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Unit IV - Module 11 11

Manufacturing Cost Estimating

Techniques for estimating in a manufacturing environment

“Early in the morning factory whistle blows,Man rises from bed and puts on his clothes,

Man takes his lunch, walks out in the morning light,It’s the working, the working, just the working life.”

- “Factory,” Bruce Springsteen

Presented at the 2017 ICEAA Professional Development & Training Workshop www.iceaaonline.com/portland2017


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Acknowledgments• ICEAA is indebted to TASC, Inc., for the

development and maintenance of theCost Estimating Body of Knowledge (CEBoK®)– ICEAA is also indebted to Technomics, Inc., for the

independent review and maintenance of CEBoK®

• ICEAA is also indebted to the following individuals who have made significant contributions to the development, review, and maintenance of CostPROF and CEBoK ®

• Module 11 Manufacturing Cost Estimating– Lead authors: Gabriel B. Rutledge, Christina M. Kanick, Daniel V. Cota,

Heather Nayhouse– Assistant authors: Crystal H. Rudloff, Richard L. Coleman– Senior reviewers: Richard L. Coleman, Fred K. Blackburn– Reviewers: Donnie Hustrulid, Casey D. Trail– Managing editor: Peter J. Braxton

2Unit IV - Module 11


http://www.tasc.com/

http://www.technomics.net/


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Unit IndexUnit I – Cost EstimatingUnit II – Cost Analysis TechniquesUnit III – Analytical MethodsUnit IV – Specialized Costing

11. Manufacturing Cost Estimating12. Software Cost Estimating

Unit V – Management Applications



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Manufacturing Overview• Key Ideas

– R / NR, Fixed / Variable, Direct / Indirect

– Fringe, Overhead, G&A– Time standards

• Time and motion studies– Scrap / yield rate

• Practical Applications– Green Labor– CERs vs. rates– Composites– Make or buy– Capital improvements– Parametric modeling of inputs– CAD / CAM– Classified Manufacturing

• Analytical Constructs– Standard Time = (Measured Time)

* Pace / (1-PF&D)– Direct Labor Costs = Std Time *

Realization Factor * Wage Rate– Realization Factor = Actual Time /

Standard Time– Time series analysis

• Moving average

• Related Topics– Cost Accounting– Change Order Estimating– Industrial Engineering (IE) /

Planning– DFMA– Lean / Six Sigma– Material / Subcontracting6 11



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Manufacturing Outline• Core Knowledge

– Introduction– Manufacturing Process Overview– Manufacturing Functional Cost Elements

• Engineering• Tooling• Manufacturing• Quality Control

– Labor and Material Estimating– Manufacturing Issues

• Resources• Related and Advanced Topics

4

DoD Form 1921-1 Functional Cost

Hour Report displays costing information by functional cost

elements.



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Introduction• Manufacturing cost estimating is the complement of

techniques used to forecast resources for the manufacturing environment

• The objective of this module is to:– Explain the general components of the manufacturing

process;– Discuss considerations or concerns the cost analyst must be

aware of in the manufacturing environment; and– Provide manufacturing cost estimating techniques to address

those issues• Manufacturing cost estimating is focused on the

process– Hardware cost estimating is focused on the end item

12 “Hardware Estimating,” Galorath Incorporated, http://www.galorath.com/wp/tag/hardware-estimating.


http://www.galorath.com/wp/tag/hardware-estimating


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Warning: Making a smaller antenna is different than

making an antenna smaller!

7

Manufacturing Analogy Estimate• The Space and Technology Company that manufactures satellites

is creating an estimate for a new satellite • The antenna subsystem that will be used on the new satellite is

very similar to that of an existing satellite the company also manufactures

Attribute Analogy Satellite New SatelliteAntenna Subsystem Weight 500 lbs 300 lbsT1$K: $21,000 ?

Q: What is the 1st unit cost of the new satellite antenna subsystem?

A: $21,000 * (300 / 500) = $12,600KCost1

Weight

Cost

X1

X

2

X2



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Manufacturing Parametric Estimate

2

Q: What is the 1st unit cost of the new satellite antenna subsytem?

A: 32.5 * 300 + 12,716 = $22,466K

Attribute New SystemSatellite Antenna Subsystem: 300 lbsCost: ?

3

4

Antenna Subsystem Cost CER

y = 32.50x + 12716.10R2 = 0.82

0

10000

20000

30000

40000

50000

60000

0 200 400 600 800 1000 1200

Weight (lbs)

Cos

t (T1

$K)

Cost (T1$K) Weight (lbs)15950 3219175 8618725 14521500 48021000 50038300 60028550 74038575 82047300 88043650 91448875 1010

Using the satellite manufacturing example from the previous slide, suppose that the Space and Technology Company had several analogous satellite antenna to use as historical data points.

Note: This estimate for the same new system is much higher than the analogy estimate on the previous slide. This illustrates the perils of

factors, and arises due to the y intercept.



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Development vs. Production

Production Functions

Development Functions

1

Defense Acquisition Guidebook, DAU, https://acc.dau.mil/CommunityBrowser.aspx?id=332533.

