2.

008x

Manufacturing Cost
MIT 2.008x

Prof. John Hart

 2.008x

Candy Red Tesla Model 3.jpg: Steve Jurvetson; Derivative work: Mariordo (Mario Roberto Durán Ortiz) - This file was derived from
Candy Red Tesla Model 3.jpg:, CC BY 2.0, https://commons.wikimedia.org/w/index.php?curid=47930648
Cost of finished products (à value add)
2.008x

High-tech products:
competitiveness linked more
strongly to performance than
cost (also a good way to enter
the market)

Factors influencing cost

‘ceiling’ (à possible
sales price)
§ Perceived value to
customer
§ Market size
§ Competition (or not)
§ Brand equity

Figure 14.4, M.F. Ashby, Materials and the Environment

Questions for today
2.008x
§ What are the elements of
manufacturing cost and
product cost?
§ How can we predict the cost
of manufacturing a part at
large volume?
§ What differentiates the cost
of manufacturing processes?
§ By examples: how is
manufacturing cost reflected
in product cost and company
profit, at various limits?
Agenda: Cost
2.008x
§ Elements of manufacturing
cost
§ Fixed costs
§ Variable costs
§ Example: cost of making
legos
§ Limiting cases: products,
processes, and business
models
§ Conclusion
 2.008x

Cost:

2. Elements of
manufacturing cost
What contributes to
manufacturing cost? 2.008x

§ Material cost
§ Equipment cost
§ Tooling (e.g., mold) cost
§ Labor
§ ‘Overhead’, typically
including
§ Energy
§ Equipment maintenance
§ Facilities (rent, cleaning,
etc.)
§…
Total cost of making a part (Ashby’s model)
2.008x

(excludes sales and marketing)

Table 13.5, M.F. Ashby, Materials Selection in Mechanical Design

Total cost of making a part (Ashby’s model)
2.008x
Group these

(excludes sales and marketing)

à Total cost = sum of the components (consistent units: $/part)

Table 13.5, M.F. Ashby, Materials Selection in Mechanical Design

F: Fixed cost
2.008x
V: Variable cost
N: Production quantity
Influence of automation on cost vs volume?
2.008x
Unit cost

Production volume

Figure 13.33, M.F. Ashby, Materials Selection in Mechanical Design

Influence of automation on cost vs volume?
2.008x

http://smile.amazon.com/X-ACTO-Electric-
Sharpener-Two-Tone-Silver/dp/B00006IEI8

200 pencils/minute

http://www.alibaba.com/product-detail/Pencil-sharpening-
machine_758725260.html

Figure 13.33, M.F. Ashby, Materials Selection in Mechanical Design

 2.008x

Cost:

3. Fixed costs
Cost of tooling (mold, die, cutting tool, etc.)
2.008x

Ct ⎡ ⎛ N ⎞⎤ Roundup = round
C1 = ⎢Roundup ⎜⎜ ⎟⎟⎥ up to nearest
N ⎢⎣ ⎝ nt ⎠⎥⎦ integer

N = total forecast production volume (e.g. 10 million parts)

Ct = cost of one set of tooling [$]
nt = number of parts each tool set can make before wearing out

Note:
§ Assumes tooling is dedicated to the project (cannot be used to make
other parts).
§ May be used in series (one at a time) or parallel (many machines
operating simultaneously) depending on production rate).
Mold tooling
2.008x
Mold cost estimator
2.008x

http://www.custompartnet.com/estimate/injection-tooling/?units=1
Mold classification by lifetime
à an industry standard provided by the Society of Plastics Industry (SPI) for 2.008x
classifying the quality and lifetime of molds

Class 105 (<=500 cycles): The least expensive type of mold, which can be
constructed from cast metal or epoxy, and is to be used for prototypes only.

Class 104 (<=100,000 cycles): A low priced mold with mold cavities typically
constructed from aluminum or mild steel.

Class 103 (<=500,000 cycles): A moderately priced mold, also the most common,
requiring cavity and cores to be of a hardness of 28 R/C or higher.

