Creating a Process-based Cost Model
Randolph Kirchain & Frank R. Field III
Materials Systems Laboratory
Massachusetts Institute of Technology
Massachusetts Institute of Technology
Department of Materials Science & Engineering
3.080 Econ & Enviro Issues In Materials Selection
Randolph Kirchain
Engineering Economic Analysis: Slide 1
Session Outline
• What is a process-based cost model?
• Examples of Technical Decisions
• Key steps to realizing a model
Massachusetts Institute of Technology
Department of Materials Science & Engineering
3.080 Econ & Enviro Issues In Materials Selection
Randolph Kirchain
Engineering Economic Analysis: Slide 2
1
Please read the supplemental document
Image removed due to copyright reasons.
Kirchain, R., and F. Field. "Process-Based Cost Modeling:Understanding the
Economics of Technical Decisions." In Encyclopedia of Materials Science and
Engineering. Vol. 2. San Diego, CA: Elsevier, 2001, pp. 1718-27. ISBN:
0080431526.
Massachusetts Institute of Technology
Department of Materials Science & Engineering
3.080 Econ & Enviro Issues In Materials Selection
Randolph Kirchain
Engineering Economic Analysis: Slide 3
What is an
engineering model?
What is the purpose of
creating such models?
Massachusetts Institute of Technology
Department of Materials Science & Engineering
3.080 Econ & Enviro Issues In Materials Selection
Randolph Kirchain
Engineering Economic Analysis: Slide 4
2
Process-based Cost Modeling (PBCM)
• Objective
– Map From Process Description To Operation Cost
• Purpose
– Inform Decisions Concerning Technology Alternatives
BEFORE Operations Are In Place
Product Description
Part Geometry
Material Properties
Economic Characteristics
PBCM
Production
Cost
Operating Conditions
Massachusetts Institute of Technology
Department of Materials Science & Engineering
3.080 Econ & Enviro Issues In Materials Selection
Randolph Kirchain
Engineering Economic Analysis: Slide 5
What is a PBCM?
• Implementation:
– Process Model
– Operations Model
– Financial Model
• General:
– Incorporates Technical Information About Process
• Builds Cost Up From Technical Detail
– Must Be Able To Address Implications Of Change In
• Product Design or
• Process Operation – Incl. Production Volume
• Remember:
– The Purpose Of A PBCM Is To Inform Technical Decisions
Massachusetts Institute of Technology
Department of Materials Science & Engineering
3.080 Econ & Enviro Issues In Materials Selection
Randolph Kirchain
Engineering Economic Analysis: Slide 6
3
Uses of Cost Models in
Technical Decision-making
• Comparing options
– Materials
– Processes
– Designs
– Exogenous conditions
• Identifying cost drivers
• Considering hypothetical developments
• Characterizing strategic strengths
• Quantifying necessary performance improvements
3.080 Econ & Enviro Issues In Materials Selection
Randolph Kirchain
Massachusetts Institute of Technology
Department of Materials Science & Engineering
Engineering Economic Analysis: Slide 7
Case One:
Considering Alternative Structural Materials
• Steel Baseline
– Honda Odyssey minivan
– Complete Body in White : 148 pieces
– BIW Weight : approx. 370 kg
• RTM Glass Composite Intensive Vehicle (CIV)
– Complete Body in White : 8 pieces, plus steel inserts
– BIW Weight : approx. 240 kg
– Baseline design uses glass reinforced composites
produced by RTM
• Hypothetical Designs
– Carbon fiber or SMC
Massachusetts Institute of Technology
Department of Materials Science & Engineering
From:
Kang, P. J. (1996). A Technical and Economic Analysis of Structural
Composite Use in Automotive Body-In-White Applications. MS
Thesis. Cambridge, Massachusetts Institute of Technology: 170.