7

AKA Program Definition and

Risk Reduction (PDRR)

AKA Engineering and Manufacturing

Development (E&MD)


https://acc.dau.mil/CommunityBrowser.aspx?id=332533


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Hardware Development Cycle

HW Rqmts

Analysis

Detail

DesignProduction

Syst

em

Req

mts

Ana

lysi

s

Syst

em

Des

ign System

Integration & Test

PDR CDRSRR

Functional BaselineA Spec

Allocated BaselineB Spec

Product BaselineC Spec

TRRSDR

Prelim

Design

Test

Support Functions (Sustaining Engineering & Management)

Defense Acquisition University.

PRR

AKA “Design-to” Spec

AKA “Build-to” Spec



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Manufacturing Flow Diagram• Receiving• Tooling• Machining• Sub-assembly

• Assembly• Finishing/Quality

Control• Shipping


Figure: TruCut Fabricator Plant Layout



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Cost Elements in Manufacturing• Engineering• Prototyping• Setup

– Facilities– Tooling– Test Equipment

• Production Run– Labor

• Touch / Support Labor• Labor / Overhead Rates

– Material• Subcontracts / Purchased Parts / Raw

Material• Material Burdens

17



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Engineering and Prototyping• Concept Design• System Design• Prototypes

– Experimental Development Models (XDMs)– Advanced Development Models (ADMs)– Engineering Development Models (EDMs)– Preproduction Models (PPMs)

• Modeling and Simulation (M&S)• Detailed Design / Drawings

4

Tip: Prototype costs are a good basis for estimating Recurring Production unit costs. EDMs are most common.

“Analyses of the Relationship Between Development and Production Costs and Comparisons with Other Related Step-up/Step-down Studies,” Paul L. Hardin, Daniel A. Nussbaum, NCCA, 7 January 1994

http://www.ijee.ie/


http://www.ijee.ie/


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Production Setup• The “non-recurring” process of setting

up prior to performing a production run of a component

• Production Setup includes:– Process Engineering – define / refine

manufacturing procedures– Facility Layout – establish manufacturing

flow– Tooling and Test Equipment – develop

layout and procedures



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Integrated Software tools are often referred to collectively as CAD / CAM / CAE and can be used in conjunction with

three-dimensional (3D) modeling.15

Production Setup Considerations• Manufacturing Environment

– Prototype vs. (Full-Rate or Limited-Rate) Production• Degree of Automation

– Computer-Aided Design (CAD)• Used for design and particularly drafting (technical drawing and engineering

drawing) of a part or product

– Computer-Aided Manufacturing (CAM)• Used to manufacture physical models

– Computer-Aided Engineering (CAE)• Used to supports engineers in tasks such as analysis, simulation, design,

manufacture, planning, diagnosis, and repair

• Availability and Flexibility of Tooling / Test

11

7



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Facilities• Capital Investments/Improvements

– Production house often works single program– Development house often has several

programs– Costs spread more for development

• Facilities Capital Cost Of Money (FCCOM)• Facility Maintenance

Tip: Facilities can be a Direct or Indirect expense, but needs to be accounted for.

AKA Cost Of Facilities Capital (COFC)



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Tooling and Test Equipment• Tooling

– Required to produce (e.g., lathe) and support (e.g., jigs and fixtures) components during production and test

– Soft Tooling / Rate Tooling– Requires maintenance and recapitalization

• Test Equipment– Required to qualify design and verify manufacturing

process yielded acceptable component– Can be segregated into mechanical / electrical

• Mechanical ground support equipment (MGSE) + electrical ground support equipment (EGSE) = aerospace ground equipment (AGE)

– Requires maintenance and recapitalization

1



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Estimating Setup Costs

• When developing estimates for production setup– Consider commodity type– Account for production rate– Consider automation

• Consider applying a percent reduction factor from a differentanalogy program

• Commonly estimated by analogy to similar programs or by parametric CER– Scale by T1 cost (or labor hours)– Scale by Weight (or other sizing parameter)

Tip: Be sure estimating methods account for the considerations listed earlier

Double Analogy



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Production Run Characteristics• Recurring Cost Elements

– Labor• Touch / Support Labor• Labor / Overhead Rates

– Material• Subcontracts / Purchased Parts / Raw Material• Material Burdens

• Considerations– Learning Curve / Production Breaks– Process “Improvements”

• Integrated Product Teams (IPTs)• Lean Manufacturing• Six Sigma• Agile Production

7

16

12



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Estimating Labor Costs

• Manufacturing / Production Labor can be estimated by the following methods:– Build-up from detailed labor standards– Analogy to actual labor hours from similar

project– Parametric CER of actual labor hours from

similar “in-family” projects

Build-up is the most common method used in Manufacturing Cost Estimating2

DAU course “CLB029 Rates” introduces the basics of wrap rate development as it relates to cost estimating



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Direct and Indirect Labor

• Account for both direct labor and indirect labor in manufacturing estimates

• Direct Labor = touch labor• Indirect Labor = support functions such as “-

ilities”– Industrial and Manufacturing Engineering– Supervisory and Management Support– Ancillary labor

Total Labor =Direct Labor + Indirect Labor

Warning: Every organization accounts for direct and

indirect costs differently!

