engineering economic analysis: slide 1 3.080 econ & enviro issues in materials selection...
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Engineering Economic Analysis: Slide 1
3.080 Econ & Enviro Issues In Materials SelectionRandolph KirchainMassachusetts Institute of Technology
Department of Materials Science & Engineering
Creating a Process-based Cost Model
Randolph Kirchain & Frank R. Field III
Materials Systems Laboratory
Massachusetts Institute of Technology
Engineering Economic Analysis: Slide 2
3.080 Econ & Enviro Issues In Materials SelectionRandolph KirchainMassachusetts Institute of Technology
Department of Materials Science & Engineering
Session Outline
•What is a process-based cost model?
•Examples of Technical Decisions
•Key steps to realizing a model
Engineering Economic Analysis: Slide 3
3.080 Econ & Enviro Issues In Materials SelectionRandolph KirchainMassachusetts Institute of Technology
Department of Materials Science & Engineering
Please read the supplemental document
Engineering Economic Analysis: Slide 4
3.080 Econ & Enviro Issues In Materials SelectionRandolph KirchainMassachusetts Institute of Technology
Department of Materials Science & Engineering
What is anengineering model?
What is the purpose of creating such models?
Engineering Economic Analysis: Slide 5
3.080 Econ & Enviro Issues In Materials SelectionRandolph KirchainMassachusetts Institute of Technology
Department of Materials Science & Engineering
Process-based Cost Modeling (PBCM)
•Objective– Map From Process Description To Operation
Cost
•Purpose– Inform Decisions Concerning Technology
Alternatives BEFORE Operations Are In Place
ProductionProductionCostCostPBCM
Product Description
Part GeometryPart Geometry
Material PropertiesMaterial Properties
Economic CharacteristicsEconomic Characteristics
Operating ConditionsOperating Conditions
Engineering Economic Analysis: Slide 6
3.080 Econ & Enviro Issues In Materials SelectionRandolph KirchainMassachusetts Institute of Technology
Department of Materials Science & Engineering
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
Engineering Economic Analysis: Slide 7
3.080 Econ & Enviro Issues In Materials SelectionRandolph KirchainMassachusetts Institute of Technology
Department of Materials Science & Engineering
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
Engineering Economic Analysis: Slide 8
3.080 Econ & Enviro Issues In Materials SelectionRandolph KirchainMassachusetts Institute of Technology
Department of Materials Science & Engineering
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
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.
Engineering Economic Analysis: Slide 9
3.080 Econ & Enviro Issues In Materials SelectionRandolph KirchainMassachusetts Institute of Technology
Department of Materials Science & Engineering
Comparison of Body Weights (incl. CIV inserts)
0 100 200 300 400
Carbon Fiber
RTM Glass
SMC
Steel
Bodyside Floorpan Cross Member Front End Roof
Engineering Economic Analysis: Slide 10
3.080 Econ & Enviro Issues In Materials SelectionRandolph KirchainMassachusetts Institute of Technology
Department of Materials Science & Engineering
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
Engineering Economic Analysis: Slide 11
3.080 Econ & Enviro Issues In Materials SelectionRandolph KirchainMassachusetts Institute of Technology
Department of Materials Science & Engineering
Comparing Manufactured Costs:Process-based models provide insight into novel options
Total Parts Production & Assembly Cost
$1,000
$1,500
$2,000
$2,500
10 20 30 40 50 60 70 80Annual Production Volume (000s)
Un
it C
os
t p
er B
od
y
Steel
RTM Glass
SMC
Engineering Economic Analysis: Slide 12
3.080 Econ & Enviro Issues In Materials SelectionRandolph KirchainMassachusetts Institute of Technology
Department of Materials Science & Engineering
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
Engineering Economic Analysis: Slide 13
3.080 Econ & Enviro Issues In Materials SelectionRandolph KirchainMassachusetts Institute of Technology
Department of Materials Science & Engineering
BIW Cost Breakdown at 35,000 parts/year
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
$1,800
$2,000
Steel RTM SMC
Other Fixed
Tooling
Equipment
Energy
Labor
Materials
Engineering Economic Analysis: Slide 14
3.080 Econ & Enviro Issues In Materials SelectionRandolph KirchainMassachusetts Institute of Technology