3.080 Econ & Enviro Issues In Materials Selection
Randolph Kirchain
Engineering Economic Analysis: Slide 8
4
Comparison of Body Weights
(incl. CIV inserts)
Steel
SMC
RTM Glass
Carbon Fiber
0
Bodyside
100
Floorpan
200
Cross Member
Massachusetts Institute of Technology
Department of Materials Science & Engineering
400
300
Front End
Roof
3.080 Econ & Enviro Issues In Materials Selection
Randolph Kirchain
Engineering Economic Analysis: Slide 9
Uses of Cost Models in Technical Decision-making
• Comparing options
– Materials
– Processes
– Designs
– Exogenous conditions
• Identifying cost drivers
• Considering hypothetical developments
• Characterizing strategic strengths
• Quantifying necessary performance improvements
Massachusetts Institute of Technology
Department of Materials Science & Engineering
3.080 Econ & Enviro Issues In Materials Selection
Randolph Kirchain
Engineering Economic Analysis: Slide 10
5
Comparing Manufactured Costs:
Process-based models provide insight into novel options
Total Parts Production & Assembly Cost
Unit Cost per Body
$2,500
Steel
RTM Glass
SMC
$2,000
$1,500
$1,000
10
20
40
50
60
70
30
Annual Production Volume (000s)
Massachusetts Institute of Technology
Department of Materials Science & Engineering
80
3.080 Econ & Enviro Issues In Materials Selection
Randolph Kirchain
Engineering Economic Analysis: Slide 11
Uses of Cost Models in Technical Decision-making
• Comparing options
– Materials
– Processes
– Designs
– Exogenous conditions
• Identifying cost drivers
• Considering hypothetical developments
• Characterizing strategic strengths
• Quantifying necessary performance improvements
Massachusetts Institute of Technology
Department of Materials Science & Engineering
3.080 Econ & Enviro Issues In Materials Selection
Randolph Kirchain
Engineering Economic Analysis: Slide 12
6
BIW Cost Breakdown at 35,000 parts/year
$2,000
$1,800
$1,600
Other Fixed
Tooling
Equipment
Energy
Labor
Materials
$1,400
$1,200
$1,000
$800
$600
$400
$200
$0
Steel
RTM
Massachusetts Institute of Technology
Department of Materials Science & Engineering
SMC
3.080 Econ & Enviro Issues In Materials Selection
Randolph Kirchain
Engineering Economic Analysis: Slide 13
Uses of Cost Models in
Technical Decision-making
• Comparing options
– Materials
– Processes
– Designs
– Exogenous conditions
• Identifying cost drivers
• Considering hypothetical developments
• Characterizing strategic strengths
• Quantifying necessary performance improvements
Massachusetts Institute of Technology
Department of Materials Science & Engineering
3.080 Econ & Enviro Issues In Materials Selection
Randolph Kirchain
Engineering Economic Analysis: Slide 14
7
Comparing Cost Performance in
Individual Subsystems
$800
Steel: 57 parts
RTM: 2 parts + 20 inserts
SMC: 9 parts + 20 inserts
$700
Floorpan /
Cross member
$600
$500
Steel
$400
5
25
R TM
45
SMC 5%
65
85
$200
105
Annual ProductionVolume (x 1000)
125
Steel: 9 parts
RTM: 2 Parts
SMC: 1 Part
145
$150
$100
Roof
$50
5
25
45
65
85
105
125
145
Annual Production Volume (x 1000)
Massachusetts Institute of Technology
Department of Materials Science & Engineering
3.080 Econ & Enviro Issues In Materials Selection
Randolph Kirchain
Engineering Economic Analysis: Slide 15
Hybrid Body Scenarios
$2,200
$2,000
Steel
$1,800
Hybrid 5%
$1,600
Hybrid 30%
RTM
$1,400
SMC
$1,200
$1,000
5 25 45 65 85 105 125 145
Annual Production Volume (x 1000)
Massachusetts Institute of Technology
Department of Materials Science & Engineering
3.080 Econ & Enviro Issues In Materials Selection
Randolph Kirchain
Engineering Economic Analysis: Slide 16
8
Case Two: Investigating Early Stage Developments
in Optoelectronic Components
• Initial model development
– Integrated DFB laser and
electro-absorptive modulator
on an InP platform (1550nm)
• Assessment of Integration
(Two Additional Cases)
– Monolithically Integrated
Laser-Modulator
Figure removed for copyright reasons.