13

15



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Manufacturing Build-Up EstimateLabor and Time Standards

• Standards are a direct result of time studies and work measurement

• Time standard is the amount of time allowed to complete a given task

• In addition to estimating, the following operational areas require accurate time and cost data in a manufacturing environment– Production control– Plant layout– Purchasing– Cost accounting and control– Process and product design



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Time Studies• A time (and motion) study is a method for

establishing an allowed time standard for performing a specific task– Method to determine a “fair day’s work”

• Time study analysts can employ many different techniques to establish a time standard– Stopwatch time studies– Computerized data collection– Standard data – Formulas– Work sampling studies– Predetermined time systems

Tip: Time studies should be based on your data, whenever possible!



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• Many factors should be taken into consideration during the development of a time standard:– The amount of work– The type of work– The prescribed work method– Fatigue– Delays (personal and unavoidable)– Unit at which standards are derived

• Standard Time = Measured Time * Pace1-PF&D

– Personal Fatigue and Delay (PF&D)• PF&D factors can run as high as 25%

– Pace is a measure of relative rate• Pace may be related to position on the learning curve (unit number),

maturity of work, and worker experience• As an area of considerable variation, it should be used with great care

Development of Time Standards

AKA Standard Time



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Use of Time Standards• Predict direct labor costs

– Direct Labor Costs = Std Time * Realization Factor * Wage Rate• Measure labor efficiency

– Efficiency = Earned Hours of Production / Actual Labor Hours

• Determine employee wages and incentives – Provides a yardstick to measure individual performance

• Compare work methods• Determine plant capacity• Improve production control• Size workforce and new equipment purchases• Coverage of standards is often more complete in earlier

phases of work on a unit than in later– Simple repeatable actions are easiest for standards (e.g., time to

weld 1 meter of ½” steel, time to install 1 meter of ½” pipe, etc.)

Earned hours of production is calculated from the time standards of the work produced



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Realization Factor and Efficiency• Realization Factor (FR) and Efficiency Factor (FE) both

compare actual labor hour to a previously determined standard effort – FR = Actuals / Standard <1 good, >1 bad– FE = Standard / Actuals >1 good, <1 bad– FR = 1/ FE, FE = 1/ FR

• As already noted, FR (FE) is likely to change with unit, because this is implicit in the theory of learning

• It is speculated that FR (FE) and Pace are intimately connected

Standard Time is used to set a benchmark that the operator should meet.

Realization factors are metrics to determine how close operators performed to the standard time.

5

11

FR AKA Variance Factor FE AKA Performance to

Standards (PTS)



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Unit IV - Module 11 27Unit IV - Module 11 27

Manufacturing Build-Up EstimateUsing Labor Standards

• An estimator is trying to estimate the number of man-hours required to fit, weld and grind an assembly at a shipyard

• The work on new assembly will be performed in an uncovered work area that has a Personal Fatigue & Delay (PF&D) factor of 25% associated with it

• The assembly work would normally be performed in a covered shop area with a 10% PF&D factor

Operation Standard (mhr / lf) Normal PF&DFit 2.5 10%Weld 1.7 10%Grind 0.8 10%

Q: The new assembly has 750 linear ft that must be fit, welded, and ground. How many manhours should be estimated for each operation of the new assembly?

A: Fit mhrs = 2250, Weld mhrs = 1530, Grind mhrs = 720

Standard Time = Measured Time * Pace1-PF&D



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6%

7%

8%

9%

10%

11%

12%

13%

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

QA

Supp

ort F

acto

r

Support Labor

• Support Labor = Non-“touch” labor that supports the manufacturing process– Manufacturing Engineers– Industrial Engineers– Quality Control– Parts, Materials, & Processes

• Typical estimates– Factor of Touch Labor– LOE (FTEs per time)

MonthMachining Standard

Hours

Quality Assurance

Hours

Average Monthly

RatioJanuary 42.0 50.0 11.90%February 48.0 48.0 10.00%March 47.0 47.0 10.00%April 56.0 40.0 7.14%May 50.0 59.0 11.80%June 52.0 58.0 11.15%July 49.0 50.0 10.20%August 48.0 57.0 11.88%September 49.0 45.0 9.18%October 52.0 44.0 8.46%November 50.0 47.0 9.40%December 43.0 48.0 11.16%

747 Center Bulk Head Machining



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“Non-Standard” Labor Element Example – Quality Assurance (QA)

• Non-Standard CER Development– Projected future cost of QA for next January will

be 10.12% of machining standard hours

6%

7%

8%

9%

10%

11%

12%

13%


QA

Supp

ort F

acto

r

QA CER 10.12% of machining standard hours

Month Machining Std MH QA Hours Factor

Jan 420 50 11.9%Feb 480 48 10.0%Mar 470 47 10.0%Apr 560 40 7.1%May 500 59 11.8%Jun 520 58 11.2%