Department of Materials Science & Engineering
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
Engineering Economic Analysis: Slide 15
3.080 Econ & Enviro Issues In Materials SelectionRandolph KirchainMassachusetts Institute of Technology
Department of Materials Science & Engineering
Comparing Cost Performance in Individual Subsystems
5 25 45 65 85 105 125 145
Annual Production Volume (x 1000)
$400
$500
$600
$700
$800
Steel R TM SMC 5%
5 25 45 65 85 105 125 145
Annual Production Volume (x 1000)
$50
$100
$150
$200Steel: 9 partsRTM: 2 PartsSMC: 1 Part
Steel: 57 partsRTM: 2 parts + 20 insertsSMC: 9 parts + 20 inserts
RoofRoof
Floorpan / Floorpan / Cross memberCross member
Engineering Economic Analysis: Slide 16
3.080 Econ & Enviro Issues In Materials SelectionRandolph KirchainMassachusetts Institute of Technology
Department of Materials Science & Engineering
Hybrid Body Scenarios
5 25 45 65 85 105 125 145
Annual Production Volume (x 1000)
$1,000
$1,200
$1,400
$1,600
$1,800
$2,000
$2,200
Steel
Hybrid 5%
Hybrid 30%
RTM
SMC
Engineering Economic Analysis: Slide 17
3.080 Econ & Enviro Issues In Materials SelectionRandolph KirchainMassachusetts Institute of Technology
Department of Materials Science & Engineering
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
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 Electro-Absorptive Modulator on an InP Platform” in press Journal of Lightwave Technology
Engineering Economic Analysis: Slide 18
3.080 Econ & Enviro Issues In Materials SelectionRandolph KirchainMassachusetts Institute of Technology
Department of Materials Science & Engineering
Process-based Cost Model
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
Surface TreatmentEtch
ThermalBackend Assembly
Growth/DepositionLithography
TestBackend Packaging
Engineering Economic Analysis: Slide 19
3.080 Econ & Enviro Issues In Materials SelectionRandolph KirchainMassachusetts Institute of Technology
Department of Materials Science & Engineering
.
Plasma Etch SiNx
.
.
Clean
LP-MOVPE
PL Test
PECVD SiNx
Lithography
Incoming Inspec
Asher
RIBE
LP-MOVPE
PL Test
Auto. Inspec.
Vis. Inspec.
(3x)
(3x)
Laser MQW
Modulator MQW
Bake
Bench Attach
Wire Bond
Test
Alignment
Lidding, Lead check
Clean
Fiber w. Grin Lens Attach
Sleeve attach
Test
Temperature cycle
Test
SiO2 Wet Etch
Test
Burn-In
Test
WirebondCure
Chip Bond
Epi Overgrowth
n-InP Cladding
Laser on Carrier
Wafer Cleaving
Bench Assembly
Package Assembly
Process Modules Building Blocks in Product Flow
Engineering Economic Analysis: Slide 20
3.080 Econ & Enviro Issues In Materials SelectionRandolph KirchainMassachusetts Institute of Technology
Department of Materials Science & Engineering
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
Engineering Economic Analysis: Slide 21
3.080 Econ & Enviro Issues In Materials SelectionRandolph KirchainMassachusetts Institute of Technology
Department of Materials Science & Engineering
$0
$200
$400
$600
$800
$1,000
$1,200
0 10,000 20,000 30,000 40,000 50,000
Un
it C
ost
(U
SD
)Quantifying Cost-Sensitivity to ScaleModels Derive Cost from Projected Optimal Fab Line
Equipment35%
Other Variable
15%
Material24%
Other Fixed26%
(Monolithically Integrated Device)
Engineering Economic Analysis: Slide 22
3.080 Econ & Enviro Issues In Materials SelectionRandolph KirchainMassachusetts Institute of Technology
Department of Materials Science & Engineering
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
Engineering Economic Analysis: Slide 23
3.080 Econ & Enviro Issues In Materials SelectionRandolph KirchainMassachusetts Institute of Technology
Department of Materials Science & Engineering
Identifying Key Cost DriversModels Provide Unequaled Resolution
(Monolithically Integrated Laser-Modulator)
(APV 30,000)
$0
$20
$40
$60
$80
$100
Alignm
ent
Assem
bly T
est
Front-t
o-Bac
k
Chip B
ond
Fiber
Atta
ch
Bench
Ass
embl
y
Spin-O
n Res
ist
Visual
Tes
t
Bench
Atta
ch
Wire
bond
Un
it C
ost
(U
SD
)Other FixedEquipmentOther VarMaterials
Engineering Economic Analysis: Slide 24
3.080 Econ & Enviro Issues In Materials SelectionRandolph KirchainMassachusetts Institute of Technology
Department of Materials Science & Engineering
Identifying Opportunities for Improvement:Unit Cost Elasticity to Yield• Yield is key issue for
optoelectronics manufacturing cost
• What processes provide the most leverage?