Schematic of DFB laser with
electro-absorptive modulator on InP
platform.
Source: Alcatel Optronics.
– Discrete Devices, Single
Package
– Discrete Packages
Massachusetts Institute of Technology
Department of Materials Science & Engineering
From:
E Fuchs, E Bruce, R Ram, & R Kirchain “Process Based Cost
Modeling of Photonics Manufacture: The Cost-Competitiveness of
Monolithic Integration of a 1550nm DFB Laser and An ElectroAbsorptive Modulator on an InP Platform” in press Journal of
Lightwave Technology
3.080 Econ & Enviro Issues In Materials Selection
Randolph Kirchain
Engineering Economic Analysis: Slide 17
The MIT/CTR Optoelectronics Fabrication Model
• Mimics production from bare substrate through
assembly, packaging, and final test
• Provides full flexibility in building a process flow
• Captures effect of process derived yields at testing
Currently 46 Process Modules Available
Growth/Deposition
Surface Treatment
Lithography
Etch
Process-based Cost Model
Thermal
Test
Backend Assembly
Backend Packaging
Massachusetts Institute of Technology
Department of Materials Science & Engineering
3.080 Econ & Enviro Issues In Materials Selection
Randolph Kirchain
Engineering Economic Analysis: Slide 18
9
Process Modules Building Blocks in Product Flow
Clean
Bake
Alignment
Incoming Inspec
Laser MQW
LP-MOVPE
.
n-InP Cladding
(3x)
Epi Overgrowth
Test
Lidding, Lead check
Wire Bond
Clean
Bench Attach
PL Test
SiO2 Wet Etch
PECVD SiNx
PL Test
Sleeve attach
Wafer Cleaving
Lithography
LP-MOVPE
Fiber w. Grin
Lens Attach
Bench Assembly
Package Assembly
Test
(3x)
Test
Plasma Etch SiNx
Modulator MQW
Asher
.
Auto. Inspec.
Laser on Carrier
Chip Bond
Test
Temperature cycle
Vis. Inspec.
RIBE
Cure
Wirebond
Test
Burn-In
.
Massachusetts Institute of Technology
Department of Materials Science & Engineering
3.080 Econ & Enviro Issues In Materials Selection
Randolph Kirchain
Engineering Economic Analysis: Slide 19
Cost Modeling Benefits to Roadmapping
1. Provides a generic platform to discuss the cost of
process and product developments
2. Quantifies impact of future scale growth
3. Identifies key cost drivers
4. Quantifies necessary process performance
hurdles
Massachusetts Institute of Technology
Department of Materials Science & Engineering
3.080 Econ & Enviro Issues In Materials Selection
Randolph Kirchain
Engineering Economic Analysis: Slide 20
10
Quantifying Cost-Sensitivity to Scale
Models Derive Cost from Projected Optimal Fab Line
(Monolithically Integrated Device)
$1,200
Unit Cost (USD)
$1,000
$800
$600
$400
$200
Material
24%
Other Fixed
26%
$0
0
10,000 20,000 30,000 40,000 50,000
Equipment
35%
Massachusetts Institute of Technology
Department of Materials Science & Engineering
Other
Variable
15%
3.080 Econ & Enviro Issues In Materials Selection
Randolph Kirchain
Engineering Economic Analysis: Slide 21
Cost Modeling Benefits to Roadmapping
1. Provides a generic platform to discuss the cost of
process and product developments
2. Quantifies impact of future scale growth
3. Identifies cost drivers
4. Quantifies necessary process performance
hurdles
Massachusetts Institute of Technology
Department of Materials Science & Engineering
3.080 Econ & Enviro Issues In Materials Selection
Randolph Kirchain
Engineering Economic Analysis: Slide 22
11
Identifying Key Cost Drivers
Models Provide Unequaled Resolution
(Monolithically Integrated Laser-Modulator)
$100
Other Fixed
Equipment
Other Var
Materials
Unit Cost (USD)
$80
$60
$40
$20
(APV 30,000)
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Massachusetts Institute of Technology
Department of Materials Science & Engineering
3.080 Econ & Enviro Issues In Materials Selection
Randolph Kirchain
Engineering Economic Analysis: Slide 23
Identifying Opportunities for Improvement:
Unit Cost Elasticity to Yield
(Monolithically Integrated Device)
• Yield is key issue for
most leverage?
