 1 Analysis First impression by a knowledgeable engineer 10 minutes of work Accurate to within 20% (Analogy method) Level 2 Analysis Part based analysis. Based on cost estimation data and software, fast vendor quotes and expert opinion and experience. 3 days of work Accurate to within 10% (Parametric method) Level 3 Analysis Process based analysis. Use material cost estimation data bases, vendor quotes, and time/motion studies. Comparisons to industry standards and multiple vendor quotes. 2 weeks of work Accurate to within 1% or less (Cost accounting method)
6 Level I Analysis Identify a cost driver Measure other products on these drivers Relate to the unknown product
7 Example: Appliance Cost Hypothesis: Cost is proportional to a cost driver of weight. Product Weight (kg) Price ( ) Price/kg ( /kg) Coffee Chopper Toaster Air Popper Coffee Maker Cost 40/kg Mass Cost ($) Kitchen Appliances Weight (lbs)
8 3.5oz = 0.1kg 5oz in box $8 estimate Reasonable
9 8oz = 0.3kg 10oz in box $12 estimate Reasonable
10 1lb = 0.5kg $20 estimate Reasonable
11 1500kg $60k estimate Surprisingly within 2X
12 350,000 kg 14m estimate Way off. 10X
13 0.8 kg 38 estimate Way off. 10X
14 Level I Analysis Identify a cost driver Measure other products on these drivers Relate to the unknown product Works within similar classes of products that have the same cost structures. Otherwise it will be orders of magnitude off.
15 Level II Analysis Identify parts Estimate part costs Estimate assembly costs Works independent of product class. Typically leave out process details. Inspections. Automation.
16 Example: Coffee Mill Krups coffee chopper. $15 at Walmart. What does it cost Krups to make it?
17 Example: Coffee Mill Lid Chamber Blade Housing Motor Mount Felt Ring Motor Transfer Pusher Switch Base
18 Replacement Part Costs Definitely not the part costs. These prices are far higher
19 Level II Analysis Add up cost estimates of each part. Selling Price Manufacturing Costs Distribution Costs Retail Costs Piece Parts Assembly Overhead OEM Parts Custom Parts Labor Tooling Material Processing Tooling
20 Level II Analysis Overhead rates? 50% for assembly 10% for part production Manufacturing Costs Selling Price Distribution Costs Retail Costs Piece Parts Assembly Overhead OEM Parts Custom Parts Labor Tooling Material Processing Tooling
21 Example: Coffee Mill OEM OEM OEM OEM OEM
22 OEM Parts Contact vendors and get a quote Need ordering quantity estimate Vendors usually happy to tell all about the part how they supply it provided they believe you may provide sales or perhaps if they know you are a student
23 OEM Parts Krups Chopper: OEM Universal Motor, 500W, 110V
24 Sales and Production Volumes How many are sold per year? What is the order quantity for supplier parts? The quantity agreed to be paid for What is the production batch size? The periodic delivery quantity to the factory
25 Sales and Production Volumes How many are sold per year? per single manufacturer
26 Sales Volumes How many are sold per year? What is the order quantity for supplier parts? The selling quantity agreed to be periodically purchased and paid for. Order quantity Annual sales/(1 10)
27 Sales Volumes How many are sold per year? What is the order quantity for supplier parts? The selling quantity agreed to be periodically purchased and paid for. Order quantity Annual sales/(1 10) What is the production lot size? The periodic delivery quantity to the factory Lot size Order quantity/10 Monthly order amount 10,000 max
28 Fabricated Part Costs Three components to Fabricated Part Costs Material costs Processing labor costs - Setup - Operation Tooling costs Selling Price Manufacturing Costs Distribution Costs Retail Costs Piece Parts Assembly Overhead OEM Parts Custom Parts Labor Tooling Material Processing Tooling Setup Operation
29 Material Costs The variable costs to buy the constitutive materials Injection molded parts: the cost of plastic pellets Cost per pound data - from vendors - from trade magazines / internet - Course text / software Material cost per unit = Part weight scrap Material cost/lb
30 Material Costs Material Typical Cost ($/lb) Plastics (virgin pellets) Polyethylene Terephthalate (PET) Polypropylene (PP) Polycarbonate (PC) Polystyrene (PS) Polyvinyl Chloride (PVC) Acrylonitrile Butadiene Styrene (ABS) Phenolic Nylon Rubber Butyl Latex SBR Silicone Metals (sheet or bulk) 1014 Carbon Steel Stainless Steel Aluminum Copper Glass (sheet) Fiberglass Woods (board) Douglas Fir Oak data. Multiply these by ~2.