– Position in flow
– Embedded yield
• Cost elasticity to yield
– Identifies process yield impact on aggregate cost
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
Co
st
Ela
sti
cit
y t
o Y
ield
Lidd
ing
Alig
nmen
tB
urn-
InC
hip
Bon
dW
ireb
ond
PE
CV
DM
etal
Lift
off
Lapp
ing
E-b
eam
MO
CV
D
%%
CostYield
(Monolithically Integrated Device)
Engineering Economic Analysis: Slide 27
3.080 Econ & Enviro Issues In Materials SelectionRandolph KirchainMassachusetts Institute of Technology
Department of Materials Science & Engineering
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 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 Electro-Absorptive Modulator on an InP Platform” in press Journal of Lightwave Technology
Engineering Economic Analysis: Slide 28
3.080 Econ & Enviro Issues In Materials SelectionRandolph KirchainMassachusetts Institute of Technology
Department of Materials Science & Engineering
Exploring the Cost-Impact of Integration:Models Allow Testing of Novel Technologies
$0
$500
$1,000
$1,500
$2,000
$2,500
0 10,000 20,000 30,000 40,000 50,000
Un
it C
ost
(U
SD
)
Monolithically Integrated
Discrete Device, Single Package
Discrete Package
The most competitive alternative is the monolithically integrated laser-modulator.
Engineering Economic Analysis: Slide 29
3.080 Econ & Enviro Issues In Materials SelectionRandolph KirchainMassachusetts Institute of Technology
Department of Materials Science & Engineering
Process-based Cost Modeling (PBCM)
•Objective– Map From Process Description To Operation
Cost
•Purpose– Inform Decisions Concerning Technology
Alternatives BEFORE Operations Are In Place
ProductionProductionCostCostPBCM
Product Description
Part GeometryPart Geometry
Material PropertiesMaterial Properties
Economic CharacteristicsEconomic Characteristics
Operating ConditionsOperating Conditions
Engineering Economic Analysis: Slide 30
3.080 Econ & Enviro Issues In Materials SelectionRandolph KirchainMassachusetts Institute of Technology
Department of Materials Science & Engineering
Process-based Cost Modeling (PBCM)• PBCM forecasts manufacturing requirements costs
– Processing requirements • Cycle times, equipment specifications
– Resource requirements• Number of tools, equipment, and laborers
• How do technology changes impact manufacturing cost?
ProcessModel
Operations Model
FinancialModel
Pro
du
ct
De
scr
ipti
on
Pro
du
cti
on
Co
st
Pro
cess
ing
Pro
cess
ing
Req
uir
emen
tsR
equ
irem
ents
Operating Conditions Factor Prices
Res
ou
rce
Res
ou
rce
Req
uir
emen
tsR
equ
irem
ents
Engineering Economic Analysis: Slide 31
3.080 Econ & Enviro Issues In Materials SelectionRandolph KirchainMassachusetts Institute of Technology
Department of Materials Science & Engineering
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
Model works from inputs to costs Model works from inputs to costs <> Modeler works from costs to <> Modeler works from costs to
inputsinputs
Operation Operation CostCost
Process Process DescriptionDescription
Intermediate Intermediate CharacteristicsCharacteristics
II11
Intermediate Intermediate CharacteristicsCharacteristics
IInn
......
Engineering Economic Analysis: Slide 32
3.080 Econ & Enviro Issues In Materials SelectionRandolph KirchainMassachusetts Institute of Technology
Department of Materials Science & Engineering
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
Engineering Economic Analysis: Slide 33
3.080 Econ & Enviro Issues In Materials SelectionRandolph KirchainMassachusetts Institute of Technology
Department of Materials Science & Engineering
Step One:Define Question
What is cost?
