FEASIBILITY STUDY OF LASER MICROMACHINING COMPANY

(CASE STUDY: ESTABLISHMENT IN AUSTRALIA)

This paper is subject to be published at a Atmajaya Catholic University Journal,
some part are deleted (this edition is only for example students assignment)
Yudha Prasetyawan
Industrial Engineering Department, Sepuluh Nopember Institute of Technology
yudhaprase@yahoo.com

I. INTRODUCTION
A laser micromachining company will be established in Australia to provide
micromachined products. The possible locations to establish this company is in New South
Wales, Queensland, and Victoria as these states have more laser industries compare to other
states[1]. The number of laser industry may describe the availability of suppliers for raw
materials and tools, wide range of costumers and even collaboration with other companies to
do certain product or demand.
There are some keys required to build this laser micromachining company. First, it
will require clean environment as dust can disturb the manufacturing process. Next, it will
need some support system such as AC (Alternating Current) power distribution system, water
cooling system, laser gas processing system and laser gas delivery system. Last, safety issues
must be accommodated in term of laser safety, mechanical safety, electrical safety, and
materials safety. This safety considerations will attach to turn key system (machine features)
consideration.
This paper is conducted for describing evaluation of the feasibility to create a laser
micromachining company in Australia. First, it will cover about economic analysis of possible
scenarios over its expected life. Therefore, there will be recommendation regarding capital
investment and profit using IRR and Net Present Value NPV analysis methods. Finally, there
will be a selection process using Analytic Hierarchy Process (AHP) regarding wider factors of
justification.

II. PRODUCT AND MANUFACTURING PROCESS DESCRIPTION

Recent product development indicates that there is a trend to bring more functions into
a single product. Mobile phone for example, its first generation only perform basic function of
communication such as phone call and sms (shortmessage service), nowdays it brings out
more sophisticated function such as radio, camera and even video recorder in a quite same
size of product. Similiarly, other electronic applications also build the product into smaller
size (with micro component) to achieve faster performance and reduce the power
consumption. However, those reasons are also applied for medical, chemistry, physic and
military area.
Generally, micromachined products can be classified as sensors, hybrid sensors,
actuators, microstuctures or microcomponent, and microsystem or micro-instrument [2].
Sensor provides a response to a specific measurable input by its energy output and converts a
form of energy into another form. Combination of two sensor substrate that connected by a
short wire bridge is called hybrid sensor. While a sensor usually converts mechanical energy
into electrical energy, actuators is a vice versa. Therefore, precition machined parts such as
microlens, micromirror, micronozzle, etc which are not a sensor, actuator or instrument can be
classified as microstructure or microcomponent. An intregation of sensors, actuators, and
electronic components which perform data acquisition, data interpretation, decision making
and perform an action towards its environment can be defined as microsystem or microinstrument. The table below provides example of classified product and its price range.

Table 1 Micromachined products examples and price range

Product classification
Example
Price range (US $)
Sensors
Silicon (Si) based sensor
0.50-2*
Hybrid sensors
Si micromachined piezoresistive accelerometer
Refer hybrid device
Actuators
Si micromachined actuator
5-200
Microstructures
Scanning tunneling microscope (STM) cantilever
0.25-100
Microflow Analyticals shape memory alloy (SMA)
Microsystem
200-500
valve
* more than US $ 50 for smaller quantities at high performance strustures

Table 1 describes that the prices ranges are quite in similliar range (as a single
machined part). Therefore, selecting a product to be manufactured will be based on products
msrket demand. Nexus (1999) describes that there is a significant growth of vitro diagnostic
products demand from less than 1000 millions units in 1996 to 4000 units in 2002 compare to
other product as described in the following figure [3].

Figure 1 Micromachined products demands [3]

As mentioned before, in vitro diagnostic product will be selected to produce.

Biomedical chips as one application of this group that will be manufactured in this company.
The products are nanotiterplates and microfluidic channels. Nanotiterplates (figure 4) is a
miniaturized compartment arrays (wells) for biotechnological applications such as
biochemical and molecular-biological investigations, medical diagnostics, and search for
active substance in pharmacy. Miniaturized reaction wells can perform highly sample
handling, therefore this product is the future form of classical test tube [4]. This product can
be produced with polycarbonate material. On the other hand, microfluidic channels (figure 2)
is a microstructure device that used for analyzing the behaviour change of dluid in microscale
differ to macroscale regarding surface tension, energy dissipation, and electrokinetics
domination. Therefore it can be exploited for a certain use. This study deals with
multidisciplinary field such as physic, chemistry, engineering and biotechnology [4]. Similar
to nanotiterplates, this product can also produced from polycarbonate material.