31 Material Costs
32 Material Costs CES EduPack
33 Example The powerup drone has a top cover lid. How much does its material cost? Polycarbonate Mass = 1.0 gm Polycarbonate cost = $5/lb = 10/kg Part material cost = 1gm * 1/1000 * 10 /kg =
34 Tooling Costs Fixed costs to buy the equipment to convert the material into the finished part Injection molded parts: Mold Costs Stampings: Die Costs Machining: Fixture Costs Tooling cost per unit = Equipment costs parts per equipment
35 Typical Tooling Costs Molds Simple Parts No cams, straight opening of mold Tool Costs: $4-10,000 Medium Complexity Parts Parting line can be split along edge, small cams or lifters for undercuts, contour may be irregular Tool Costs: $10-20,000 Per Cavity Tool Cost: $3500 Per Cavity Tool Cost: $4300 Per Cavity Tool Cost: $11,600 Per Cavity Tool Cost: $10,800 Per Cavity Tool Cost: $2900 Per Cavity Tool Cost: $2900 Per Cavity Tool Cost: $16,800 Per Cavity Tool Cost: $13,800 Complex Parts Cams on opposing sides, much detail, split parting line, tight tolerances, features requiring tricky shut offs on mold cores, irregular contours Tool Costs: $10-150,000 Per Cavity Tool Cost: $26,400 Single Cavity Tool Cost: $51,000 Single Cavity Tool Cost: $46,500 Single Cavity Tool Cost: $102,000
36 Typical Tooling Costs Molds Simple Parts No cams, straight opening of mold Tool Costs: $4-10, Per Cavity Tool Cost: $3500 molded in pin Per Cavity Tool Cost: $4300 Per Cavity Tool Cost: $2900 molded in pin Per Cavity Tool Cost: $2900
37 Typical Tooling Costs Extrusions Simple dies: $900 - $1500
38 Example The powerup drone has a top cover lid. How much does its mold cost?
39 Example The powerup drone has a top cover lid. How much does its mold cost? Simple part. No inserts, 2 piece mold. Small part cavity mold. Comparing: $3500 / cavity SO: 3500 total if 1 cavity 7000 total if 2 cavity
40 Example The powerup drone has a top cover lid. How much does its mold cost? What is the tooling cost / part? How many parts per mold? Tool will last for 1m units. They haven t sold that many. 100,000 units is a good startup planning estimate. Cost / part = 0.07 if 2 cavity typical small press if 1 cavity desktop press. They are a startup. Keep it cheap /part
41 Part Process Cost Labor and maintenance costs to keep the equipment running Production cost per unit = Labor rate per hour hours per unit Hours per unit = Processing Time + Setup Time Batch Size
42 Part Process Cost Labor and maintenance costs to keep the equipment running Production cost per unit = Labor rate per hour hours per unit Process Injection Molding Labor Rate ( /hr) (machine tonnage) Die Casting 30 Machining 50 Powder Metal 40 Sheet Metal 30 Manual Assembly 30 Electrical Work (Assembly, PCB) 30 Finishing (Paint, labeling) 30
43 Part Process Cost Labor and maintenance costs to keep the equipment running Production cost per unit = Labor rate per hour hours per unit Injection Molding Processing Time = 5.+th α # cavities where 5 is the mold open and pack time, seconds a is the material thermal diffusivity th is the nominal part wall thickness and the result is in seconds. Setup time per lot is 1 hour for ton press, 2 hours for up 500 ton press, and 4 hours for over 600 ton press.