Jan-Jun 491.7 50.3 10.24%

Jul 490 50 10.2%

Aug 480 57 11.9%Sep 490 45 9.2%Oct 520 44 8.5%Nov 500 47 9.4%Dec 430 48 11.2%

Jul-Dec 485 48.5 10.00%

Jan-Dec 488.3 49.4 10.12%

Avg Factor 10.19%

747 Bulkhead Machining

11



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QA Rate vs. Month

6.0%

7.0%

8.0%

9.0%

10.0%

11.0%

12.0%


QA Non-Standard CER Example• Note that a statistical examination of this problem produces a similar result

with a very different approach:– There is no significant function linking QA to Machining hours– There is no significant difference in regression of the full year vs. the halves– The CV of the monthly ratios is small at 14.6%– So, we resort to a year-long ratio of 10.12%

QA vs. Machining Hours

y = -0.0289x + 63.537R2 = 0.0354

y = -0.0451x + 70.352R2 = 0.0843

y = -0.026x + 63.115R2 = 0.0296

35

40

45

50

55

60

400 420 440 460 480 500 520 540 560 580

Machining Hours

QA

Hour

s

Jan-Dec Jan-Jun Jul-DecLinear (Jan-Dec) Linear (Jul-Dec) Linear (Jan-Jun)

Month Machining Std MH QA Hours Factor

Jan 420 50 11.9%Feb 480 48 10.0%Mar 470 47 10.0%Apr 560 40 7.1%May 500 59 11.8%Jun 520 58 11.2%Jul 490 50 10.2%Aug 480 57 11.9%Sep 490 45 9.2%Oct 520 44 8.5%Nov 500 47 9.4%Dec 430 48 11.2%Jan-Dec 488.3 49.4 10.12%Avg Factor 10.19%

Std Dev 1.48%CV 14.6%

747 Bulkhead Machining

Factor Histogram

0

0.5

1

1.5

2

2.5

3

3.5

7.00%

7.50%

8.00%

8.50%

9.00%

9.50%

10.00

%

10.50

%

11.00

%

11.50

%

12.00

%



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Considerations in Manufacturing

• Learning Curve• Production Breaks

– Schedule Delays– Engineering Changes – Rework and Retrofitting– Shut-down Breaks

• Green Labor• Process Improvements• Make or Buy

2

7

100% Loss of Learning

0

20

40

60

80

100

120

0 5 10Unit Number

Uni

t Cos

t



v1.2


• Using the example of satellite antenna subsystems previously discussed, calculate the total cost of the satellite antenna subsystems for the first 4 satellites from our previous example assuming a 90% Cumulative Average LCS– Lot Size 4– Learning Curve Theory CumAv– Learning Curve %, T1 90%, $22,466K

– Answer Total Cost = aX b+1 =$22,466 * 4 ^ 0.848

» $72,790K

Learning Curve Example

3

7

1+= baXTotal

LCS Example

0

5000

10000

15000

20000

25000

0 1 2 3 4 5Unit

Cos

t ($K

)

152.090.0log2 −≈=b



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Production Break Example• Stress fractures in vertical tail of F/A-18 C/D

– Design change required to reinforce vertical tail implemented at 85th unit

– Design change and retooling cause a break in production– Break in production increases costs and reduces efficiency

• Break analysis– Units 1 through 84 should be treated as a dataset– Cost of Unit 85 is determined using break analysis and a

new learning curve is run from there to predict the cost of future units

7

100% Loss of Learning

0

20

40

60

80

100

120

0 5 10Unit Number

Uni

t Cos

t



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Make or Buy

• Product manufacture and delivery responsibility of IPT Lead leads to creative use of resources

• IPT Lead may incorporate “Make or Buy” process

• Might be more cost effective (or faster) to buy a part from an outside vendor instead of making the part in-house

13

AKA Backdooring



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Rates Estimating

• Direct Rates• Indirect Rates

Direct Labor Cost ($) =Direct Labor Rate ($/hr) x Labor Hours

Total Labor Cost ($) =(1 + Overhead Rate) x Direct Labor Cost ($)

3

Tip: Correct application of labor and overhead rates is extremely important for pricing

Warning: Overhead rates are usually additive, but like many such numbers, may be stated as either additive (100%

more) or multiplicative (200%). Be sure of which you are using.



v1.2


Labor Elements and Burdening• Direct Labor

– Direct Salary• Gross Pay

– Fringe Benefits• Paid Time Off (PTO) – vacation, sick, holiday• Health Plan• 401K, Pension

• Indirect Functions– Supervisor and Management Salaries– Operating Expenses

• Lease, utilities, etc.– Subcontract and Material burdens– General and Administrative (G&A) expenses

• Payroll, Marketing, Corporate Expenditures– Facilities Capital Cost Of Money (FCCOM)

Tip: Don’t forget Fee!14

14

19



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Rates Example

18

Total dollars divided by total hours: $15,132 / 145

Accounts for Fringe benefits that are the Company contribution to health plan, 401K, etc.