Engineering Economic Analysis: Slide 34
3.080 Econ & Enviro Issues In Materials SelectionRandolph KirchainMassachusetts Institute of Technology
Department of Materials Science & Engineering
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
Engineering Economic Analysis: Slide 35
3.080 Econ & Enviro Issues In Materials SelectionRandolph KirchainMassachusetts Institute of Technology
Department of Materials Science & Engineering
Examining Automobile Recycling:Applying Process-based Cost Modeling
• Models account for:– Vehicle composition
and configuration
– Factor costs and transfer prices
– Recycling practice
• Examined questions of:– Changing vehicle
composition
– Alternative recovery technologies
– Imposed recovery targets
Loss
Processing
Gain
Steel Scrap
HulkOld Car
ASR ASR
Alu
min
um Zin
c
Red
Met
als
HeavyBlend
Dismantler ShredderNonferrousSeparator
PartsLarge Castings
BatteryCatalytic Converter
$ $ $
$ $$
Engineering Economic Analysis: Slide 36
3.080 Econ & Enviro Issues In Materials SelectionRandolph KirchainMassachusetts Institute of Technology
Department of Materials Science & Engineering
Step Two:Identify Relevant Costs
What costs should be considered?
Engineering Economic Analysis: Slide 37
3.080 Econ & Enviro Issues In Materials SelectionRandolph KirchainMassachusetts Institute of Technology
Department of Materials Science & Engineering
Creating a PBCM: Step Two
•Identify Relevant Costs– Pertinent to Decision
– Necessary for Completeness / Credibility
Material Tooling
Energy Overhead
Labor Building
EquipmentTransportatio
n
Marketing Packaging
Advertising Insurance
Elements of Elements of Manufacturing CostManufacturing Cost
Material Tooling
Energy Overhead
Labor Building
EquipmentTransportatio
n
Marketing Packaging
Advertising Insurance
Relevant Elements Relevant Elements of Costof Cost
Exclude Unimportan
tElements
Engineering Economic Analysis: Slide 38
3.080 Econ & Enviro Issues In Materials SelectionRandolph KirchainMassachusetts Institute of Technology
Department of Materials Science & Engineering
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
Engineering Economic Analysis: Slide 39
3.080 Econ & Enviro Issues In Materials SelectionRandolph KirchainMassachusetts Institute of Technology
Department of Materials Science & Engineering
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 StampingForming Between Two Matched Dies
Blanking Stamping
CoilCoil BlanksBlanks PartsParts
Engineering Economic Analysis: Slide 40
3.080 Econ & Enviro Issues In Materials SelectionRandolph KirchainMassachusetts Institute of Technology
Department of Materials Science & Engineering
Diagramming Flows Example: Stamping
Catalog For Each Process StepCatalog For Each Process Step-- Labor-- Labor -- Energy-- Energy -- Equipment -- Equipment -- Tools-- Tools
CoilCoil
BlanksBlanks PartsParts
BlankingL: OperatorsE: ElectricityQ: Blanking PressT: ---
StampingL: OperatorsE: ElectricityQ: Stamping PressT: Multiple
Lube OilLube Oil
Trim/Trim/DeliveryDelivery
RejectsRejects Trim/Trim/DeliveryDelivery
RejectsRejects
Engineering Economic Analysis: Slide 41
3.080 Econ & Enviro Issues In Materials SelectionRandolph KirchainMassachusetts Institute of Technology
Department of Materials Science & Engineering
?
Cost Modeling Challenge
•How much equipment to buy?
•What is the cost of producing your various products?… for your business…
Engineering Economic Analysis: Slide 42
3.080 Econ & Enviro Issues In Materials SelectionRandolph KirchainMassachusetts Institute of Technology
Department of Materials Science & Engineering
Your Business
Engineering Economic Analysis: Slide 43
3.080 Econ & Enviro Issues In Materials SelectionRandolph KirchainMassachusetts Institute of Technology
Department of Materials Science & Engineering
?
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 ?