44 Part Process Cost Labor and maintenance costs to keep the equipment running Production cost per unit = Labor rate per hour hours per unit
45 Part Process Cost Labor and maintenance costs to keep the equipment running Production cost per unit = Labor rate per hour hours per unit
46 Example The powerup drone has a top cover lid. How much does it cost? Part cost = Material cost + Labor rate per hour hours per unit + Labor rate per hour setup time / batch size + tooling cost / units built Part cost = /3600*.. / *1/ /100,000 = =
47 Example: Chopper Part Costs Repeat for each part Part Tooling Material Processing Total Body 001 $ 0.01 $ 0.02 $ 0.02 $ 0.05 Chamber 002 $ - $ 0.12 $ 0.01 $ 0.13 Motor 003 $ - $ 1.50 $ - $ 1.50 Wiring Assembly $ - $ 0.10 $ - $ 0.10 Motor Mount 004 $ - $ 0.01 $ 0.01 $ 0.02 Felt Ring 005 $ - $ - $ - $ - Screws 006 $ - $ 0.01 $ - $ 0.02 Blade 007 $ 0.04 $ 0.01 $ 0.03 $ 0.08 Transfer Pusher 008 $ 0.01 $ - $ 0.01 $ 0.02 Base 009 $ 0.02 $ 0.03 $ 0.01 $ 0.06 Switch 010 $ - $ 0.03 $ - $ 0.03 Cord 011 $ - $ 0.10 $ - $ 0.10 Lid 012 $ 0.01 $ 0.16 $ 0.02 $ 0.19 $ 2.30
48 Assembly Costs Mechanical assembly Selling Price Manufacturing Costs Distribution Costs Retail Costs Piece Parts Assembly Overhead OEM Parts Custom Parts Labor Tooling Material Processing Tooling
49 Assembly Costs Mechanical assembly Almost always done by hand for quantities of less than several hundred thousand Costing amounts to establishing time required to assemble Assembly cost per unit = Labor rate per hour hours per unit
50 Establishing Assembly Cost List the indented BOM Form the sequence of assembly steps Use an Assembly Tree Diagram Establish times for each step Using B&D DFA analysis Identify on an Indented Bill of Materials Add up the times Multiply by a labor rate
51 Indented Bill of Materials Hierarchically list out all sub-systems to parts For Level II Analysis Major stamped/molded/cast parts Major machined parts OEM sub-assemblies
52 Indented Bill of Materials Hierarchically list out all sub-systems to parts A0 A1 Major Assemblies Packaging Chopper S1 Base Assembly S2 Body Assembly
53 Indented Bill of Materials Hierarchically list out all sub-systems to parts A2 A1 Major Assemblies Packaging Chopper S1 Base Sub-Assembly S11 Wiring Assembly S2 Body Sub-Assembly S21 Motor Assembly
54 Indented Bill of Materials Hierarchically list out all sub-systems to parts Part # Part Name A2 PACKAGING X1 Box X2 Foam X3 Questionaire X4 Dealer List X5 Instructions A1 GRINDER ASSY 001 Lid 002 Transfer Pusher S1 BASE ASSY 003 Power Switch 004 Power Cord 005 Base S11 WIRING ASSY 006 Wire 007 Fuse 008 Connector 009 Clamp 010 Casing S2 BODY ASSY 011 Blade S21 MECH ASSY 012 Chamber S212 MOTOR & BODY 013 Felt Ring 014 Screws, self-tapping 015 Body S2121 MOTOR ASSY 016 Motor Mounts 017 Motor
55 Assembly Sequence We ll use an assembly tree diagram Identify on the tree all the time drivers Re-orientations Attachments - Attachment directions - Fixturing Seperate fastening Inspections Label each of these as operations F R
56 Example: Coffee Chopper
57 Example: Coffee Chopper First, place the base. Op 01 F Base 009
58 Example: Coffee Chopper Next insert switch. But, complete as a wire bundle with power cord already soldered on. Next Op 04 Op 03 Cord 011 Op 02 F Switch 010 Op 01 Base 009 F
59 Example: Coffee Chopper Op 12 Transfer Pusher 008 Next insert Pusher. Op 04 Op 03 Cord 011 Next Next Op 02 F Switch 010 Op 01 F Base 009