Figure 2 Nanotiterplates schematic drawing [5]

Figure 3 Microfluidic channels schematic drawing [5]

An eximer laser micromachining system that employs KrF gas (248 nm wavelength) is
recommended for machining polycarbonate matrial for industrial application [5]. Laser
machine can be use more than 20 years expected life with price of 6.25% from purchasing
after used for 10 years [7]. Furthermore, regarding safety system and turn key system
(products features), there are some machine systems that can be selected as alternatives:
EMG 103 MSC from Lambda Physic company with the price of US $ 850,000 [7]
Lambda 1000 from Lambda Physic company with the price of US $ 900,000 [7]
LPX 220i from Lambda Physic company with the price of US $ 800,000 [7]
Maestro 2000 from Resonetics company with the price of US $ 145,000 [8]
Micromaster series from Resonetics company with the price of US $ 175,000 [8]
Regarding the processing time, Micromaster can machine a microfuidics channels on
maimum of 15 minutes and 33.6 seconds (with dimension variety), on the other hand a
nanotiterplates can be produced on average of 0.2 seconds [9]. For the machining setup,
inspection and CNC (Computer Numerical Control) delays, a process will require additional 3
minutes processing time. With similar calculation, the processing time calculation results for
all machines can be summarized in the following table.
Table 2 Processing time for each product in different machine systems
Machine
system
EMG 103
MSC
Lambda
1000
LPX
220i
Maestro
2000
Micromaster
series

Microfluidics
channels
(minutes)

Nanotiter
plates
(minutes)

2.32

0.375

2.30

0.355

4.64

0.751

Resonetics

22.72

3.67

Resonetics

18.56

3.0033

Manufacturer
Lambda
Physic
Lambda
Physic
Lambda
Physic

Notes:
First three machine systems can process up to 4 products in a process regarding the beam size
Up to twice faster machining process regarding beam divergence (affect to each rate) for the first two
machine systems
The number represent average processing time for a product, in case of a process can handle more than 1
product, it will be divided by the number of products in a process

Therefore, the company policy can allow 2 machine systems procurement from the same
manufacturer regarding the limitation of capital investment and after sales service
consideration.

III. ECONOMIC ANALYSIS

The economic analysis of the proposed company will be carried out based on IRR and
NPV value evaluations. The analysis will be performed among several alternatives that come
from the combination of places and machining system alternatives. The cost estimation will
accommodate the capital investment, fixed cost and variable cost throughout the estimated
time horizon (expected life of the proposed industry). Thus, an alternative can be selected as it
results best value in economic criteria.
There are 6 possible places that has been identified to meet the requirement of laser
industry establishment such as workhouse area, need of sufficient AC system (3 phase for the
machine system), need of fully air-conditioned building and located in industrial complex
around Sydney, Melbourne or Brisbane (as indicated to be preferred location). The details of
these properties are follows.
Table 3 Rental cost of possible location [10]
No
Property addres
Overall space
Rental cost per annum (1 year)
1
Eagle Farm Industrial Estate, Brisbane, QLD
496 sqm
$ 64,480
2
Fortitude Valley, Brisbane, QLD
465 sqm
$ 50,400
3
3/640 Dorset Rd, Bayswater, VIC
>1500 sqm
$ 2583,336
4
13-15 King St, Airport West, VIC
1,347 sqm
$ 76,908
5
10/23 Bowden St, Alexandria, NSW
228 sqm
$ 39,988
6
29 Hiles St, Alexandria, NSW
1280 sqm
$ 153,140
Note: Rental price is not including GST and Outgoing cost (approximately 20% from rental price)

Therefore, as there are 5 machine systems that can be employed (table 2) and 6
locations that can be rented, the combination of them will results on 30 alternatives.
In general, all of those alternatives will have some similar incomes and expenses
except machine system procurement cost, building rental cost, fixed and variable cost. These
costs will be grouped into three categories: capital costs, fixed costs and variable costs. First,
the capital costs will consist or setup costs (installation), company peripherals (computers,
desks, chairs, etc), transportation devices (forklift and cars) and legal costs. Next, the fixed
cost will consist of maintenance cost, indirect labor cost (general manager, project manager,
marketing managers, etc), electricity for non-machining activities, water for non-machine
activities, telephone, consumables tools (fuel, paper, etc), marketing cost and other overhead
cost (vehicle tax, internet connection, etc). Last, the variable cost will include material cost,
direct labor cost, electricity, water (for cooling), consumables tool (optics, filters, etc), and gas
consumption (He and KrF). Furthermore, this company will run 2 shifts per day (8 hours
operation per shift) and needs 1 general manager, 1 marketing manager, 1 accounting
manager, 1 production manager, 2 designers (machining programmer), 4 machine operators,
and 6 staffs (1 staff for each devision, 2 staffs for security and 1 staff for general affairs). The
completed estimation cost for all of them (except machine system procurement and building
rental cost) can be seen in the following table 4.
Table 4 Estimation costs
No