Company A Company BManufacturing Labor Standard 100 Hours 150 Hours

ENGR Support Labor Factor 45% 25%ENGR Support Labor 45 37.5

MFG Direct Labor Rate 25.00$ 20.00$ ENGR Labor Rate 40.00$ 35.00$

Fringe Rate 50% 50%

MFG OH 100% 100%ENGR OH 80% 80%

Material Cost 2,500.00$ 2,500.00$ Material Burden 10% 10%

G&A Burden (non value added) 20% 20%Cost Through G&A 15,132.00$ 15,352.50$

What is the Fully Burdened WRAP Rate? 104.36$ 81.88$



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Labor Rate Challenges• Use of Correct Labor Rates

– Skill mix required for estimating– Labor category determines labor rate

• Forward Pricing Rate Agreements (FPRAs)– Include business base assumptions– Account for cost of living adjustments (COLA)

• Organized Labor issues • Regulatory Issues

– Labor laws – Premium Pay

6

Skill Mix Example Direct Rate HoursEngineer 1 25.00$ 1,000 Engineer 2 30.00$ 500 Engineer 3 40.00$ 250 Engineer 4 50.00$ 250 Composite Rate 31.25$

Composite Rate = Σ (Direct Rate * Hours) / Σ Hours

Federal Acquisition Regulation (FAR) 15.801

16



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Material Cost Estimating

• Material Costs and Types of Materials

• Material Concerns– Tolerances– Quality– Scrap Rates– CAD/CAM

• Material Manufacturability



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Material Costs• Raw Material

– Material to be transformed by manufacturer into a product– Example: Steel Plate transformed to Hull Structure by Welding

and Shipfitting Processes• Purchased Parts

– Materials to be installed by manufacturer to make a final product– Example: Prefabricated Doors and Hatches installed on a Ship

• Subcontractor Costs– Costs associated with an outside company that produces a

product or performs a service– Determined by make/buy analysis– May include Long-Lead Material– Examples: Power Plant subcontract, Armament subcontract– Often labeled as “Material” by the contractor, even though it may

be part or all labor• Examples: Consultants, Engineering Services



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Types of Raw Materials• Metal

– Ferrous– Nonferrous

• Non-Metal– Organic– Inorganic

• Composites• Bonding Material and Laminates• Exotic Materials

– Radar-Absorbing Material (RAM)– Composite Tubing– Coating Materials

8

Methods exist to enable the costing of various

types of materials

Aluminum machining costs less than stainless steel

with same strength properties after anodizing



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Material Concerns• Tolerances

– Performance– Reliability– Manufacturability

• Quality– Defects– Performance Properties– Vendor Self-Inspection– In-process Inspection

• Scrap Rates– Rework– Percentage of end item material– Negotiated Material Usage Allowance (MUA)

• CAD/CAM– Material Take-off List (MTOL)

Quality Assurance costs reduced with the implementation of vendor

self-inspection program

7

9Tip: Scrap Rates ensure that we

include costs associated with material loss/waste

Warning: The error is in the denominator: Scrap rate is

not a percentage of total material used



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Material Usage Allowance (MUA)• Material usage has been tracked for the last 20 air

vehicles of the B2 canopy panel with a stable design –no change for 20 units

• A new design is implemented for the 21st canopy panel

18%

20%

22%

24%

26%

28%

30%

32%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20Units

MUA

5-unit moving average for MUA is 22.6%

24.2%24.4%901121124.2%24.4%901121222.2%20.0%901081322.0%18.9%901071422.7%25.6%901131521.8%20.0%901081620.7%18.9%901071721.6%24.4%901121822.7%24.4%901121922.4%24.4%9011220

23.8%23.8%23.8%22.4%22.4%23.6%

5-Unit Moving Average

90909090909090909090

Delivered Product Weight

22.2%20.0%30.0%24.4%22.2%22.2%20.0%23.3%24.4%27.8%

Delta/Unit

11010108911781127110611051084111311221151

Raw Material WeightUnit

24.2%24.4%901121124.2%24.4%901121222.2%20.0%901081322.0%18.9%901071422.7%25.6%901131521.8%20.0%901081620.7%18.9%901071721.6%24.4%901121822.7%24.4%901121922.4%24.4%9011220

23.8%23.8%23.8%22.4%22.4%23.6%

5-Unit Moving Average

90909090909090909090

Delivered Product Weight

22.2%20.0%30.0%24.4%22.2%22.2%20.0%23.3%24.4%27.8%

Delta/Unit

11010108911781127110611051084111311221151

Raw Material WeightUnit



v1.2


MUA Example

• Additional inputs:– The mass properties engineer estimates the weight of the

new panel at 100 pounds– The cost of the raw material is $200 per pound

• Solution:– The raw material needed for the newly designed panel is:

100 x (1 + 22.6%) = 122.6 pounds– The estimated raw material cost is:

$200 x 122.6 pounds = $24,520• Consideration:

– Estimators need to assess design changes and drawing revision numbers and not assume design stability

10



v1.2


Material Cost Estimating Example• 3-inch diameter cover

plate machined from 4-inch aluminum plate raw stock

• 3-inch diameter cover plate machined from 3-inch aluminum plate raw stock

• 3-inch aluminum plate raw stock is used to produce square cover plate

Material cost $10

Machining cost $5

Total cost $15

Scrap rate 126.4%

Material cost $7

Machining cost $4

Total cost $11

Scrap rate 27.3%

Material cost $7

Machining cost $0

Total cost $7

Scrap rate 0.0%



v1.2


Material Take-Off List (MTOL)• CAD drawing of ship compartment• Generate Material Take-Off List (MTOL)

CAD graphics courtesy of Northrop Grumman Shipbuilding –Gulf Coast.