Engineering Economic Analysis: Slide 44
3.080 Econ & Enviro Issues In Materials SelectionRandolph KirchainMassachusetts Institute of Technology
Department of Materials Science & Engineering
Diagramming Flows Example: W & P
Pie PrepL: ChefE: ElectricityQ: RollerT: Pans
Catalog For Each Process Step-- Labor -- Energy -- Equipment -- Tools
Trim /Delivery
Rejects
BakingL: Asst ChefE: Nat. GasQ: OvenT: Pans
Trim /Delivery
Rejects
Engineering Economic Analysis: Slide 45
3.080 Econ & Enviro Issues In Materials SelectionRandolph KirchainMassachusetts Institute of Technology
Department of Materials Science & Engineering
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
Engineering Economic Analysis: Slide 46
3.080 Econ & Enviro Issues In Materials SelectionRandolph KirchainMassachusetts Institute of Technology
Department of Materials Science & Engineering
Step Four: Relate Costs to What is Known
• Process Involves Four Steps1) 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
Engineering Economic Analysis: Slide 47
3.080 Econ & Enviro Issues In Materials SelectionRandolph KirchainMassachusetts Institute of Technology
Department of Materials Science & Engineering
Step Four Example: Pepperoni Costs
•Start at the end
•Think in terms of annual quantities
Pie Prep
Trim /Delivery
Rejects
Baking
Trim /Delivery
Rejects
Engineering Economic Analysis: Slide 48
3.080 Econ & Enviro Issues In Materials SelectionRandolph KirchainMassachusetts Institute of Technology
Department of Materials Science & Engineering
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)
Engineering Economic Analysis: Slide 49
3.080 Econ & Enviro Issues In Materials SelectionRandolph KirchainMassachusetts Institute of Technology
Department of Materials Science & Engineering
Slices per Pizza
•General area covering is difficult to solve– Solutions for small number of circumscribed
circles has been solved
•Approximate:
78%78% 90%90%
Engineering Economic Analysis: Slide 50
3.080 Econ & Enviro Issues In Materials SelectionRandolph KirchainMassachusetts Institute of Technology
Department of Materials Science & Engineering
Calculating Effective Production Volume:Work Backwards from Final Step
Prepped Pizzas Produced / Year = Good Preps + Rejects
effective PVPrepping = PVPrepping + 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
Engineering Economic Analysis: Slide 51
3.080 Econ & Enviro Issues In Materials SelectionRandolph KirchainMassachusetts Institute of Technology
Department of Materials Science & Engineering
Next Question …
What is the cost of equipment?
How much equipment to buy?
Engineering Economic Analysis: Slide 52
3.080 Econ & Enviro Issues In Materials SelectionRandolph KirchainMassachusetts Institute of Technology
Department of Materials Science & Engineering
A Little Intro - http://www.remcousa.com/flash.html
Engineering Economic Analysis: Slide 53
3.080 Econ & Enviro Issues In Materials SelectionRandolph KirchainMassachusetts Institute of Technology
Department of Materials Science & Engineering
A Little Intro - http://www.remcousa.com/flash.html
Engineering Economic Analysis: Slide 54
3.080 Econ & Enviro Issues In Materials SelectionRandolph KirchainMassachusetts Institute of Technology
Department of Materials Science & Engineering
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
Engineering Economic Analysis: Slide 56
3.080 Econ & Enviro Issues In Materials SelectionRandolph KirchainMassachusetts Institute of Technology
Department of Materials Science & Engineering
Determining Equipment Requirements: Compare Time Needed With Time Available
•Minimum equipment requirement:
Annual Required Production Time
Annual Available Operating Time
Engineering Economic Analysis: Slide 57
3.080 Econ & Enviro Issues In Materials SelectionRandolph KirchainMassachusetts Institute of Technology
Department of Materials Science & Engineering
Cycle Time as Basis, but Other Issues are Critical
•Total processing time– Processing
– Load/Unload Time
– Time spent making bad/unsold pizza
•Other times– Downtime Due To
Scheduled Breaks
– Unscheduled Downtime
AnalyzedPart
Mfg. Time
OtherParts
Mfg. TimeIdle
UnplannedBreakdowns
PaidBreaks
UnpaidBreaks
On ShiftMaint. No Shifts
Line Utilization for a 24 hour day
Available Unavailable
DowntimeUptime
Engineering Economic Analysis: Slide 58
3.080 Econ & Enviro Issues In Materials SelectionRandolph KirchainMassachusetts Institute of Technology
Department of Materials Science & Engineering
Considering Process Time for W&P
•Assumptions:– Initial temp: 20˚C
– Oven temp: 225˚C
: 7.5E-9
– Thickness: 10 mm
•How long will it take to cook?
