PROJECT/PRODUCT ECONOMICS Commonly heard in engineering circlesA novel, aftermarket product for automobilesFixing a priceProduct costMANUFACTURING COSTDesign detail #1Product costsProject economicsDevelopment costsPrototype CostsChopSim Case StudyPrototype BOMPROJECT/PRODUCT ECONOMICS1. How much will it cost?2. Will we make $?Ref: Ulrich & Eppinger text: Chap. 11, (Design for Manufacturing), Chap. 15 (Product Development Economics)IDENTOPPDEFINE PROBLEMGEN CONCEPTSGATHER INFOIMPLEMENTSCREEN CONCEPTSHANDOFF“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!”Commonly heard in engineering circlesMarketing costsDevelopment costsParts cost Volume discountsLabor costG&AoverheadProfitFixed costsVariable costsTransportationPackagingInventoryQC on incoming partsWarrantyLiabilityAdvertisingToolingClinical trialsA novel, aftermarket product for automobiles• Five year lifetime• Saves you 7.5% on gas mileage• DIY marketAt what price should Target sell this product?Fixing a price• Estimate value to end users (subtract any switching costs)• Also look at equivalent products for pricing• Raw material provider• Factory• Distributor• CustomerWhat is the “supply chain” for theauto accessory product (All the organizations which touch it.)$0.20$0.25$0.55_____$1.00Product costPrice ≠ 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 detailsMANUFACTURING COSTDesign detail #14.0 4.1A BDesign detail #2A BDesign detail #3AB4.0+-0.0030.030{Product costs• More than parts plus labor• Must account for all costs required to produce product• Product cost models differ for different companiesDIRECT INDIRECT PROFIT COST++=•Labor•Material•Components•Tooling•Design•Marketing•Sales•Accounting•Purchasing•Management•Warranty•Liability•Administration•Match investment({[(Hours * $/hr) * LbrMul] + [Materials * MatMul]} * Ovhd) * Profit = Factory price•Supervisors•Mfg eng•Factory•Purchasing•Inspection•Mgmt•Mrktng•Engng•Design0.55 $10 2.00 $9.09 1.10 1.43 1.10( $5.50 )[ $11.00 ]{ $21.00}[ $10.00 ]( $30.00)= $33.00DistributorMatl$ * Ovhd * Profit$33.00 * 1.21 * 1.05 = $42.00RetailMatl$ * Ovhd * Profit$42.00 * 1.19 * 1.10 = $55.00Real cost of buying the productProject 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) 20,000Development costs• Information gathering• Market research, patents, …• Lab testing, CAD/simulation/…• Prototype construction and testPrototype cost ≠Product cost !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 costsChopSim Case StudyPrototype BOMAs 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.Create in Excel, upload to Google
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