Class 102 (<=1,000,000 cycles): A high priced and high quality mold, requiring
cavity and cores be hardened to 48 R/C and all other mold components be heat
treated.

Class 101 (>1,000,000 cycles): The most expensive and highest quality mold,
requiring cavities and cores be hardened to at least 48 R/C and all other mold
components be made of hardened tool steel.

Mold class, e.g. http://www.teampti.com/Content/Pdf/SPI_Guidelines.pdf

http://www.amba.org/Life_Expectancy_of_an_Injection_Mold.php
What drives the cost of injection mold tooling?
Assumptions 2.008x
Projected holes No
Tolerance <=0.01in
Surface: Ra<=16
Complexity Moderate
Projected area 50% of envelope
Cavities: 2
Part form: Cube
SPI mold class: 103
Labor: 65$/hr Mold cost [$] vs. part Size [in^3]
60000

50000
Mold cost [$]

40000
y = 25011x0.1746
30000

20000

10000

0
0 10 20 30 40 50 60

Part size [in3]

http://www.custompartnet.com/estimate/injection-tooling/?units=1
Cost of equipment (e.g., molding machine)
2.008x

1 ⎛ Cm ⎞
C2 = ⎜⎜ ⎟⎟
n! ⎝ Ltwo ⎠
n! = production rate of one machine [parts/year]
Cm = purchase cost of one machine [$]
L = load factor: fraction of time during which equipment is productive
two = write-off time: lifetime of equipment [years]

Note:
§ Assumes equipment is not dedicated (can be fractionally utilized and
shared with other tasks in the factory).
§ If equipment is dedicated (only one purpose), must have integer
numbers of machines regardless of their utilization, based on needed
production volume.
§ This is a simple ‘straight-line’ depreciation model (does not include
effective interest).
What drives the cost of an injection molding
machine? 2.008x

Machine cost [$] vs. Clamping Force [ton]

400000

350000
Machine cost [$]

300000

250000

200000
y = 113.54x + 7564.5
150000

100000

50000

0
0 500 1000 1500 2000 2500 3000 3500

Clamping force [ton = *10kN]

data from alibaba.com October 2014
What drives the cost of a milling machine?
2.008x
§ Table size
§ Spindle speed
§ Motor power
§ Accuracy

Machine cost [$] vs. Table size [cm^2]

40000

35000
y = 3.6623x - 6050.7
30000
Machine cost [$]

25000

20000

15000

10000

5000

0
0 2000 4000 6000 8000 10000 12000

Table size [cm2]

Data from alibaba.com October 2014

Haas 3-axis vertical mill, table 64”x50”
2.008x

http://www.haascnc.com/mt_spec1.asp?id=EC-1600&webID=3AXIS_BED_HMC#gsc.tab=0
 2.008x

Cost:

4. Variable costs
Material cost
2.008x

mCm
C3 =
(1− f )
m = part mass [kg]
Cm = material cost per unit
mass [$/kg]
f = scrap fraction (portion of
material wasted)
Cost of raw materials
2.008x

Figure 14.3, M.F. Ashby, Materials and the Environment

Material cost (PET)
2.008x
Cost [$/kg] Order qty. [kg]
2.80 100
1.40 1000
1.20 2000
1.08 5000
1.33 10000
1.09 16000
1.20 18000
1.05 20000
1.00 20000
0.86 20000

3.00

2.50

2.00
Cost [$/kg]
1.50

1.00

0.50

0.00
0 5000 10000 15000 20000 25000
Order qty [kg]

From alibaba.com April 2016

 2.008x

1” dia, 6’ long = ~$15/kg

http://www.mcmaster.com/#aluminum-alloy-6061/=11txdm7
http://www.alibaba.com/product-detail/6061-T6-Aluminum-Rod-Bar_721361906.html?spm=a2700.7724857.29.67.2RnZO8
Cost of overhead
2.008x
= labor, facilities, energy, etc…

Coh
C4 =
n!
n! = production rate [parts/hour]
Coh = total cost of overhead [$/hr]