– Position in flow
– Embedded yield
• Cost elasticity to yield
% Δ Cost
% Δ Yield
– Identifies process yield
impact on aggregate cost
Massachusetts Institute of Technology
Department of Materials Science & Engineering
0.6
0.5
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• What processes provide the
0.7
Cost Elasticity to Yield
optoelectronics manufacturing
cost
0.8
3.080 Econ & Enviro Issues In Materials Selection
Randolph Kirchain
Engineering Economic Analysis: Slide 24
12
Cost Modeling Benefits to Roadmapping
1. Provides a generic platform to discuss the cost of
process and product developments
2. Quantifies impact of future scale growth
3. Identifies cost drivers
4. Quantifies necessary process performance
hurdles
3.080 Econ & Enviro Issues In Materials Selection
Randolph Kirchain
Massachusetts Institute of Technology
Department of Materials Science & Engineering
Engineering Economic Analysis: Slide 25
Cost Sensitivity to Final Test Yield
(Monolithically Integrated Laser-Modulator)
0.8
0.7
$500-$750
0.6
0.5
$750-$1000
0.4
Massachusetts Institute of Technology
Department of Materials Science & Engineering
0.3
50000
40000
30000
20000
10000
6000
2000
$1000-$1250
Final Test Yield
0.9
$250-$500
3.080 Econ & Enviro Issues In Materials Selection
Randolph Kirchain
Engineering Economic Analysis: Slide 26
13
Case Two: Investigating Early Stage Developments
in Optoelectronic Components
• Initial model development is
around a well-known case
– Integrated DFB laser and
electro-absorptive modulator
on an InP platform (1550nm)
• Assessment of Integration
(Two Additional Cases)
– Monolithically Integrated
Laser-Modulator
– Discrete Devices, Single
Package
Figure removed for copyright reasons.
Schematic of DFB laser with
electro-absorptive modulator on InP
platform.
Source: Alcatel Optronics.
From:
E Fuchs, E Bruce, R Ram, & R Kirchain “Process Based Cost
Modeling of Photonics Manufacture: The Cost-Competitiveness of
Monolithic Integration of a 1550nm DFB Laser and An ElectroAbsorptive Modulator on an InP Platform” in press Journal of
Lightwave Technology
– Discrete Packages
3.080 Econ & Enviro Issues In Materials Selection
Randolph Kirchain
Massachusetts Institute of Technology
Department of Materials Science & Engineering
Engineering Economic Analysis: Slide 27
Exploring the Cost-Impact of Integration:
Models Allow Testing of Novel Technologies
$2,500
Monolithically Integrated
Unit Cost (USD)
$2,000
Discrete Device,
Single Package
Discrete Package
$1,500
$1,000
$500
$0
0
10,000
20,000
30,000
40,000
50,000
The most competitive alternative is the
monolithically integrated laser-modulator.
