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
Please read the supplemental document
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
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
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 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
Comparison of Body Weights
(incl. CIV inserts)
Steel
SMC
RTM Glass
Carbon Fiber
0
Bodyside
100
Floorpan
Massachusetts Institute of Technology
Department of Materials Science & Engineering
200
Cross Member
300
Front End
400
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
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
30
40
50
60
70
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
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
Massachusetts Institute of Technology
Department of Materials Science & Engineering
RTM
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
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
Ste e l
R TM
SMC 5 %
$200
Steel: 9 parts
RTM: 2 Parts
SMC: 1 Part
$400
5
25
45
65
85
105
Annual Production Volume (x 1000)
125
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%
RT M
$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
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
– 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
Process Modules Building Blocks in Product Flow
Clean
Alignment
Incoming Inspec
Laser MQW
LP-MOVPE
.
n-InP Cladding
(3x)
Epi Overgrowth
Test
Bake
Lidding, Lead check
Wire Bond
Clean
Bench Attach
PL Test
SiO2 Wet Etch
Bench Assembly
Package Assembly
PECVD SiNx
PL Test
Sleeve attach
Wafer Cleaving
Lithography
LP-MOVPE
Plasma Etch SiNx
Fiber w. Grin
Lens Attach
Test
(3x)
Test
Burn-In
Modulator MQW
Asher
.
Auto. Inspec.
Laser on Carrier
Chip Bond
Vis. Inspec.
RIBE
Cure
Test
Temperature cycle
Wirebond
Test
.
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
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
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
rA
tta
h
ch
A
ss
Sp
em
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n
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s
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su ist
a
B
en l Te
st
ch
A
tta
ch
W
ire
bo
nd
(APV 30,000)
B
en
c
Fi
be
B
on
d
k
hi
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Ba
c
C
st
Te
t-t
o-
y
Fr
on
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bl
ss
e
A
A
lig
n
m
en
t
$0
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
– Position in flow
– Embedded yield
• Cost elasticity to yield
%  Cost
%  Yield
– Identifies process yield
impact on aggregate cost
Massachusetts Institute of Technology
Department of Materials Science & Engineering
0.5
0.4
0.3
0.2
0.1
0
din
Ali
g
gn
me
nt
Bu
rnCh
In
ip
Bo
nd
Wi
reb
on
d
PE
CV
Me
D
tal
Lif
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ing
E-b
ea
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CV
D
most leverage?
0.6
Lid
• 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
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
– 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 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
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 29
Process-based Cost Modeling (PBCM)
• PBCM forecasts manufacturing requirements  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
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
Description Characteristics
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
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
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
$
$
Red Metals
$
Heavy
Blend
Aluminum
Parts
Large Castings
Battery
Catalytic Converter
Loss
ASR
Nonferrous
Separator
Shredder
Dismantler
Old
Car
$
Zinc
$
$
Processing
Gain
3.080 Econ & Enviro Issues In Materials Selection
Randolph Kirchain
Engineering Economic Analysis: Slide 35
Step Two:
Identify Relevant Costs
What costs should be considered?
Massachusetts Institute of Technology
Department of Materials Science & Engineering
3.080 Econ & Enviro Issues In Materials Selection
Randolph Kirchain
Engineering Economic Analysis: Slide 36
Creating a PBCM: Step Two
• Identify Relevant Costs
– Pertinent to Decision
– Necessary for Completeness / Credibility
Elements of
Manufacturing Cost
Material
Tooling
Energy
Overhead
Labor
Building
Equipment
Transportation
Marketing
Packaging
Advertising
Insurance
Massachusetts Institute of Technology
Department of Materials Science & Engineering
Relevant Elements
of Cost
Exclude
Unimportan
t
Elements
Material
Tooling
Energy
Overhead
Labor
Building
Equipment
Transportation
Marketing
Packaging
Advertising
Insurance
3.080 Econ & Enviro Issues In Materials Selection
Randolph Kirchain
Engineering Economic Analysis: Slide 37
Common Relevant Cost Elements
• Variable
– Materials (Raw Materials & Consumables)
– Labor
– Energy
• Fixed
– Equipment (including Maintenance)
– Tooling
– Building
– Overhead
• Begin With These, But Always Ask Whether Others Are Important
– Tradeoff Amongst Time, Resources, and Available Knowledge
Massachusetts Institute of Technology
Department of Materials Science & Engineering
3.080 Econ & Enviro Issues In Materials Selection
Randolph Kirchain
Engineering Economic Analysis: Slide 38
Creating A PBCM: Step Three
• Diagram Process Flows
– Draw In Materials Flowing Into AND Out Of
– Catalog For Each Process Step
• Equipment
• Labor
• Energy
e.g., Sheet Metal Stamping
Forming Between Two Matched Dies
Massachusetts Institute of Technology
Department of Materials Science & Engineering
3.080 Econ & Enviro Issues In Materials Selection
Randolph Kirchain
Engineering Economic Analysis: Slide 39
Diagramming Flows Example: Stamping
Massachusetts Institute of Technology
Department of Materials Science & Engineering
3.080 Econ & Enviro Issues In Materials Selection
Randolph Kirchain
Engineering Economic Analysis: Slide 40
Cost Modeling Challenge
• How much equipment to
buy?