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MTOL Example• MTOL table includes standard items and factors

– In this case, linear feet (LF) of pipe and cost per foot for different diameters

• MTOL quantities also support Labor estimating

FIREMAIN PIPE

1” 4” 6”

Length (LF) 10 100 30

Unit Cost/LF $50.00 $30.00 $60.00

Cost $500.00 $3,000.00 $1,800.00



v1.2


Material Manufacturability• Material Mix• Manufacturability of Metals/Non-Metals• RAND Study Findings

– Weighted Material Cost Factor (WMCF)– Effect on Recurring Manufacturing Labor Costs– Relative Factor based on Late 1980s Aluminum Fighter

Airframe

• Example:– Airframe is 25% aluminum, 30% titanium, 35% graphite epoxy

composites, and 10% steel– WCMF = (0.9x0.25) + (1.61x0.3) + (1.58x0.35) + (1.27x0.1)

=1.388

Military Airframe Costs: The Effects of Advanced Materials and Manufacturing Process, Obaid Younossi, Michael Kennedy, and John C. Graser, Rand, MR-1370-AF, 2001



v1.2


Manufacturing Summary

• In this module, we have covered manufacturing-specific issues such as:– Development vs. Production– Production Set-up Activities– Production Run Characteristics

• Labor Estimating• Rates Estimating• Materials Estimating



v1.2


Resources – Books• Machining and Metalworking Handbook, Ronald Walsh, 1998• Machinery’s Handbook, 26th ed., April 2000,

http://www.industrialpress.com• Methods, Standards, and Work Design, 10th ed., Andris

Freivalds and Benjamin W. Niebel,1999• Maynard’s Industrial Engineering Handbook, Harold Bright

Maynard, Kjell B. Zandin, • Capacity Measurement and Improvement: A Manager’s Guide

to Evaluating and Optimizing Capacity Productivity, CAM-I, 1996• The Machine That Changed the World : The Story of Lean

Production, James P. Womack, Daniel T. Jones, Daniel Roos, Harper Perennial, 1991

• Military Airframe Costs: The Effects of Advanced Materials and Manufacturing Process, Obaid Younossi, Michael Kennedy, and John C. Graser, Rand, MR-1370-AF, 2001


http://www.industrialpress.com/


v1.2


Resources – Web• Institute of Industrial Engineers, http://iienet.org• Dassault Systèmes, makers of CATIA,

http://www.dsweb.com• I-DEAS by EDS, http://www.sdrc.com/ideas• DoD IPPD Handbook,

https://acc.dau.mil/CommunityBrowser.aspx?id=106001• Defense Acquisition University, Course CLB029 Rates,

https://learn.dau.mil• Defense Cost and Resource Center,

http://dcarc.cape.osd.mil/CSDR/FormsReporting.aspx#DIDs


http://iienet.org/

http://www.dsweb.com/

http://www.sdrc.com/ideas

https://acc.dau.mil/CommunityBrowser.aspx?id=106001

https://learn.dau.mil/

http://dcarc.cape.osd.mil/CSDR/FormsReporting.aspx#DIDs


v1.2


Related and Advanced Topics• Information Technology (IT) Services• Manufacturing Process Issues• Labor Estimating Issues• Correcting Standards and

Realization Factor• Classified Manufacturing Issues



v1.2

IT Services• Many of the key ideas can be applied to the

delivery of services such as IT– Recurring/Non-Recurring, Fixed/Variable,

Indirect/Direct Costs– Labor rate development– Labor Build-ups:

• Equipment• Engineering• Quality Control i.e. Testing and

Evaluation

– Make or Buy

Unit IV - Module 11 53NEW!



v1.2


3D Modeling Example• Computer simulated modeling of an

aluminum component part machining operation

• Non-recurring cost savings realized by not performing a hard tool proof operation– Quantification of cost savings is unique to each

manufacturer– Hard tool proof requires the making of an actual

first article or test part– The making of the test part is eliminated by using

simulation computer applications



v1.2


Estimating CAD/CAM/CAE • When developing CERs for production setup

time, considerations must be made for using CAD/CAM/CAE versus hard tool proof– The setup cost per pound using simulation

techniques is much less than the setup cost per pound using the hard tool proof method

• CAD/CAM/CAE-based data for similar programs may not exist– Consider applying a percent reduction factor from

a different analogy program

3D modeling saves setup time and cost

Warning: When developing set-up CERs differentiate between methods

(Simulation vice First Article)



v1.2


Integrated Product andProcess Development (IPPD)

• Integrated Product Team (IPT) theory– Product orientation instead of functional

orientation• Need cost estimating and analysis

representation on IPT– Essential to provide input to Engineering

Change Board (ECB) decisions, design trades

– Keeping up can become a challenge• Budget allocation by IPT (see Example)