Description

1
a.

Capital Cost
Setup Cost
Company Peripherals
Computers
Desks and Chairs
Others
Transportation Devices
Forklift
Cars

b.

Cost ($)

Units

Amount
($)
50,000

1,000
400

9
12

9,000
4,800
10,000

15,000
25,000

1
3

15,000
75,000

Based on the estimation costs, cash flows for the proposed company can be created. The time
horizon (expected life) of analysis will be 10 years of operation. If it is expected that
microfluidic channels and nanotiterplates production will be the proportion of 3:1 from
production time, then the production rate durig a year can be calculated (based on processing
time in table 2) and show in table below.
Table 5 Production rate per year
Machine system

Manufacturer

EMG 103 MSC

Lambda 1000
LPX 220i
Maestro 2000
Micromaster series

Lambda Physic
Lambda Physic
Lambda Physic
Resonetics
Resonetics

Microfluidics
channels
(products)
73,706.90 73,706
74,347.83 74,347
36,853.45 36,853
7,526.41 7,526
9,213.36 9,213

Nanotiterplates
(products)
73,706.90 73,706
160,563.38 160,563
75,898.80 75,898
15,531.34 15,531
18,979.12 18,979

Notes : It is assumed that in 1 year operation, will be 250 working days, therefore the total operation hours is 250
x 16 hours (2 shifts) = 4,000 hours. Regarding maintenance time (production off), the maximum hours of
operation will be 95% x 4,000 hours = 3,800 hours. Thus, the production time for microfluidic channels and
nanotiterplates will be 171,000 per minutes and 57,000 per minutes.

It is assumed that the defect rate is 3% for microfluidic channels and 2% for
nanotiterplates, than the demand for microfluidic channels and nanotiterplates is 100,000 units
and 200,000 units per year (it means that all product can be sold). The price for microfluidic
channels and nanotiterplates is $ 110 and $ 50 (converted from 30 *) [5]. Therefore,
alternative 1 A (EMG 103 MSC and Eagle Farm, Brisbane, QLD), for example the cash flow
will be :
(A) General capital cost of $ 203,800 that occurs in year1
(B) Machine systems procurement of 2 x $ 1,115,065.70 (converted from US $) = $
2,230,131.40 that occurs in year 0
(C) General fixed cost of $ 703,700 that occurs every year (year 1 to 10)
(D) Building rental cost of 1.20 x $ 64,480 = $ 77,376 (regarding GST and outgoing cost)
that occurs every year
(E) Variable cost of that occurs every year** = (97% x 73,706 units) + (98% x 152,000
units) x $ 17.17 = $ 3, 785,195.18
(F) Product sales of that occurs every year = (97% x 73,706 units) x $ 110 + (98% x
152,000 units) x $ 50 = $ 15,312,340
(G) Machine system re-sale at end of year 10 = 6.25% x $ 2,230,131.40 = $ 139,383.21
(other company peripherals are depreciated in 10 years with 0 value at the end of
depreciation period)
*Converted based on rate from www.exchangerate.com [14]
** All units value will be rounded down, e.g. 97% of 73,706 = 71,494.82 will be 71,494

In addition, for the first time establishment, the company will need capital investment
for general capital cost, machine system procurement, and first year operational cost. Suppose
that the company can get loan from the head company overseas in maximum of $ 4,000,000
with 5% loan interest rate per annum during 5 years, then the rest of it ($3,000,202.58) will
need to get loan from a bank (Westpack Bank) with 7.03% loan interest (fixed rate) per year
in the similar term (5 years) [15]. Therefore, the loan payment per annum (A) for every loan
can be calculated as follows:
Loan from head company

P
i
n
A

= Present value
= Interest rate
= Loan term (number of year)
= P (A/P, i, n) = $ 4,000,000 (A/P, 5%, 5)
= $ 923,899.19

Loan fron the Westpac Bank

A
= P (A/P, I, n) = $ 3,000,202.58 (A/P, 7.03%, 5) .( 1 )
= $ 732,309.35

However, if there is a policy that there will be no loan from other than the head
company (e.g. Bank), the alternative 5E (employ 2 Micromaster series machine systems
from Resonetics and the location at Bowden St, Alexandria, NSW) is recommended to be
taken as it will give NPV value of $ 3,309,884.44.

