making the case how to justify the cost of a rapid prototyping system
TRANSCRIPT
MAKING THE CASE
How to Justify the Cost of a Rapid Prototyping System
Who is Stratasys
FDM Technology
Today’s Event
Host Kim Killoran, Stratasys, Inc.
Presenter Todd Grimm, founder and president,
T. A. Grimm & Associates, Inc.
Additive Manufacturing Justification
Enormous value… Time, cost and quality
But… Difficult to quantify Difficult to put into words
Getting to “Yes” How to build a business case
Business Case
Report that summarizes: Proposed capital expenditure Associated value, risk and investment
Business case includes: Executive summary Situational analysis
• Current challenge/opportunity
• Proposed solution
• Alternatives
• Risk
Financial (cost) justification
Tip:Seek help & guidance
Executive Summary
Executive summary Will make (or break) the case
State: Challenge, solution, investment and return 2 or 3 paragraphs
Highlight the highlights Emphasis on the numbers
Tip:Be succinct
Tip:Be compelling
Situational Analysis
Current situation (the diagnosis)
Describe the challenge or opportunity• State who is affected and how
Hone in on one justifiable aspect
Emphasize the numbers
TELCOTELCO
Sales R&D Prototypes + ECOs
$50M $2.5M (5%) $80K/year $50K/year
Situational Analysis
Proposed solution(the treatment) Describe the additive manufacturing
proposal• What is being proposed
• Total investment
• Implementation time
Detail the benefits• Stress the hard numbers
• Reference the softer gains
TELCOTELCO
AM System On-Going Savings
$105K $34K/year $75K/year
Tip:State end result
Tip:Lead with hard numbers
Situational Analysis
Alternatives
List options considered
State why each was not selected
Risks
List possible risks
State how each will be addressed
Tip:List only the obvious
Financial Justification
Two alternatives Cost reduction Revenue increase
Two parts Capital expenditure
• And on-going costs
Return (value)
Investment
Initial investment System Ancillary equipment & licenses Installation & training Shipping IT expenditures Facility modifications
TELCOTELCO
AM System Equip/License Install/Train
$90K $8K $7K
Investment
On-going expenses Maintenance contract Routine maintenance Materials/consumables Labor Facility charges
Input needed Estimated part count Operational estimates
TELCOTELCO
Maintenance Consumables Labor
$15K $12K $7K
Financial Justification
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Investment
- CapEx ($105,000)
- On-going expense ($34,000) ($34,000) ($34,000) ($34,000) ($34,000)
Return - - - - - - - - - - - -
Total ($105,000) ($34,000) ($34,000) ($34,000) ($34,000) ($34,000)
CUM. TOTAL ($105,000) ($139,000) ($173,000) ($207,000) ($241,000) ($275,000)
TELCOTELCO
ANALYSIS SUMMARY
RETURN ON INVESTMENT (ROI) (5 year) - -
Simple annual ROI - -
INTERNAL RATE OF RETURN (IRR) - -
NET PRESENT VALUE (15% cost of capital - -
PAYBACK PERIOD - -
Return
Challenge: hard numbers 2 weeks = $________ ?
Recommended approach Three-tiered
• Hardest to softest
Iterative• Realistic yet compelling
Return
Tier 1 Savings from transition of work to AM
system
Two sources Outsourced
• AM and conventional
In-house
Collect historical data 12 to 36 month look back
Return
Outsourced costs Part, engineering, labor Expedite fees, shipping, taxes
In-house Internal cross charges Seek cost accounting assistance
TELCOTELCO
Prototypes Patterns Total
$60K $5K $65K
Tips:Create bucketsUse averagesDocument everything
Financial Justification
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Investment
- CapEx ($105,000)
- On-going expense ($34,000) ($34,000) ($34,000) ($34,000) ($34,000)
Return
- Outsourced $65,000 $65,000 $65,000 $65,000 $65,000
Total ($105,000) $31,000 $31,000 $31,000 $31,000 $31,000
CUM. TOTAL ($105,000) ($74,000) ($43,000) ($12,000) $19,000 $50,000
TELCOTELCO
ANALYSIS SUMMARY
RETURN ON INVESTMENT (ROI) (5 year) 48%
Simple annual ROI 10%
INTERNAL RATE OF RETURN (IRR) 15%
NET PRESENT VALUE (15% cost of capital) -$1,100
PAYBACK PERIOD 46 months
Returns
Tier 2 Increasing prototyping activity Due to speed, ease, convenience & cost
Leverage Generally accepted values
P
P
PP P
PP
P
Project Increased prototype activity Resulting return
TELCOTELCO
ECOs
$10K
Financial Justification
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Investment
- CapEx ($105,000)
- On-going expense ($34,000) ($34,000) ($34,000) ($34,000) ($34,000)
Return
- Outsourced $65,000 $65,000 $65,000 $65,000 $65,000
- ECOs $10,000 $10,000 $10,000 $10,000 $10,000
Total ($105,000) $41,000 $41,000 $41,000 $41,000 $41,000
CUM. TOTAL ($105,000) ($64,000) ($23,000) $18,000 $59,000 $100,000
TELCOTELCO
ANALYSIS SUMMARY
RETURN ON INVESTMENT (ROI) (5 year) 95%
Simple annual ROI 19%
INTERNAL RATE OF RETURN (IRR) 27%
NET PRESENT VALUE (15% cost of capital) $32,400
PAYBACK PERIOD 31 months
Returns
Tier 3 Value of speed
Recommend Omit from calculation Include as added value
If needed to justify Locate last-in-process step Show cause-and-effect
Financial Justification
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Investment
- CapEx ($105,000)
- On-going expense ($34,000) ($34,000) ($34,000) ($34,000) ($34,000)
Return
- Outsourced $65,000 $65,000 $65,000 $65,000 $65,000
- ECOs $10,000 $10,000 $10,000 $10,000 $10,000
Total ($105,000) $41,000 $41,000 $41,000 $41,000 $41,000
CUM. TOTAL ($105,000) ($64,000) ($23,000) $18,000 $59,000 $100,000
ANALYSIS SUMMARY
RETURN ON INVESTMENT (ROI) (5 year) 95%
Simple annual ROI 19%
INTERNAL RATE OF RETURN (IRR) 27%
NET PRESENT VALUE (15% cost of capital) $32,400
PAYBACK PERIOD 31 months
TELCOTELCO
Business case Financials Situational analysis Executive summary
Recommendations Concise & compelling Compelling & realistic Realistic & tangible
Recap
Stratasys
• Stratasys uses tough engineering-grade thermoplastics• Dimensionally stable materials lock in accuracy• Technology can be used for manufacturing tools & end-use parts
More Information
More information: www.stratasys.com/CostJustification Request a free sample part, download White Paper, presentation &
more
Method Cost Time
Injection molding
$60,000 70 days
In-house FDM prototyping
$1,200 2 days
Savings $58,800
(98%)
68 days
(97%)
Customer Success: Polaris Previously used injection molding for prototypes Purchased a Fortus machine Evaluated physical part, improved design Would have required $60,000 in mold revisions
Questions?
More information: www.stratasys.com/CostJustification Request a free sample part, download White Paper & presentation