• What is the cost of
producing your various
products?
… for your business…
Massachusetts Institute of Technology
Department of Materials Science & Engineering
?
3.080 Econ & Enviro Issues In Materials Selection
Randolph Kirchain
Engineering Economic Analysis: Slide 41
Your Business
Massachusetts Institute of Technology
Department of Materials Science & Engineering
3.080 Econ & Enviro Issues In Materials Selection
Randolph Kirchain
Engineering Economic Analysis: Slide 42
Modeling the Cost of Pizza Manufacture:
Defining Scope
• Cost to Whom?:
War & Pizza
– High volume (50K/y) pizza
maker
• Cost of What?
– How much does a pizza
cost to make ?
• Cost Varying How?
?
– … with design changes?
– … with scale up to 100K/yr ?
Massachusetts Institute of Technology
Department of Materials Science & Engineering
3.080 Econ & Enviro Issues In Materials Selection
Randolph Kirchain
Engineering Economic Analysis: Slide 43
Diagramming Flows Example: W & P
Catalog For Each Process Step
-- Labor -- Energy -- Equipment -- Tools
Pie Prep
L: Chef
E: Electricity
Q: Roller
T: Pans
Trim /
Delivery
Rejects
Massachusetts Institute of Technology
Department of Materials Science & Engineering
Baking
L: Asst Chef
E: Nat. Gas
Q: Oven
T: Pans
Trim /
Delivery
Rejects
3.080 Econ & Enviro Issues In Materials Selection
Randolph Kirchain
Engineering Economic Analysis: Slide 44
Data Collection & Model Development
• For each resource in your diagram
– How much does a unit cost?
– How many units are required?
• Begin data collection early!!!
– Start with low risk sources
• Probably smaller firms
– End with high value sources
Massachusetts Institute of Technology
Department of Materials Science & Engineering
3.080 Econ & Enviro Issues In Materials Selection
Randolph Kirchain
Engineering Economic Analysis: Slide 45
Step Four: Relate Costs to What is Known
• Process Involves Four Steps
1) Begin At The Current Endpoint (initially, the costs)
2) Ask: How Can That Quantity Be Broken Down?
-- Initially, How Many Do I Need x How Much Does Each Cost
3) Analyze Required Information (i.e. parameters)
-- Are Those Parameters Acceptable Endpoints?
-- Can I (the model) Derive Them From A Simpler Or More Relevant Set
Of Information?
4) If No, Repeat 1 With New Endpoints
• Watch Out For Interdependent Parameters
–
e.g. Part Mass & Part Dimensions
Massachusetts Institute of Technology
Department of Materials Science & Engineering
3.080 Econ & Enviro Issues In Materials Selection
Randolph Kirchain
Engineering Economic Analysis: Slide 46
Tracking Material Cost: Pepperoni Example
Total Cost of
Pepperoni
=
# of Pepperoni
Sticks
# of Pepperoni
Slices/Yr
Pepperoni
Slices per Pizza
=
=
=
How Much
per Year
# of Pepperoni
Slices/Yr
Pepperoni
Slices per Pizza
Pizza Area
*
*
*
Unit Cost of
Pepperoni
*
Pepperoni Slices
per Stick
Total Number
of Pizzas
Pepperoni
Packing Density
Pepperoni
Slices per
Stick
Pepperoni
Stick Length
=
Pepperoni Slice
Thickness
Pepperoni Area
Massachusetts Institute of Technology
Department of Materials Science & Engineering
3.080 Econ & Enviro Issues In Materials Selection
Randolph Kirchain
Engineering Economic Analysis: Slide 47
Pepperoni Pizza Design Inputs
Pizza Design
Parameters
Materials
Parameters
Business
Decisions
Pizza Area
Pepperoni Area
Total Number
of Pizzas
Pepperoni
Packing Density
Pepperoni
Stick Length
Pepperoni Slice
Thickness
Unit Cost of
Pepperoni
Massachusetts Institute of Technology
Department of Materials Science & Engineering
3.080 Econ & Enviro Issues In Materials Selection
Randolph Kirchain
Engineering Economic Analysis: Slide 48
Step Four Example: Pepperoni Costs
• Start at the end
• Think in terms of annual quantities
Pie Prep
Trim /
Delivery
Rejects
Massachusetts Institute of Technology
Department of Materials Science & Engineering
Baking
Trim /
Delivery
Rejects
3.080 Econ & Enviro Issues In Materials Selection
Randolph Kirchain
Engineering Economic Analysis: Slide 49
Two Important Quantities
• Production Capacity =
Qty. of "Good" Parts Capable of Being Produced
– How much CAN a plant produce?