4

16



v1.2


Integrated Product Team(IPT) Example

• Lower Wing Panel IPT– IPT budget of $200K– IPT Lead allocates the budget to functions

that make wing panel• Mfg, Tooling, Quality, Mfg Eng, IE, Overhead,

etc.– Various ways to allocate budget

• Status quo• Estimate based on historical trends or

benchmarking data• Current estimate• Arbitrary allocations

Warning: Arbitrary allocations should be avoided!



v1.2


Lean Manufacturing• Embraces a philosophy of continually

increasing the proportion of value added activity of the business through ongoing waste elimination and streamlining of operations

• Provides companies with tools to survive in global market that demands higher quality, faster delivery, and lower prices– Reduces waste chain– Reduces inventory and floor space requirements– Creates more robust production systems– Appropriate material delivery systems– Improves layouts for increased flexibility

The Machine That Changed the World : The Story of Lean Production, James P. Womack, Daniel T. Jones, Daniel Roos, Harper Perennial, 1991



v1.2


Lean Manufacturing

Scrap

Work in process inventory level(hides problems)

Unreliable Vendors

Capacity Imbalances



v1.2


Lean Manufacturing

Lot Size

Cost

Setup CostOriginal optimal lot size

New optimal lot

size



v1.2


Lean Manufacturing Techniques• Just-in-Time (JIT) Production

– Inventory strategy to improve the return on investment by reducing in-process inventory and its associated carrying/holding costs

• Kanban System– Related to JIT Production and is a signaling pull system that

determines what to produce by the actual customer demand. • Value Stream Mapping

– Analyzes the flow of materials and information currently required to bring a product or service to a customer

• Poka-yoke– “Mistake-proofing” methodology for production

• 5S– Philosophy and way of organizing and managing the workspace

(normally a shared workspace) and work flow with the intent to improve efficiency by eliminating waste, improving flow, and reducing process unreasonableness

20



v1.2


Six Sigma• Originally developed by Bill Smith at Motorola in the mid

1980s to be a measure of quality that strives for near perfection

• Methods integrate principles of business, statistics, and engineering to achieve tangible results

• It drives towards the notion that if there are six standard deviations between the mean and the nearest requirement limit, there will be practically no items that fail to meet the requirements

• Statistical Take Away:– Decrease of process variation (variance is the square of the

process standard deviation) in order to increase your process sigma resulting in lower costs and higher customer satisfaction

Six Sigma Websitehttp://www.sixsigmasystems.com/what_is_six_sigma.htm


http://www.sixsigmasystems.com/what_is_six_sigma.htm


v1.2


Agile Manufacturing• Allows flexibility and nonconformity to

procedures– Production workers do not necessarily follow

established production line arrangements

• Traditional estimating techniques not applicable

• No longer a repetitive operation– Difficult to predict future of nonconforming

operationAgile manufacturing allows flexibility

on the production floor with highly skilled workers



v1.2


Agile Manufacturing

Labor Standards and Learning Curve may not apply in Agile Manufacturing

• Agile Manufacturing vs. Mass Production/Assembly Line



v1.2


Quality Assurance (QA)• Quality Assurance (QA) Inspection and

Reporting Methods– Non-Destructive Inspection (NDI) vs.

sampling inspection– Statistical Process Control (SPC)– Computerized Inspection Equipment

• Labor estimating related to Quality Assurance discussed later

AKA Quality Control (QC)



v1.2


QA Tools – Coordinate Measurement Machine (CMM)

• Three axes of movement that are all driven manually or by the computer

• Usually have glass or metal scales, similar to long rulers, on each axis that is read by an encoder with light or a laser

• The machine uses touch trigger probes to measure parts• Not only can figure out the XYZ position of the point that it

took but since the probe is deflecting it, it can also tell you the vector of the hit



v1.2


QA Tools – Portable CMMs• Two angular encoders in each of the “wrist”, “elbow”, and

“shoulder” joints.– One measures how much you rotate it around that axis while the

other measures the angle you flex it at• The length from the shoulder to the elbow, from the elbow

to wrist, and from the wrist to the center of the probe are all known lengths

• The software uses these to figure out where the probe is in space

• These do not deflect, so the userhas to help the software figureout the vector of points bymeasuring features in a specificway– Dependent on how the software works


http://www.cimcore.com/


v1.2


QA Tools – Laser Trackers• For these servos, which are small motors

that use error-sensing feedback to correct the machine, rotate the laser around the base and angle it up or down based on have encoders

• It tracks the SMR ball and knows the distance to it and the angles that the laser is at when taking the measurements

• It does not know how to make compensations when you measure features, so you have to correct the software if it guesses an inside diameter when it really was an outside diameter



v1.2


Labor Rates Example –Correct Labor Mix

• Estimate labor cost to manufacture precision optical sensor– Cost of a sensor was incorrectly estimated

because a mechanic’s labor rate was used– Instrument maker needed instead– Must add 20% labor rate premium to

correct estimate



v1.2


Labor Rates Example –Rate Premiums

• Rationale for adding the 20% premium– The risk of scrapping an optical lens is

extremely high– It takes 12 months to produce the lens– One minor flaw requires total scrap