à For example, may quote overhead based on labor cost

($/hr per worker) and number of machines that each operator
can supervise. Also consider cost of facility per area*time.
 2.008x

https://www.conference-
board.org/retrievefile.cfm?filename=ilccompensationreport2013.pdf&type=subsite
Total cost
Ct ⎡ ⎛ N ⎞⎤ 2.008x
Tooling cost C1 = ⎢Roundup⎜⎜ ⎟⎟⎥
+ N ⎣ ⎝ nt ⎠⎦

Equipment cost 1 ⎛ Cc ⎞
+
C2 = ⎜⎜ ⎟⎟
n! ⎝ Ltwo ⎠
mCm
Material cost C3 =
+ (1− f )
Coh
Overhead cost C4 =
n!
CT = C1 + C2 + C3 + C4 [$/part]
 2.008x

Cost:

5. Example: cost of
making LEGO bricks
What is the cost of making LEGO bricks?
2.008x

790 bricks for

$59.95 (Amazon)

= $0.075/brick

Image: http://smile.amazon.com/LEGO-Classic-Large-Creative-Brick/dp/B00NHQF6MG/
Video excerpt from: https://www.youtube.com/watch?v=y1Zhpdx-XtA
Example brick
2.008x
Injection molding cycle time = 6s
Material cost: Lego brick
§ ABS: $3.41/kg 2.008x
§ Assume scrap fraction = 1%

$0.007 per brick

Tooling cost
Here, a tool with more cavities (= can mold more bricks) is more cost-effective 2.008x

Estimated using from:

http://www.custompartnet.com/e
stimate/injection-molding/
• 500,000 cycles
• Size and roughness values
input for lego brick
 2.008x

Arne Hückelheim - Own work, CC BY 3.0,

https://commons.wikimedia.org/w/index.php?curid=8103948
Dedicated equipment cost
This is the cost of owning the machine, here a high-end IM machine 2.008x
§ Purchase price = $200,000, dedicated to this task
§ Annual depreciation = 10% à lifetime is 10 years (after which it’s worth nothing)
§ Number of machines is determined by required volume and production rate. Cycle
time of 6 seconds à 3,319,680 parts per machine per year (per mold cavity)
Equipment cost per year
Total cost [$/part]
= Tooling + Equipment + Material + Overhead 2.008x
 Volume Material cost Tooling Equipment Overhead Total cost per
[parts/year] [$/part] [$/part] [$/part] [$/part] part 2.008x

1,000 $0.01 $37.59 $20.00 $0.05 $57.61

100,000 $0.01 $0.38 $0.20 $0.05 $0.60

10,000,000 $0.007 $0.011 $0.002 $0.012 $0.033

(8 cavity mold)

C1 = material cost
C2 = tooling cost
C3 = equipment cost
C4 = overhead
Lego estimate: reflections
2.008x
§ Predicted cost is $0.03/lego if we operate for 16 hours
per day.
§ Material may be less expensive (we assumed high end);
yet gates/runners need to be recycled.
§ In the real LEGO factory, the machines can be shared
among many different bricks (by swapping mold sets),
and cycle time may be faster (depends on mold cooling).
§ Machine may last for >10 years, yet require
maintenance (we didn’t consider that directly).
§ Overhead cost (especially labor) is an educated guess.
§ Not considering other aspects: packaging, shipping,
marketing, kit design…
2.008x
 2.008x

Cost:

6. Limiting Cases:
manufacturing cost
and business
models
Examples at the extremes
§ Window glass 2.008x

§ iPhone
§ 3D printed aircraft parts

What is different?
§ Raw material ‘intensity’
§ Location(s) of production
§ Amount of ‘high tech’ content
§ Value to the customer
§ Process maturity
§…
Guardian Glass plant (Carleton, MI)
2.008x