•What’s the centerline temperature reach target? … 80 ˚C
0
20
40
60
80
100
120
0 100 200 300 400 500 600
Time
Cen
terl
ine
Tem
p (
C)
Engineering Economic Analysis: Slide 59
3.080 Econ & Enviro Issues In Materials SelectionRandolph KirchainMassachusetts Institute of Technology
Department of Materials Science & Engineering
Considering Process Time for W&P Breadmaking: Temperatures
20 30 40 50 60 70 80 90 100
Temperature [C]
rapid expansion & production of CO2 and alcohols[37-60C]
death of yeast cell [60C]
volatilization of alcohol [78-79C]
protein denaturization [70-80C]
starch gelatinization [70-92C]
crust Maillard Reaction [30-100C]
Ref:Ref: Oregon State; Nutrition & Food Management (NFM236)Oregon State; Nutrition & Food Management (NFM236)http://oregonstate.edu/instruct/nfm236/bread/index.cfmhttp://oregonstate.edu/instruct/nfm236/bread/index.cfm
Engineering Economic Analysis: Slide 60
3.080 Econ & Enviro Issues In Materials SelectionRandolph KirchainMassachusetts Institute of Technology
Department of Materials Science & Engineering
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:
A relation between time, temperature and position
T(x,t) - TT(x,t) - Tsurfacesurface
Ti - TTi - Tsurface surface
xx22tterf { }=
Engineering Economic Analysis: Slide 61
3.080 Econ & Enviro Issues In Materials SelectionRandolph KirchainMassachusetts Institute of Technology
Department of Materials Science & Engineering
Time, Temperature and Thickness
020406080
100120140160180200
0 600 1200 1800
Time (seconds)
Cen
terl
ine
Tem
p (C
)
2mm
4mm
6mm
8mm
10mm
Increasing Thickness
Increasing Thickness
Engineering Economic Analysis: Slide 62
3.080 Econ & Enviro Issues In Materials SelectionRandolph KirchainMassachusetts Institute of Technology
Department of Materials Science & Engineering
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
Engineering Economic Analysis: Slide 63
3.080 Econ & Enviro Issues In Materials SelectionRandolph KirchainMassachusetts Institute of Technology
Department of Materials Science & Engineering
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!
Engineering Economic Analysis: Slide 64
3.080 Econ & Enviro Issues In Materials SelectionRandolph KirchainMassachusetts Institute of Technology
Department of Materials Science & Engineering
Relating a Uniform Series of Payments to P or F
•Uniform series of payments – often called an Annuity
•By convention:– P at time 0
– A at end of period
– F at end of period
Therefore:– 1st A, 1 period after P
– Last A, coincident with F
AAAA AA AA
0…
AA
n-1 n
PP
?FF
?
Engineering Economic Analysis: Slide 65
3.080 Econ & Enviro Issues In Materials SelectionRandolph KirchainMassachusetts Institute of Technology
Department of Materials Science & Engineering
Formulas for N PeriodsFinite Series of Equal Payments
a)Future Value (F)
b)Payment (A)
= P (crf)
crf = Capital Recovery Factor
N
N
[(1+r) ]= P
[(1 + r) -1]r
AAAA AA AA
0…
PPAA
n-1 n
(1 )
[(1 ) - 1]
Ni
i
N
A r
rA
r
Engineering Economic Analysis: Slide 66
3.080 Econ & Enviro Issues In Materials SelectionRandolph KirchainMassachusetts Institute of Technology
Department of Materials Science & Engineering
Consequences of Capital Utilization
$0.00
$1.00
$2.00
$3.00
$4.00
$5.00
0 100 200 300 400 500
Production (1000/yr)
Cap
ital C
ost/U
nit
100
200
300
400
500
Engineering Economic Analysis: Slide 67
3.080 Econ & Enviro Issues In Materials SelectionRandolph KirchainMassachusetts Institute of Technology
Department of Materials Science & Engineering
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?
20 30 40 50 60 70 80 90 100
Temperature [C]
rapid expansion & production of CO2 and alcohols
[37-60C]
death of yeast cell [60C]
volatilization of alcohol [78-79C]
protein denaturization [70-80C]
starch gelatinization [70-92C]
crust Maillard Reaction [30-100C]
Engineering Economic Analysis: Slide 68
3.080 Econ & Enviro Issues In Materials SelectionRandolph KirchainMassachusetts Institute of Technology
Department of Materials Science & Engineering
Recap
•Modeling as successive decomposition of problem of cost– Refine estimates
– Reduce number of independent cost elements
– Seek to construct framework
Operation Cost
Process Descriptio
n
Intermediate Characteristic
sI1
Intermediate Characteristic
sIn
...