60 Example: Coffee Chopper Wire connection Op 14 Op 12 Transfer Pusher 008 Body Assembly Op 04 Next is the entire body assembly, complete with the motor already screwed into the body. Also needed is to connect the motor wires to the switch. Op 01 Base 009 Op 02 F F Op 03 Cord 011 Switch 010
61 Example: Coffee Chopper Op 13 Blade 007 Chamber 002 Op 11 Op 09 Op 10 Body 001 Screws 006 Op 08 Felt Ring 005 F Op 07 Separately, this body assembly must be built up. Motor Mounts 004 F R Op 06 Wiring Op 05 Assembly Motor 003
62 Example: Coffee Chopper Op 13 Op 14 Blade 007 Op 11 Op 12 Chamber 002 Op 09 Op 10 Transfer Pusher 008 Press body assembly down onto base assembly, aligning pusher into it s slot. Body 001 Felt Ring 005 Motor Mounts 004 F Screws 006 Op 08 F Op 07 R Op 06 Wiring Op 05 Assembly Motor 003 Op 04 Op 01 Base 009 Op 02 F F Op 03 Cord 011 Switch 010
63 Indented Bill of Materials Include columns of all part and assembly cost driver parameters Major DFM analysis inputs - Mass - Dimensions - Material Major DFA analysis inputs - Handling parameters Symmetry, Size - Insertion parameters Tools, Directions, Symmetry - Secondary operation parameters Reorientations, Inspections
64 Example: Coffee Chopper Part # Part Name Qty Material Color/Finish Size Mass Manuf. Process A2 PACKAGING 1 X1 Box 1 Cardboard Print 7.7H 3.6W 3.6L 0.25T 60 OEM X2 Foam 1 Blow Foam White 3.7W 3.7L 0.4T 1 Cut X3 Questionaire 1 Cardboard 2 color White 6W 12.5L 0.1T 10 OEM X4 Dealer List 1 Glossy paper White 8H 11W 3pages 15 OEM X5 Instructions 1 Glossy paper White 8.5W 11H 0.002T 5 OEM A1 GRINDER ASSY Lid 1 Polystyrene Clear 3.1W 3.7L 1.5H 0.08T 35 Inj Mold 002 Transfer Pusher 1 Polypropylene Off-White 4.4H 0.5W 0.5L 0.13T 2 Inj Mold S1 BASE ASSY Power Switch 1 Clear-White 0.5W 1.1L 1.0H 1 OEM 004 Power Cord 1 White 30L 55 OEM 005 Base 1 Polypropylene Off-White 3.1W 3.7L 0.7H 0.08T 25 Inj Mold S11 WIRING ASSY Wire 1 Steel Red 4.0L x 0.035OD 0.1 Cut 007 Fuse 1 Steel 1.5L x 3/16OD 0.1 OEM 008 Connector 1 Brass Brass 0.5L x 1/ OEM 009 Clamp 1 Steel Steel.25L x.25w Cut 010 Casing 1 Hose Orange 1.75L x 0.25OD 0.1 Cut S2 BODY ASSY Blade 1 Steel + Polypro Chrome Grey 2.5L 07W 0.02T 3 Stamp + Inj Ml S21 MECH ASSY Chamber 1 Steel Chrome 2.9W 3.3L 0.8H 25 Stamp S212 MOTOR & BODY Felt Ring 1 Felt White 0.2I 0.5O 0.1T 0.1 OEM 014 Screws, self-tapping 2 Steel Steel 0.625L x 3/ OEM 015 Body 1 Polypropylene Off-White 3.1W 3.7L 4.6H 0.08T 95 Inj Mold S2121 MOTOR ASSY Motor Mounts 2 Polypropylene Off-White 0.7L 0.4H 0.5W 0.11I 1 Inj Mold 017 Motor 1 Steel 2.6H 2.2O 0.2Shaft 385 OEM
65 Assembly Cost Boothroyd & Dewhurst method: Initially developed in the 80 s Two domains DFM: component redesign. Process models DFA: system redesign. Assembly models Two components Difficulty estimation Redesign suggestions
66 B&D DFA Simplified assembly time model Similar to previous MTM models Focused on design features Two parts Handling time estimation Insertion time estimation Software is a refinement of the manual method
67 Example: B&D DFA on Mill Name of Assembly Part ID No. number of times the operation is carried out consecutively tw o-digit manual handling code manual handling time per part tw o digit manual instertion code manual instertion time per part operation time, seconds (2) x [(4) + (6)] operation costs, cents 0.4 x (7) f igures for estimating of theoretical minimum parts TM CM NM design efficiency 3xNM = = TM
68 Example: Mill Summary