• Production Volume =
Quantity of "Good" Parts Produced
– How much DOES a plant produce?
Generally, Both Are Measured In Units Per Year
(e.g., parts / year, kgs / year)
Massachusetts Institute of Technology
Department of Materials Science & Engineering
3.080 Econ & Enviro Issues In Materials Selection
Randolph Kirchain
Engineering Economic Analysis: Slide 50
Slices per Pizza
• General area covering is difficult to solve
– Solutions for small number of circumscribed circles has
been solved
• Approximate:
78%
Massachusetts Institute of Technology
Department of Materials Science & Engineering
90%
3.080 Econ & Enviro Issues In Materials Selection
Randolph Kirchain
Engineering Economic Analysis: Slide 51
Calculating Effective Production Volume:
Work Backwards from Final Step
Prepped Pizzas Produced / Year =
effective PVPrepping =
Good Preps +
PVPrepping +
Rejects
Rejects
Can model Rejects as % of total production
effPVPrep = PVPrep + R x effPVPrep
effPVPrep = PVPrep
(1 - R)
But what is PVPrep?
Assume that PVPrep = Total Pizzas Baked / Year (i.e., effPVBaking)
effPVi
= effPVi+1
(1 - R)
For last step, substitute PV for effPVi+1
Massachusetts Institute of Technology
Department of Materials Science & Engineering
3.080 Econ & Enviro Issues In Materials Selection
Randolph Kirchain
Engineering Economic Analysis: Slide 52
Next Question …
What is the cost of equipment?
How much equipment to buy?
Massachusetts Institute of Technology
Department of Materials Science & Engineering
3.080 Econ & Enviro Issues In Materials Selection
Randolph Kirchain
Engineering Economic Analysis: Slide 53
A Little Intro http://www.remcousa.com/flash.html
Massachusetts Institute of Technology
Department of Materials Science & Engineering
3.080 Econ & Enviro Issues In Materials Selection
Randolph Kirchain
Engineering Economic Analysis: Slide 54
A Little Intro http://www.remcousa.com/flash.html
Massachusetts Institute of Technology
Department of Materials Science & Engineering
3.080 Econ & Enviro Issues In Materials Selection
Randolph Kirchain
Engineering Economic Analysis: Slide 55
Key Structuring Constraint -- Time
• Hours of daily operation an operational constant
• To get more than a day’s production, you need
more resources
• Inverting that calculus can be used to scale/size
an operation
• Defines capital requirements
Massachusetts Institute of Technology
Department of Materials Science & Engineering
3.080 Econ & Enviro Issues In Materials Selection
Randolph Kirchain
Engineering Economic Analysis: Slide 56
Determining Equipment Requirements: Compare
Time Needed With Time Available
• Minimum equipment requirement:
Annual Required Production Time
Annual Available Operating Time
Massachusetts Institute of Technology
Department of Materials Science & Engineering
3.080 Econ & Enviro Issues In Materials Selection
Randolph Kirchain
Engineering Economic Analysis: Slide 58
Cycle Time as Basis, but Other Issues are Critical
• Total processing time
• Other times
– Processing
– Downtime Due To
Scheduled Breaks
– Load/Unload Time
– Unscheduled Downtime
– Time spent making
bad/unsold pizza
Line Utilization for a 24 hour day
Uptime
Analyzed
Part
Mfg. Time
Other
Parts
Mfg. Time
Downtime
Idle
Available
Massachusetts Institute of Technology
Department of Materials Science & Engineering
Unplanned
Breakdowns
Paid Unpaid
Breaks Breaks
On Shift
Maint.
No Shifts
Unavailable
3.080 Econ & Enviro Issues In Materials Selection
Randolph Kirchain
Engineering Economic Analysis: Slide 59
Considering Process Time for W&P
• Assumptions:
– Initial temp: 20˚C
– : 7.5E-9
– Thickness: 10 mm
• How long will it take to
cook?
• What’s the centerline
temperature reach target?