Figure 4 Ranked alternatives based on NPV value

Last, ranked alternatives based on NPV value (from the highest to the lowest) can be seen in
the following figure.

IV.

DECISION ANALYSIS USING AHP

The decision analysis of the proposed company will be carried out using AHP method.
The analysis will be performed among several alternatives that come from the combination of
places and machining system alternatives in respect to some criteria. The criteria will include
the some factors outside the economic calculation that has been analyzed before. Therefore,
an alternative can be selected as it results best value in overall criteria. Overall, this analysis
will use Expert Choice Software version 2000.
The 30 alternatives seem to be inefficient, as some alternatives are dominant in NPV
value among others. Therefore, Figure 5 indicates that there are 12 first ranks alternatives
offer NPV value around $ 50,000,000 and $ 60,000,000, which is dominant value compare to
6 second ranks alternatives and 12 last ranks alternatives. Thus, these 12 first ranks
alternatives (5B, 2B, 1B, 4B, 6B, 3B, 5A, 2A, 1A, 4A, 6A, and 3A) will be analyzed using
AHP method.
The criteria for selecting the best alternatives will regard to technical and non-technical
reason. For the technical reason, maximum average power output of the machine system (to
achieve better machine reliability), space area of rented properties, capital investment and
economic value (NPV) of the alternative will be considered. This will neglect the supplier
criteria as all 12 selected alternatives come from the same manufacturer (Lambda physic). For
non-technical reason, number of population in the respective state
6

represent potential customers, state sales and service income value contribution to Australia
represent economic potential, will be included in consederations. Thus, the description of this
decision making process can be seen in the following figure.

Figure 5 Decision making process description

First, the management will need to decide the preference value for criteria compare to
other criteria. It will represent degree of importance or weighted factor for each criteria. This
can be achieved by creating the pairwise comparison matrix. The vaues for this matrix are
given as a result of recursive consederations to meet maximum (limit) inconsistency ratio.

Figure 6 Pairwise numerical comparison between criteria

Second, six pairwise comparison matrices will be created to define alternatives value
with respect to each criteria. The data will be normalized to fit into the matrices.
Table 7 Initial values for each alternative
Alternative
1A
2A
3A
4A
5A
6A
1B
2B
3B
4B
5B
6B

Maximum
Average
Power (w)
55
55
55
55
55
55
60
60
60
60
60
60

Space
Area (sqm)

Capital
Investment
($)

NPV
Value
($)

Population
[19]

496
465
> 1500 1500
1,347
228
1280
496
465
> 1500 1500
1,347
228
1280

7,000,202.58
6,983,306.58
7,232,829.78
7,015,116.18
6,970,812.18
7,106,594.58
7,286,162.83
7,269,266.83
7,518,790.03
7,301,076.43
7,256,772.43
7,392,554.83

58,961,642.53
59,057,842.47
57,637,144.14
58,876,729.67
59,128,981.24
58,355,883.48
60,739,873.67
60,836,073.62
59,415,375.29
60,654,960.82
60,907,212.39
60,134,114.62

3,670,459
3,670,459
4,854,133
4,854,133
6,642,879
6,642,879
3,670,459
3,670,459
4,854,133
4,854,133
6,642,879
6,642,879

Sales and
Service
Income
Contribution
($m) [20]
49,107
49,107
88,663
88,663
92,752
92,752
49,107
49,107
88,663
88,663
92,752
92,752

Table 8 Alternatives priority based on synthesis in respect to goal and each criterion
Synthesis respect

Goal

Overall
Inconsistency

Select the best alternative for a laser micromachining company

establishment

0,01

Maximum average power

Select the best alt > maximum average power ( L )

0,00

Space Area

Select the best alt > space area ( L : 172 )

0,05

Capital investment

Select the best alt > capital investment ( L : 2 )

0,00

NPV Value

Select the best alt > NPV Value ( L : 307 )

0,00

Population

Select the best alt > Population ( L : 049 )

