PROJECT/PRODUCT ECONOMICS

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Erik Davidson
5 years ago
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1 IDENT OPP GATHER INFO DEFINE PROBLEM GEN CONCEPTS SCREEN CONCEPTS IMPLEMENT HANDOFF PROJECT/PRODUCT ECONOMICS 1. How much will it cost? 2. Will we make $? Ref: Ulrich & Eppinger text: Chap. 11, (Design for Manufacturing), Chap. 13 (Product Development Economics)

2 Commonly heard in engineering circles Gee, the price at Home Depot is $50 but I can build one for 10 bucks. I should go into business. I ll make a ton of money!

3 Parts cost Volume discounts Advertising Labor cost Marketing costs G&A overhead Variable costs Tooling Packaging Profit Inventory Clinical trials Fixed costs QC on incoming parts Liability Transportation Warranty Development costs

4 A novel, aftermarket product for automobiles Five year lifetime Saves you 7.5% on gas mileage DIY market At what price should Target sell this product?

5 Fixing a price Estimate value to end users (subtract any switching costs) Also look at equivalent products for pricing

6 What is the supply chain for the auto accessory product (All the organizations which touch it.) Raw material provider Factory Distributor Customer $0.20 $0.25 $0.55 $1.00

7 Product cost Price Cost!

MANUFACTURING COST Cost estimation is an art Several layers of detail, use what s appropriate Manufacturing process matters...a lot! Volume matters.

8 MANUFACTURING COST Cost estimation is an art Several layers of detail, use what s appropriate Manufacturing process matters...a lot! Volume matters...a lot! Design details matter a lot Everything starts with a good BOM Cost of prototype cost of product! See Ulrich and Eppinger DfM Chapter for details

9 Design detail #1 A B

10 Design detail #2 A B

11 Design detail #3 { A B

12 Product costs More than parts plus labor Must account for all costs required to produce product Product cost models differ for different companies

13 DIRECT + INDIRECT + PROFIT = COST Labor Material Components Tooling Design Marketing Sales Accounting Purchasing Management Warranty Liability Administration Match investment

14 Supervisors Mfg eng Factory Purchasing Inspection Mgmt Mrktng Engng Design ({[(Hours * $/hr) * LbrMul] + [Materials * MatMul]} * Ovhd) * Profit = Factory price 0.55 $ $ ( $5.50 ) [ $11.00 ] [ $10.00 ] { $21.00} ( $30.00) = $33.00 Distributor Matl$ * Ovhd * Profit $33.00 * 1.21 * 1.05 = $42.00 Retail Matl$ * Ovhd * Profit $42.00 * 1.19 * 1.10 = $55.00 Real cost of buying the product

15 Project economics Development cost $5 mill Ramp-up cost $2 mill Marketing/support cost $1 mill Unit mfg cost $400 Unit price (factory) $800 Sales volume (per year) 20,000

16 Development costs Information gathering Market research, patents, Lab testing, CAD/simulation/ Prototype construction and test Prototype cost Product cost!

17 Prototype Costs Bill of Materials Quantity = 1 pricing Split out subassemblies Direct costs, indirect costs Catalog parts vs fabricated parts Design/technician labor cost Overhead costs

18 Prototype BOM As a team, create a BOM table for the prototype you will have at the Design Show. Part, source, cost. Include fabricated and purchased components. Make guesstimates where appropriate.

19 Ref What Vendor Vendor PN Cost Notes Accelerometer, 10g, 1 Axis Crossbow CXL10HF1Z $ Shock accelerometer, 5K G range Dytran 3200B5 $ Shock accelerometer, 5K G range Dytran 3200B2 $ Cable, mini coax, stainless plug to BNC, 10 ft. Dytran 6469A10 $ Cable, mini coax, stainless plug to BNC, 3 ft. Dytran 6469A03 $ Constant current diode, 2 ma Dytran 6123 $ 4.00 Connector adaptor, to solder Dytran Cable, new type, mini coax, 3 ft Dytran 6011A03 26 Tech Tools PIC programmer Digi-Key MP-PROG-ND $ Tech Tools 40-pin ZIF adapter Digi-Key MP-ZIF40-ND $ IC, PIC16F876-20/SP, microcontroller Digi-Key PIC16F876-20/SP-ND $ 9.38 Resonator, ceramic w/ caps, 4.0 MHz Digi-Key X902-ND $ 0.56 Resonator, ceramic w/ caps, 20.0 MHz Digi-Key X909-ND $ 0.68 PCM C compiler CCS PCM $ Palm IIIxe CompUSA 3C80304U $ Palm IIIe Best Buy 3CB0302U $ Palm m100 Best Buy $ Palm HotSync cable Best Buy 10104U $ Null modem cable (9 pin), Belkin CompUSA F3B $ IC, MAX536A, RMS-to-DC Maxim MX536AJQ $ Breadboard, 3M AEI $ Temp IC, Dallas DS1620 Jameco $ 5.49 ZIF socket, 28 pin Jameco $ 8.25 IC, MAX233 CPP, TTL-to-RS-232 Jameco $ 4.95 IC, ULN2803A, driver Jameco $ 0.69 Socket, DIN, 5-pin, female Jameco $ 0.55 Power supply, MeanWell KA60A Jameco $ IC, LF412 CN, dual op-amp Jameco $ 0.99 Dead blow sledge, 7.25 lb, LIXIE 250H-MH-32 McMaster-Carr 5947A1 $

20 Power supply, MeanWell KA60A Jameco $ IC, LF412 CN, dual op-amp Jameco $ 0.99 Dead blow sledge, 7.25 lb, LIXIE 250H-MH-32 McMaster-Carr 5947A1 $ Face for dead blow sledge, red, LIXIE 250T McMaster-Carr 6047A5 $ Face for dead blow sledge, black, LIXIE 250H McMaster-Carr 6047A5 $ SHCS screw, stainless, 10-24x1/2 Jerry's $ 0.40

Spring Manufacturing Company Sales Budget 2007

Spring Manufacturing Company Sales Budget 2007 8-56 Comprehensive Profit Plan (90 minutes) 1. Sales Budget Sales Budget Sales (in units) 12,000 9,000 21,000 x Selling Price Per Unit $150 $220 Total Sales Revenue $1,800,000 $1,980,000 $3,780,000 2.