… 80 ˚C
Massachusetts Institute of Technology
Department of Materials Science & Engineering
Centerline Temp (C)
– Oven temp: 225˚C
120
100
80
60
40
20
0
0
100 200 300 400 500 600
Time
3.080 Econ & Enviro Issues In Materials Selection
Randolph Kirchain
Engineering Economic Analysis: Slide 60
Considering Process Time for W&P Breadmaking:
Temperatures
crust Maillard Reaction [30-100C]
starch gelatinization [70-92C]
protein denaturization [70-80C]
volatilization of alcohol [78-79C]
death of yeast cell [60C]
rapid expansion & production of CO2 and alcohols
[37-60C]
20
30
40
50
60
70
80
90
Temperature [C]
Ref:
Oregon State; Nutrition & Food Management (NFM236)
http://oregonstate.edu/instruct/nfm236/bread/index.cfm
Massachusetts Institute of Technology
Department of Materials Science & Engineering
3.080 Econ & Enviro Issues In Materials Selection
Randolph Kirchain
Engineering Economic Analysis: Slide 61
100
Heat Transfer, Non-Steady State
• Let’s rely on some experts
– Tufts’ Gourmet Engineering class, EN43
– Transient Conduction chapter:
http://www.tufts.edu/as/tampl/lecture_notes/ch4.html
– Assume constant surface temperature:
T(x,t) - Tsurface
Ti - Tsurface
=
x
erf 2t
{
}
A relation between time, temperature and position
Massachusetts Institute of Technology
Department of Materials Science & Engineering
3.080 Econ & Enviro Issues In Materials Selection
Randolph Kirchain
Engineering Economic Analysis: Slide 62
Centerline Temp (C)
Time, Temperature and Thickness
200
180
160
140
120
100
80
60
40
20
0
2mm
4mm
6mm
8mm
10mm
0
600
1200
1800
Time (seconds)
Massachusetts Institute of Technology
Department of Materials Science & Engineering
3.080 Econ & Enviro Issues In Materials Selection
Randolph Kirchain
Engineering Economic Analysis: Slide 63
Distribution of Capital Costs Over Time
• Simplicity Is Best At Outset
– Complex capital accounting relies on extra
knowledge, usually case specific
• Simple amortization -- opportunity cost of capital
– Distributed over goods sold, not made
Massachusetts Institute of Technology
Department of Materials Science & Engineering
3.080 Econ & Enviro Issues In Materials Selection
Randolph Kirchain
Engineering Economic Analysis: Slide 64
Dedicated Capital Or Not?
• Dedicated: Can only be used to make a single
good
• Non-dedicated: Can be used to make other goods
– Note: Just because it can be used doesn’t
necessarily mean it will be used!
Massachusetts Institute of Technology
Department of Materials Science & Engineering
3.080 Econ & Enviro Issues In Materials Selection
Randolph Kirchain
Engineering Economic Analysis: Slide 65
Relating a Uniform Series of Payments to P or F
• Uniform series of payments – often called an
Annuity
P
• By convention:
– P at time 0
?
F
?
A A
A A A
– A at end of period
– F at end of period
…
0
Therefore:
n-1 n
– 1st A, 1 period after P
– Last A, coincident with F
Massachusetts Institute of Technology
Department of Materials Science & Engineering
3.080 Econ & Enviro Issues In Materials Selection
Randolph Kirchain
Engineering Economic Analysis: Slide 66
Formulas for N Periods
Finite Series of Equal Payments
a) Future Value (F)
N
  A(1  r )i
i
A A A
0
[(1+r) N ]
= Pr
[(1 + r) N -1]
P
A A
…
[(1  r )N - 1]
A
r
b) Payment (A)
n-1 n
= P (crf)
crf = Capital Recovery Factor
Massachusetts Institute of Technology
Department of Materials Science & Engineering
3.080 Econ & Enviro Issues In Materials Selection
Randolph Kirchain
Engineering Economic Analysis: Slide 67
Consequences of Capital Utilization
Capital Cost/Unit
$5.00
$4.00
100
200
300
400
500
$3.00
$2.00
$1.00
$0.00
0
100
200
300
400
500
Production (1000/yr)
Massachusetts Institute of Technology
Department of Materials Science & Engineering
3.080 Econ & Enviro Issues In Materials Selection
Randolph Kirchain
Engineering Economic Analysis: Slide 68
Engineering Estimation Needed
• What’s the target temperature?
– Near alcohol
volatilization?
• Limited by
protein
denaturization
• How long does it
take to get to that temp?
Massachusetts Institute of Technology
Department of Materials Science & Engineering
3.080 Econ & Enviro Issues In Materials Selection
Randolph Kirchain
Engineering Economic Analysis: Slide 69
Recap
• Modeling as successive decomposition of problem
of cost
– Refine estimates
– Reduce number of independent cost elements
– Seek to construct framework
Process
Description
Massachusetts Institute of Technology
Department of Materials Science & Engineering
Intermediate ...
Characteristics
In
Intermediate
Operation
Characteristics
Cost
I1
3.080 Econ & Enviro Issues In Materials Selection
Randolph Kirchain
Engineering Economic Analysis: Slide 70