Massachusetts Institute of Technology
Department of Materials Science & Engineering
3.080 Econ & Enviro Issues In Materials Selection
Randolph Kirchain
Engineering Economic Analysis: Slide 28
14
Process-based Cost Modeling (PBCM)
• Objective
– Map From Process Description To Operation Cost
• Purpose
– Inform Decisions Concerning Technology Alternatives
BEFORE Operations Are In Place
Product Description
Part Geometry
Material Properties
PBCM
Economic Characteristics
Production
Cost
Operating Conditions
3.080 Econ & Enviro Issues In Materials Selection
Randolph Kirchain
Massachusetts Institute of Technology
Department of Materials Science & Engineering
Engineering Economic Analysis: Slide 29
Process-based Cost Modeling (PBCM)
• PBCM forecasts manufacturing requirements Æ costs
– Processing requirements
• Cycle times, equipment specifications
– Resource requirements
• Number of tools, equipment, and laborers
Operating Conditions
Massachusetts Institute of Technology
Department of Materials Science & Engineering
Financial
Model
Production
Cost
Operations
Model
Resource
Requirements
Process
Model
Processing
Requirements
Product
Description
• How do technology changes impact manufacturing cost?
Factor Prices
3.080 Econ & Enviro Issues In Materials Selection
Randolph Kirchain
Engineering Economic Analysis: Slide 30
15
Creating a PBCM: Overview
• Models are created by decomposing problem from cost backwards
– Determine what characteristics, I1, effect cost
– Determine what characteristics, I2, effect I1
... and so on until...
– Determine how process description effects In
Intermediate ...
Process
Characteristics
Description
In
Intermediate Operation
Characteristics
Cost
I1
Model works from inputs to costs
<> Modeler works from costs to inputs
Massachusetts Institute of Technology
Department of Materials Science & Engineering
3.080 Econ & Enviro Issues In Materials Selection
Randolph Kirchain
Engineering Economic Analysis: Slide 31
Creating a PBCM: Critical Steps
• Define Question To Be Answered
• Identify Relevant Cost Elements
• Diagram Process Operations & Material Flows
• Relate Cost To What Is Known
• Understand Uncertain Characteristics
Massachusetts Institute of Technology
Department of Materials Science & Engineering
3.080 Econ & Enviro Issues In Materials Selection
Randolph Kirchain
Engineering Economic Analysis: Slide 32
16
Step One:
Define Question
What is cost?
Massachusetts Institute of Technology
Department of Materials Science & Engineering
3.080 Econ & Enviro Issues In Materials Selection
Randolph Kirchain
Engineering Economic Analysis: Slide 33
Creating a PBCM: Step One
• Define Question To Be Answered
– Cost of What?
• Carefully Understand Processing Boundaries
– Cost to Whom?
• Perspective Determines Pertinent Costs
– Cost Varying How?
• What Technical Changes Are Being Considered?
– Cost Compared to What?
• Relative to Other Options
• Absolute Measure of Operation
• More Than Any Physical Measure Cost Is Context Dependent
– Cost estimation requires exhaustive definition of context
Massachusetts Institute of Technology
Department of Materials Science & Engineering
3.080 Econ & Enviro Issues In Materials Selection
Randolph Kirchain
Engineering Economic Analysis: Slide 34
17
Examining Automobile Recycling:
Applying Process-based Cost Modeling
• Models account for:
• Examined questions of:
– Vehicle composition and
configuration
– Changing vehicle
composition
– Factor costs and transfer
prices
– Alternative recovery
technologies
– Recycling practice
– Imposed recovery targets
ASR
Hulk
$
Massachusetts Institute of Technology
Department of Materials Science & Engineering
Steel Scrap
$
Zinc
Heavy
Blend
Aluminum
Parts
Large Castings
Battery
Catalytic Converter
Loss
ASR
Nonferrous
Separator
Shredder
Dismantler
Old
Car
$
$
Red Metals
$
$
Processing
Gain
3.080 Econ & Enviro Issues In Materials Selection
Randolph Kirchain
Engineering Economic Analysis: Slide 35
18