The Economics ofLights Out Manufacturing

David O. Kazmer, PE, PhDUniversity of Massachusetts Lowell

Modern Manufacturing

Cost Structures

TotalProduction

Costs

TotalLabor Costs

TotalConsumables

Cost

TotalFacilities

Costs

Machinery

Maint’nce

Facilities

Yield

$/Hr

Output

Downtime

Energy

Resin

Cost Parameters

Cost parameters N.E. ChinaOperator labor $13/hr $0.70/hrEng/Mgt labor $30/hr $3/hrEnergy cost $0.08/kWhABS resin $1477/ton $950/tonMachinery cost $30/hr $15/hrFacilities cost $7.00/ft2 $4.20/ft2

Maintenance rate 10% 20%

Injection Molding Economics

Case Study for a Mid-Sized Molder200 million parts per yearAverage part weight: 10g

Obsolete Molder

8 cavities/mold with cold runners Poorly selected hydraulic machines (26 kW) 50 seconds per cycle (optimistic)

Cooling issues & semi-automatic 95% quality level (optimistic) 1 operator per 1 machine 1 eng/mgt per 15 operators 2 shifts, 5 days per week 4 hour setup per 10,000 parts

Obsolete Molder Characteristics

#Operators#Machines #Eng/Mgt Energy Use

Standard Molder

16 cavities/mold with 50% hot runners Well selected hydraulic machines (30 kW) 45 seconds per cycle (optimistic) 98% quality level (optimistic) 1 operator per 2 machines 1 eng/mgt per 15 operators 2 shifts, 5 days per week 2 hour setup per 10,000 parts

Standard MolderCharacteristics

#Operators#Machines #Eng/Mgt Energy Use

Lights Out Molder

32 cavities/mold with hot runners Electric machines (35 kW) 35 seconds per cycle

Fully automatic including crating, etc. 99.9% quality level 1 operator per all machines 1 eng/mgt per all machines 3 shifts, 7 days per week 0.5 hour setup per 10,000 parts

Lights OutCharacteristics

#Operators#Machines #Eng/Mgt Energy Use

0

2

4

6

8

10

12

14

16

18

Obsolete Standard Lights-Out

Factory Type

To

tal

Pro

du

ctio

n C

ost

($M

illi

on

s)

New England

Comparison

China

0

2

4

6

8

10

12

14

16

18

Obsolete Standard Lights-Out

Factory Type

To

tal

Pro

du

ctio

n C

ost

($M

illi

on

s)

Shipping

Production

Head to Head Competitive Assessment

Obsolete Standard Lights OutO

bsol

ete

-139% -280% -512%

Sta

ndar

d

-7% -71% -175%

Ligh

ts O

ut

52% 23% -23%

China Factory ClassN

ew E

ng

lan

d F

acto

ry C

lass

Validation: World Production

US Plastics industry went from surplus of $894 million in 2000 to a deficit of $1,387 million in 2002 A swing of $2,281 million.

In 2001, China exported $6bn of fabricated plastic products last year. In 2002 China doubled the volume of its exports China also exports plastics in many other forms…

China is world's largest petrochemical importer Chinese petrochemical demand is doubling every 8

years.

Validation: Molded Utensils

In 2003, US imported more than 100bn plastic bags A coalition (Intelplast Group, PCL Packaging and

Sonoco Products) claimed that Asian countries were flooding the US market with below-cost PE bags and demanded an anti-dumping duty

In September, the US Inter’l Trade Commission determined that "there is a reasonable indication that a US industry is threatened with material injury by reason of imports of polyethylene retail carrier bags from China, Malaysia and Thailand that are allegedly sold in the United States at less than fair value".

0

2

4

6

8

10

12

14

16

18

To

tal

Pro

du

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ost

($M

illi

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New England China

Facilities

Labor

Energy costs

Resin costs

A producer of plastic utensils found that they could purchase products from China for less than the cost of their resin.

Investment, Risk, & Specialization

Lights out costly to achieve in lower volume applicationsSensing & quality control protocolsRobotics & materials handlingScheduling & switchover

What volumes make sense?Existing plant or green field plant?

Break Even Comparison

Obsolete Standard Lights OutCapitalization 50000 150000 250000Marginal Cost 0.906779 0.409156 0.18411

0

100,000

200,000

300,000

400,000

500,000

0 100,000 200,000 300,000 400,000 500,000

Annual Production Volume

To

tal

Pro

du

ctio

n C

ost

($)

Obsolete

Standard

Lights Out

Risk Factors

IRR 15%Year 0 1 2 3 4 5 Total

Volume 0 20,000 20,000 20,000 20,000 20,000 100,000Cost 50,000 18,136 18,136 18,136 18,136 18,136 140,678

Net Present Value 50,000 15,770 13,713 11,924 10,369 9,017 110,793Cost 150,000 8,183 8,183 8,183 8,183 8,183 190,916

Net Present Value 150,000 7,116 6,188 5,381 4,679 4,068 177,431Cost 250,000 3,682 3,682 3,682 3,682 3,682 268,411

Net Present Value 250,000 3,202 2,784 2,421 2,105 1,831 262,343

Obsolete

Standard

Lights Out

Volume won’t materialize Application may be yanked Investment in technology won’t work Time value of money not realized

$0.00

$0.50

$1.00

$1.50

$2.00

0 500,000 1,000,000 1,500,000 2,000,000

Total Production Volume

To

tal

Par

t C

ost

($)

Obsolete

Standard

Lights Out

Manufacturing Strategy

Develop long term relationshipsContract stabilityRational quotingRisk/profit sharing between customers &

suppliers Specialize in technology/application area

Unique capabilities & knowledge• Fewer competitors

Focused set of manufacturing tools• Reduction & re-use of investment

$0.00

$0.50

$1.00

$1.50

$2.00

0 500,000 1,000,000 1,500,000 2,000,000

Total Production Volume

To

tal

Par

t C

ost

($)

Standard

Lights Out

57

3732

• Enter long term contract, give concessions• Make strategic investment in lights-out • Redefine standard procedures • Quote based on new cost structure

Summary

Two primary drivers in marketplaceTechnology drives molder productivityInternationalization & consolidation enables

leverage Future shock for custom molders

High volume applications go lights out• Definition of ‘high volume’ going down• Profit margins driven by manufacturing efficiency

Lower volume applications will remain• Sampling, point of use, specialty applications• Profit margins widely variable