69 Example: Mill Summary Part # Part Name Qty Part Costs Assembly Costs Labor Fabrication Acquistion Assembly Inspection Time Time Time Time (min) Cost ($) Material Tooling OEM Totals (min) Cost ($) (min) Cost ($) (min) Cost ($) Sub Totals ($) 001 Lid $ 0.02 $ 0.16 $ 0.01 $ $ $ 0.06 $ 0.06 $ 0.24 A1 GRINDER ASSY $ 0.04 $ 0.04 $ Transfer Pusher $ 0.01 $ 0.00 $ 0.01 $ $ $ 0.07 $ 0.07 S1 BASE ASSY 1 - $ $ 0.06 $ 0.06 $ Power Switch 1 $ 0.03 $ $ $ 0.03 $ Power Cord 1 $ 0.10 $ $ $ 0.24 $ Base $ 0.01 $ 0.03 $ 0.02 $ $ $ 0.11 $ 0.11 S2 BODY ASSY 1 - $ $ 0.04 $ 0.04 $ Blade $ 0.04 $ 0.01 $ 0.03 $ $ $ 0.08 $ 0.10 S21 MECH ASSY 1 - $ $ 0.04 $ 0.04 $ Chamber $ 0.01 $ 0.12 $ 0.00 $ $ $ 0.08 $ Felt Ring $ - $ 0.00 $ - $ $ $ 0.06 $ 0.06 S211 MOTOR BODY 1 - $ $ 0.04 $ 0.04 $ Screws 2 $ 0.01 $ $ $ 0.10 $ Body $ 0.04 $ 0.13 $ 0.02 $ $ $ 0.04 $ 0.04 S212 MOTOR ASSY 1 - $ $ 0.10 $ 0.10 $ Motor Mounts $ 0.01 $ 0.00 $ 0.01 $ $ $ 0.12 $ Motor Screws 2 $ 0.01 $ $ $ 0.10 $ Motor 1 $ 1.50 $ $ $ 0.06 $ 0.06 A2 PACKAGING $ 0.04 $ 0.04 $ Box $ 0.01 $ 0.23 $ 0.00 $ $ $ 0.09 $ Bag $ 0.00 $ 0.02 $ 0.00 $ $ $ 0.09 $ Questionaire 1 $ 0.02 $ $ $ 0.05 $ Dealer List 1 $ 0.02 $ $ $ 0.05 $ Instructions 1 $ 0.02 $ $ $ 0.05 $ 0.05 DIRECT TOTAL $ 0.14 $ 0.71 $ 0.09 $ 1.70 $ $ $ $ 0.08 $ 1.90 $ 4.58 OH 10% OH $ % OH $ 0.95 $ 1.22 TOTAL PARTS TOTAL $ 2.95 ASSEMBLY TOTAL $ 2.86 $ 5.80 Assembl y Totals
70 Cost Breakout 15% 5% 3% 15% Materials Assembly Overhead 5% 6% Lid GRINDER ASSY BASE ASSY BODY ASSY MECH ASSY MOTOR BODY MOTOR ASSY P ACKAGING 42% 9%
71 Cost Breakout Part Costs Assembly Costs Instructions 1% Dealer List 1% Questionnaire 1% Bag 1% 7% Box 9% Lid Packaging 18% Base Assembly 14% 1% Transfer Pusher 1% Power Switch 4% Power Cord 2% Base 3% Blade 5% Chamber 0% Felt Ring 0% Screws Final Assembly 18% Motor Assembly 23% 7% Body 1% Motor Mounts 0% Motor Screws Motor 56% Housing Assembly 27%
72 Cost Breakout Packaging 18% Base Assembly 14% Motor Assembly 23% Final Assembly 18% Housing Assembly 27% 3% 2% 3% 3% 3% 3% 5% 3% 2% 5% 2% 3% 14% 6% 6% 6% 2% 5% 5% 2% 2% 7% 4% 2% 3% Lid GRINDER AS SY Transfer Pus her BASE ASSY P ower Switch Power Cord Base BODY ASSY Blade MECH ASSY Chamber Felt Ring MOTOR BODY S cre ws Body MOTOR ASS Y Motor Mounts Motor Screws Motor P ACKAGING Box Bag Qu estionaire Dealer List Instructions
73 Cost Sensitivities Are the high cost elements necessary? High cost assembly operations High cost parts Absent other data, this can be hard to argue
74 Competitive Benchmarking Comparable products at different prices $20 $35 $15 $25 $
75 Competitive Benchmarking Comparable products at different prices Hard to benchmark individual parts. Different products use different parts
76 Competitive Benchmarking Comparable products at different prices Do not benchmark part costs. Benchmark functions. Associate part & assembly costs to functions
77 Competitive Benchmarking Comparable products at different prices Do not benchmark part costs. Benchmark functions. Accept/Provide Coffee Actuate power Covert Electricity to rotation Chop beans Contain chopping Associate part & assembly costs to functions
78 Competitive Benchmarking Cost per function Power actuation
79 Summary Cost Analysis helps clarify cost sensitivities in the design Part costs which might be reduced Assembly steps which might be simplified Also can be used to benchmark hierarchically Benchmark costs by function
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