• Because of instrument makers’ skill level, a premium of 20% is paid to maintain the manufacturing capability– The premium is a small price to pay for the

expertise



v1.2


Organized Labor Issues Example• Manufacturing a 747 wing panel in the Boeing

Everett plant requires the use of machinists represented by the machinist union

• A contract stipulation between the union and Boeing requires the annual wage adjustment for cost of living (COLA) increases

• This adjustment must be forecasted to determine the cost of manufacturing the wing panel



v1.2


Correction of Standards/FE

• Correction for unit: Often, standards are at a notional (sometimes unspecified) unit – Actual work (performance) requires fewer MH on later units because of

learning– You can just use FE as a relative measure on a unit-to-unit basis and check

that the correct learning step down is occurring, or, equivalently correct for unit

• Correction for maturity: Actual work (performance) requires fewer MH in the early part of a unit and more MH as the unit becomes more complete and cramped/full – In ships, early work ("shop") takes fewer MH than mid work ("ways/blocks")

and still fewer MH than in the last phase ("water") – The transition is smooth and curvilinear, although shipbuilders act as if it is a

step function (variously called the 1/3/8 rule, and the like, for MH to do a given task in shop/blocks/water environments)

• Unit vs. Maturity: Unit is a greater effect than maturity for far-apart units but maturity is the greater effect for close-together units – Maturity dominates farther out on the flatter part of the learning curve, almost

regardless of unit



v1.2


Efficiency Factor (FE) as a Metric

• FE can be a valid metric if standards cover a broad enough spectrum – If rigorously done per the IE discipline, FE is objective – It can be a very useful metric for a single unit, like a

ship, provided you adjust for unit number and maturity as well as workforce composition

– It can be a useful metric facility-wide, but if you don't adjust for current unit mix, work maturity mix, and workforce composition, it’ll be useless



v1.2


Using FE as a Metric• Factory- or yard-wide, adjust all units to an arbitrary or notional unit

sequence number– If there is not a steady-state "typical mix" FE /PTS will be distorted– A shipyard example:

• If you have a single class of ships proceeding across 25 units, with a good mix of first trimester, second trimester and third trimester ships, the PTS (FE) yard-wide will slowly improve automatically

• One LHD, being about as many MH as all the other work in the yard put together, will pull yard-wide PTS up or down depending on its unit and its work maturity, causing occasional big saw-tooth humps or dips (as LHDs start and finish)

• The unit and maturity effects must be corrected for PTS (FE) to be a usable metric • For comparison of two or more completed units, maturity of work

disappears as a problem• To use PTS or FE ratios for a later in-progress unit comparing it to an earlier

complete unit, adjust for unit and take special care that you have good evidence of the percent progress at which the comparison is made– If standards are uniformly applied and measured, “percent standards earned” is

a good way to determine comparable points for comparison



v1.2


FE and Standards Summary

• Summary: PTS or FE are good metrics if you have good coverage and can adjust for unit and maturity – Unit corrections are a problem everywhere, but

maturity corrections are most important for facilities building big, few-and-far-between units and less important for facilities building little, fast paced units

– To carefully generalize beyond what we really know:• Ships must correct for both unit and maturity• Aircraft and satellites probably should correct for both• Missiles, electronics, ordnance, wheeled and tracked vehicles

and the like may only have to correct for unit



v1.2


Classified Manufacturing Issues

• Equipment Utilization• Secure Facility Certification• Transport of Materials/Parts• GFE Implications• National Priority Issues

11



v1.2


ClassifiedManufacturing Example

• A satellite was manufactured and ready for delivery

• The customer (Government) was expecting the contractor to provide free on board (FOB) at launch site

• No contract provision for transporting to Government site

• Cost had to be estimated for special delivery truck certified to carry classified material to the Government site



v1.2

Moving Averages (MAs)• Moving averages are a diagnostic tool, perhaps a descriptive tool

– Not a predictive or inferential tool– If there is a trend, the moving average lags– If there isn't a trend, MA(k) yields the "same answer" as the average but forsakes all

but the last k points• CI for average is SQRT(n/k) wider than it needed to be

– Not to mention the t penalty

• 30 points of history, 12-point moving average: CI is 1.58 times wider

– If the MA is lower, there's no inferential test to determine if the drop is statistically significant

• MAs are a form of smoothingGreatest contribution is in “making noisy data less noisy”

• MA(k) graphic:– Successively larger values of k yield

successively smoother lines– Serves to convince us that there is no trend– We are now safe in using all the data points

• Best possible average (tightest CI and PI)

QA/MachingShowing Successive Moving Averages

0%

2%

4%

6%

8%

10%

12%

14%

0 2 4 6 8 10 12 14

Factor 2 per. Mov. Avg. (Factor) 4 per. Mov. Avg. (Factor)

6 per. Mov. Avg. (Factor) 8 per. Mov. Avg. (Factor) 10 per. Mov. Avg. (Factor)

NEW!


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