New approaches to Materials Education - a course authored by Mike Ashby and David Cebon, Cambridge, UK, 2007 © MFA and DC 2007 UNIT 7. The economics: cost modelling for selection

© MFA and DC 2007 Outline: estimating process cost Assessing potential: cost and value More info: “Materials: engineering, science, processing and design”, Chapter 18 “Materials Selection in Mechanical Design”, Chapters 7 and 8 Cost drivers, batch size, assembly Inputs to a cost model for selection The model and its implementation Exercises

© MFA and DC 2007 Cost, price and value The real requirement is Cost < Price < Value C < P < V  Cost = what it actually costs to make the part or product  Price = the sum you sell it for  Value = the worth the consumer puts on the product “Not worth the price” means P > V “Good value for money”means P < V The cost of producing a component of or product is made up of  the material cost  the cost of manufacture To maximize profit, P - C we seek to minimize C

© MFA and DC 2007 The problem of material price  Changing price of materials Factor $ per tonne Factor 3 $ per tonne Factor 0.6 0il $ per tonne Factor 0.4 $ per tonne  The need: Cost modeling for material selection

© MFA and DC 2007 Estimating cost Manufacturing process Materials Energy Capital Time Information Product All of these have an associated cost Cost estimate for competitive bidding -- absolute cost is wanted, to Cost estimate for ranking -- a relative cost is OK – but need generality When alternative material-process combinations meet the constraints, it is logical to rank them by cost Generic inputs to any manufacturing process:

© MFA and DC 2007 Inputs to a generic cost estimator ResourceSymbolUnit Materials including consumablesC m $/kg Capital cost of equipmentC c $ cost of toolingC t $ Time (including labor) overhead rate$/hr Energy cost of energyC e $/hr Space, admin. a cost/hr$/hr Information R & D$/hr royalties, licenses Lump into overhead rate Generic = can be applied to any process

© MFA and DC 2007 The cost per unit of output MaterialsTooling Batch size Rate of production Capital, Labor, Information, Energy... Material costs C m per kg, and a mass m is used per unit; f is the scrap fraction (the fraction thrown away) Tooling C t is “dedicated” -- it is written off against the number of parts to be made, n Capital cost C c of equipment is “non-dedicated” It is written off against time, giving an hourly rate. The write-off time is t wo. The rate of production is units/hour. The load factor (fraction of time the equipment is used) is L. The gross overhead rate contributes a cost per unit of time that, like capital, depends on production rate

© MFA and DC 2007 Features of a cost model Material and labor costs dominate Tooling costs dominate Sand casting LP casting Die casting Casting alloy con-rod  Identify most economic process  Examine materials-cost sensitivity  Explore alternative materials and processes

© MFA and DC 2007 Economic batch size Desired batch size

© MFA and DC 2007 Where do you get the input information? Web helps with commodity materials Ask suppliers: but how find them? Material and process costs vary with time and depend on the quantity you order CES has approximate cost for 2900 materials and 80 processes  Thomas Register of European Manufacturers, TREM  Thomas Register of North American Manufacturers  Kelly’s register

© MFA and DC 2007 Cost modelling in CES Cost of equipment C c Cost of tooling C t Production rate Characteristics of the process The database has approximate value- ranges for these Batch size n Mass of component m Capital write-off time t wo Load factor L Overhead rate Site-specific, user defined parameters These are entered by the user via a dialog box

© MFA and DC 2007 Cost modelling Relative cost index (per unit)5- 6 Capital cost GBP Material utilisation factor Production rate (units)20-30 per hr. Tooling cost GBP Tooling life units fx Cost model in CES Levels 2 and 3 Dialog box Capital write-off time t wo = …. Component mass m = …. Load factor L = …. Material cost Cm = Overhead rate = …. Relative cost Batch size Graph

© MFA and DC 2007 Cost model in CES Levels 2 and 3

© MFA and DC 2007 The main points To maximize profit: minimize cost C (economics of manufacture) and maximize value V (technical performance and product image) Cost can be modeled at several levels -- depends on purpose To rank process options, approximate modeling is adequate A cost-model for this uses “generic” inputs: material, time, capital etc More precise analysis must be based on information from suppliers or (if out-sourcing) contractors.

© MFA and DC 2007 Demo

© MFA and DC 2007 Exercise: using economic batch size 7.1 Metals can be cast in many different ways. A metal is to be cast to a simple shape. It is expected that between 20,000 and 30,000 units will be needed. Use Level 3 of CES the software to identify the subset of casting processes that are economic at this batch size.  Apply a Tree Stage to isolate Shaping \ Casting  Make a Graph stage with Economic batch size on the y-axis  Use a Box selection to apply the limits  Change the database to CES Edu Level 3  Use the Selection data tab to choose ProcessUniverse: All Processes Results: Casting (die) Cosworth casting Ferro die casting Gravity die casting Green sand casting, automated High pressure die casting Low pressure die casting Shell casting Squeeze casting

© MFA and DC 2007 Exercise: using the cost model 7.2 A simple shape is to cast in aluminum alloy. It is suggested that gravity die casting and ceramic mould casting might be good choices of process. Plot the cost against batch size for these processes using Level 2 of the database, assuming a material cost of $2 kg, and a compontent mass of 1 kg. The overhead rate is $70/hour, the capital write-off time is 5 years, and the load factor is 0.5. Which process is cheaper for a batch size of 1000? Assume that as the piston is simple in shape, it will fall near the bottom of each cost-band. Result. Gravity die casting is the less expensive process for a batch size of 1000.

© MFA and DC 2007 End of Unit 7