0,00

Sales and
service income contribution

Select the best alt > sales and service income

0,01

Table 7 will be normalized to gain suitable value for pairwise comparison. As the bigger value
result on better expectation than the normalization is in linear way (expect for capital
investment the lower value will give better expectation). The results of normalization can be
seen in the table below
Table 9 Normalized value for each alternative
Alternative
1A
2A
3A
4A
5A
6A
1B
2B
3B
4B
5B
6B
Sum

Maximum
Average
Power

Space
Area

Capital
Investment

NPV Value

Population

0.0797
0.0797
0.0797
0.0797
0.0797
0.0797
0.087
0.087
0.087
0.087
0.087
0.087
10,000

0.0467
0.0437
0.1411
0,1267
0,0214
0.1204
0.0467
0.0437
0.1411
0,1267
0,0214
0.1204
10,000

0,0811
0,0809
0,0838
0,0813
0,0807
0,0823
0,0844
0,0842
0,0871
0,0846
0,0841
0,0856
10,000

0,0825
0,0826
0,0806
0,0824
0,0827
0,0817
0,0850
0,0851
0,0831
0,0849
0,0852
0,0841
10,000

0,0605
0,0605
0,0800
0,0800
0,1095
0,1095
0,0605
0,0605
0,0800
0,0800
0,1095
0,1095
10,000

Sales and
Service
Income
Contribution
0,0533
0,0533
0,0962
0,0962
0,1006
0,1006
0,0533
0,0533
0,0962
0,0962
0,1006
0,1006
10,000

Therefore, the pairwise comparison can be regenerated base on normalized vlue. For
example : regarding the population criteria between alternative 1A and 3A, the numerical
comparison is 0.0605 / 0.0800 0.075625 or change into 1.322 for comparison of 3A over
1A.

Figure 7 Priorities for criteria

It can be seen form figure 7 that NPV value is the most important criteria (0.307),
followed by capital investment, space area, sales and income contribution, maximum average
power, and population. All the values above will synthesize in respect to goal and criteria.
In respect to overall criteria (main goal), alternative 1A and 2A is the highest priority
(0.096). Meanwhile, in respect to each criteria, the highest priority alternative are :

Alternative 1A, 2A, 3A, 4A, 5A and 6A for maximum average power criteria
Alternative 5A (0.156) for space area criteria
Alternative 1A and 2A (0.087) for capital investment criteria
Alternative 1A and 2A (0.087) for NPV value criteria
Alternative 1A and 2A (0,108) for population criteria
Alternative 1A and 2A (0,119) for sales and service contribution criteria

In addition, as can be seen in the previous figure, all the inconsistency ratios are lower
than 0.1 so that the overall judgment is acceptable. Overall performance sensitivity can be
seen in the following figure.

Figure 10 Performance sensitivity

It is clear that alternative 1A is the best among all the alternatives, even in the overall
criteria it have same value with alternative 2A. the reason is over the 4 criteria (capital
investment, NPV value, population, and sales and income contribution), alternative 1A is the
highest rank. Alternative 1A will have highest possibility of superiority when there is an
adjustment in pairwise numerical comparison between criteria.

V.

CONCLUSION

In conclusion, the two biomedical chips product (microfluidics channels and

nanotiterpaltes) bring all the alternatives become viable as they give IRR value more than
companys cost of capital (6%). The alternative of employing two Lambda 1000 machine
systems from Lambda Physic and the location at Bowden St, Alexandria, NSW is
recommended to be implemented based on economic analysis, as it gives the highest NPV
value ($ 60,907,212.39). this decision brings some consequences :
Loan from the head company in amount of $ 4,000,000, with $ 929,899.19 payment per
annum
Loan from the Westpac Bank in amount of $ 3,256,772.43, with of $ 794,934.62 loan
payment per annum
Regarding general setup cost, machine systems procurement and first year operational cost,
this company will needs capital investment in amount of $ 7,256,772.43

Furthermore, the decision analysis using AHP with respect of 6 criteria (maximum
average power, concludes that employing EMG 103 MSC machine system and location Eagle
Farm, Brisbane, QLD) should be the final recommendation for the proposed company
(different with regarding only economic analysis). This decision will bring different
consequences (only similar in respect to loan from the head company):

Loan from the head company in amount of $ 4,000,000, with $ 929,899.19 payment per
annum
Loan from the Westpac Bank in amount of $ 3,000,202.58, with of $ 732,309.35 loan
payment per annum
Regarding general setup cost, machine systems procurement and first year operational
cost, this company will needs capital investment in amount of $ 7,000,202.58

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