>1000 feet mile

Float glass manufacturing (Guardian Glass)
2.008x

Excerpt from: https://www.youtube.com/watch?v=Vu_d2lm9EHw

Float glass manufacturing
2.008x

Scrap, back to the

What drives the cost? beginning (10-15%
~500 tons/day scrap rate)
10 m/min (4 m wide x 4 mm thick)

http://q-windows.com/glass-production
Replace with slide from Machining---
2.008x

Logic board

Front-facing
camera

Housing

Battery
Type of joint Number
Camera
Bolted 44
Adhesive 5
Screen
(flipped) ClipiPhone 6 chassis assembly
8
Faceplate Interference-fits 46
Counted from teardown sequence

https://d3nevzfk7ii3be.cloudfront.net/igi/DSCkX6EfcARJYOHa.huge
What is the cost of manufacturing each
iPhone? 2.008x

Cost Element iPhone 6

Display/Touch Panel/ Glass $41.50

Battery 3.50
Camera 16.50
Connectivity 13.00
NAND 9.00
SDRAM 5.00
Processor 37.00
BB+XCR 27.50
Power Mgmt/ Audio 7.00
Non-Electric 15.50

Other 34.50

Supporting Materials 6.00

Final Assembly & Test $11.00

Total: $227.00

http://www.businessinsider.com/analysis-iphone-6-plus-costs-prices-and-profits-2014-9
http://www.forbes.com/sites/chuckjones/2014/09/24/apples-iphone-6-teardown-and-other-costs-analysis/
How does Apple plan machining of the case to
minimize cost? 2.008x

‘Straight’ T-slot
tool path endmill

Press-fit
threaded
insert

‘Curved’
tool path
Optimization for
cost or time? 2.008x

Minimize cost of machining=

§ Machine use ($/time)
§ Tool cost
§ Tool change cost ($/time)
§ Nonproductive cost ($ for
load/unload operations etc)

Minimize time (1/rate) of

machining=
§ Machining time
§ Tool change time
§ Nonproductive time (load/unload
etc)
1/ n
⎛C ⎞
Tool inserts (mcmaster) Toollife =⎜ ⎟
- Carbide-tip: $4 ⎝V ⎠
- Diamond-tip: $70 (high speed)

Kalpakjian and Schmid.

Higher volume (demand) enables process
mastery and lower cost 2.008x
http://www.statista.com/statistics/263401/global-apple-iphone-
sales-since-3rd-quarter-2007/

2.008x
Profits reflect product types and corporate
strategies 2.008x
Apple P&G
1 2

Amazon
3

data from Google Finance, November 2015

Metal 3D printing is expensive
à Low rate (10 cm3/hr) means machine cost is ~50% of part cost 2.008x
Cost + value:Example
Airplane monitor
for SLM arms
- Virgin Monitor
by additive manufacturing
Arm
2.008x

Machining

AM

Weight-optimized
AM design
Image from faa.gov

§ Reduced part weight by AM leads to life cycle saving of 54.3t CO2

equivalent (20,000 litres fuel) over lifetime of plane.
§ For a 747 where this bracket is placed at 40 seats, this totals
~$880,000 in fuel saving over plane lifetime (30 years)!
§ Effective value of $22,000 per part.
§ AM cost (at $3/g) = $2,100 per part.

From C. Tuck (U. Nottingham), “The AM Sustainability Issue”

http://www.enlighten-toolkit.com/App_Themes/Enlighten/Documents/MonitorArm-processing.pdf
 2.008x

Cost:

7. Conclusion
 2.008x

à The relationship between

manufacturing cost and volume
(quantity) can be approximated
using scaling relationships for
fixed and variable cost
components.

By this approach, we can realize

how design influences
manufacturing cost, and select
processes to manufacture a
design in a cost-effective manner.
 2.008x

à By examining the cost and

profit structure of different
products and corporations, we
recognize how manufacturing
cost and business models
influence the bottom line.
 2.008x

à We can use our understanding

to inform sourcing decisions,
know minimum production
volume, and investigate new
options for flexibility (short-run
tooling, additive manufacturing,
etc).
References
2.008x
1 Introduction

"Materials and the Environment (2nd Edition)," Figure 14.4, Ashby; Copyright © 2013 Elsevier Inc.
All rights reserved.

iPhone 6, photo by User: Jan Vašek (Jeshoots) - Pixabay CC0. This work is in the public domain.
Injection molded plastic boxes, photo by User: Andreas Lischka (webandi) - Pixabay CC0. This
work is in the public domain.
X-Ray of a stainless steel implant, photo by User: Fremry via en.wikipedia. This work is in the
public domain.

Tesla Model 3, photo by User: Steve Jurvetson via Wikimedia. (CC BY-SA) 2.0
Gillette shaving razor, © John Hart

2 Elements of Manufacturing Cost

"Materials Selection in Mechanical Design (4th Edition)," Table 13.5 by Ashby Copyright © 2013
Elsevier Inc. All rights reserved.”

Materials Selection in Mechanical Design (4th Edition)," Figure 13.3 by Ashby; Copyright © 2013
Elsevier Inc. All rights reserved.
References
2.008x
Industrial pencil sharpening machine, photo © 1999-2016 Alibaba.com. All rights reserved.
Pencil and sharpener, photo by User: Unsplash - Pixabay CC0. This work is in the public domain.
X-Acto electric pencil sharpener, image © 1996-2016, Amazon.com, Inc. or its affiliates

3 Fixed Costs

LEGO mold, photo © Daniel Terdiman / CNET.

Core and side action mold, photo by User: MobiusDaXter via Wikimedia. (CC BY-SA) 3.0

Mold cost estimator, image Copyright © 2009 CustomPartNet. All Rights Reserved.

4 Variable Costs

"Materials and the Environment (2nd Edition)," Figure 14.3 by Ashby; Copyright © 2013 Elsevier
Inc. All rights reserved.
Aluminum 6061 order page from Alibaba, image © 1999-2016 Alibaba.com. All rights reserved.
Aluminum 6061 order page from McMaster, Web page © McMaster-Carr, all rights reserved.
References
2.008x
International labor cost comparison, hourly compensation for workers in manufacturing Chart 1
from Title: International Comparisons of Hourly Compensation Costs in Manufacturing, 2013;
Author: The Conference Board, International Labor Comparisons program; December 2014; ©
The Conference Board Inc. All rights reserved.

5 Cost of Making LEGO Bricks

LEGO classic brick set, photo ©2016 the LEGO Group. All rights reserved.
LEGO injection molding machine, video © Mister Rolls on YouTube.
Multicavity mold for LEGO bricks, photo by User: Arne Hückelheim via Wikimedia. (CC BY-SA)
3.0
LEGO minifigurines, photo by User: Eak K. (eak_kkk) - Pixabay CC0. This work is in the public
domain.

6 Limiting Cases: Manufacturing cost and business models

Guardian glass manufacturing, video © 2016 The E.W. Scripps Co

Louvre glass pyramid, photo by User: Edi Nugraha (EdiNugraha) - Pixabay CC0. This work is in
the public domain.
References
2.008x
Float glass production, image © 2015 Q-Windows (Malaysia) / All right reserved
Car windshield, photo by User: tookapic - Pixabay CC0. This work is in the public domain.
iPhone 6, image © 2000-2016 GSMArena.com

iPhone 6 exploded view, photo from iFixit.com. (CC BY-NC-SA) 3.0

iPhone 6 screenshot, image © Apple Inc.
Chart showing global iPhone sales from Statista; Source: Apple. © Statista 2016

Chart showing Apple profit margin, from Google Finance. ©2016 Google
Chart showing Procter and Gamble profit margin, Google Finance. ©2016 Google

Chart showing Amazon profit margin, from Google Finance. ©2016 Google
Metal additive manufacturing cost breakdown, images © Roland Berger Holding GmbH
Video monitor on aircraft, image from Federal Aviation Administration / U.S. Department of
Transportation. This work is in the public domain.
Image of airline monitor arms designed for various metallic Powder Bed Fusion methods by Chris
Tuck © The University of Nottingham.”