Economically Efficient Design of Products and Production ProcessesEconomic Decision Making and Design and Process Changes by Engineers
Dr. K.V.S.S. Narayana RaoProfessor, NITE, Mumbai
Kvssnrao55 @ gmail.com
Industrial Engineering Knowledge Center
Engineering Economics, John M.Watts, Jr., and Robert E. Chapman http://fire.nist.gov/bfrlpubs/build02/PDF/b02155.pdf
KVSSNRao - Social Media Idshttps://twitter.com/knoltweet/
Engineers design engines
Engineers produce engines
Engineers maintain engines
Engineers redesign engines
Engineers make buck
Engines sell in millions
Engineers make billions
To sell in millions
Engineers use economics
Demand curves give price
Engineers keep it in eyes
stretch their brain
mix and fix
materials and processes
They achieve the cost
that gives them most
profit at last
and makes them best
Technology makes one good engineer
Economy makes him rich engineer
Good Engineer and Rich Engineer
Tasks and Activities of Engineering DesignerThe main task of engineering designer is to apply their scientific and engineering knowledge to the solution of technical problems, and then to optimize those solutions within the requirements and constraints set by material, technological, economic, legal, environmental, and human-related considerations Source: Engineering Design: A Systematic Approach Ken Wallace, Luciënne Blessing Springer, 06-Aug-2007 - Technology & Engineering - 639 pages Page 1
Design Intent and Alternative Ways of Implementing ItThe design intent can be achieved in a variety of ways.
Material type, part features, tolerances, finishes and fit requirements can often be modified without jeopardizing the part, assembly or component function.
This has been demonstrated for discrete parts used in the aerospace, automotive, and precision parts industries
Large fraction of costs can be influenced though economic analysis of design-manufacturing combinations.
Source: Vijay A. Tipnis, Design and Analysis of Integrated Manufacturing Systems ( 1988 )
Engineering Phases or StepsSynthesis
Improvement and Optimization
Engineering Economy: An ExplanationAn engineering economy study involves technical considerations and it is a comparison between technical alternatives in which the differences between the alternatives are expressed so far as practicable in money terms .
(Grant and Ireson, 1960).
"Will it pay?"Every engineering decision must be subjected to the question "Will it pay?"
General John J.Carty,Chief Engineer of the New York Telephone Company,
asked three questions
1. Why do this at all?
2. Why do it now?
3. Why do it this way?
1. Why do this at all?The first question makes an enquiry regarding profit.
In business you do a thing because it is profitable to do so.
2. Why do it now?The second asks whether the person proposing the investment or expenditure has considered the time alternatives.
Can we postpone the investment/expenditure and make more profit?
3. Why do it this way?Have you considered all other alternatives to the issue at hand and do you certify that the solution proposed is the most profitable proposal.
Have you done profit improvement analysis of alternative that you are suggesting?
Economic Decision MakingEvery dollar an executive proposes to spend or proposes not to spend has to be subjected to economic decision making.
Executives are Unprepared for Economic Decision MakingGeorge A. Taylor, in his text book, Managerial and Engineering Economy .
Most of the executives seldom justify their actions and the resulting expenditure by adequate economic criteria.
Too many executives do not a feel a true responsibility for the costs they create or the costs they protect by maintaining the status quo.
Design Engineer – Cost ResponsibilityDesigners create costs due to selection of alternatives for design.
But they feel costs are the responsibility of the company or somebody else in the company.
Proper reflection will make them conclude that costs that result from design are in their sphere of management and hence are their responsibility, because they and not somebody else selected the proposed design from all the possible alternative designs.
Engineering Efficiency versus Financial EfficiencyO.B. Goldman, Book - Financial Engineering, 1923
The primary duty of the engineer is to consider costs in order to obtain real economy.
To get the most power, for example, not from the least number of pounds of steam, but from the least possible number of dollars and cents: to get the best financial efficiency.”
Goal of Equipment SelectionThe goal of equipment selection in a business system is acceptable financial efficiency, not engineering efficiency.
Searching for Low Engineering Efficiency AlternativesIf the final choice is based on financial efficiency alone, the search for alternatives must be conducted on either side of current engineering efficiency.
Search for higher financial efficiency is not necessarily a search for higher engineering efficiency.
Finance - CapitalFinance is the money resources of a business organization.
Money resources of an organization consist of equity capital contributed by owners of the firm and loans (short-term as well as long-term) given by various other banks, firms and individuals.
Rate of Return on Capital (Finance)All the entities who provide finance to a firm expect to get back the principal and additional return on principal.
The business operations of a firm need have the ability to generate that return or more than that return to acquire capital or finance in the first place and then generate the return to satisfy the expectations afterward.
This idea gives rise to cost of capital.
Cost of CapitalThe user of capital must satisfy the profit motive of the supplier of capital.
This obligation of the user of capital is termed as the cost for using capital or cost of capital.
Hence all expenditure proposals need to include an evaluation mechanism that considers the cost of capital for the capital required to implement the proposal.
Engineering Economy StudyThe process of engineering economy study will included data gathering and data analysis.
Analysis requires analytical methods
The analytical techniques express the alternatives in comparable measures of money with respect to their cost, revenue or return on capital.
EstimationData gathering will include some current estimates made by engineers by combining the technical information and costs/prices relevant to the materials and processes used to provide goods or services.
The data gathering effort cannot be a one time effort and systems are to be put in place to record appropriate data as and when it first appears.
AccountingFor this purpose accounting sections or departments (financial, cost and management accounting) and technical departments have to jointly work out the need for future engineering economy studies and install appropriate recording systems.
Economic SkillsContributing to data collection
Support to accounting function
Economic Analysis ConceptsTime value of money
Compound interest calculation
Present worth calculation
Net present value = Present worth of cash inflows minus present worth of cash outflows
Internal Rate of Return – Can be compared with cost of capital
Engineering Economics is part of Industrial Engineering Tool Kit
Engineering Economics - Articles
Industrial Engineering – Engineering Systems EfficiencyIndustrial Engineering (IE) is Human Effort Engineering and System Efficiency Engineering.
Two tasks of IE of interest to our topic of discussion
Efficiency Engineering of Product Design
Efficiency Engineering of Manufacturing Processes
Efficiency Engineering of Product DesignEconomic Material Selection
Economic Tolerance Selection
Basic Steps of value Analysis1. Identify the function. 2. Evaluate the function by comparison 3. Cause value alternatives to be developed.
VA aim – Answers to Questions1. What is the item? 2. What does it cost? 3. What does it do? 4. What else would do the job? 5. What would that alternative cost?
Alternatives have to cost less. VA provides a direction for it.
Value Analysis TechniquesMiles provided 13 ideas as value analysis techniques.
Get all available costs
Use information from the best source
Blast create and refine
Use real creativity
Identify and overcome roadblocks
Use industry experts to extend specialized knowledge
Get a dollar sign on key tolerances
Utilize vendors’ available functional products
Utilize and pay for vendors’ skills and knowledge
Utilize specialty processes
Utilize applicable standards
Use the criterion, “would I spend my money this way?”
Value Engineering ArticlesArticle by L.D. Miles
Book by L.D. Miles
Download from above link
Value Engineering – Recent Examples, Cases and Benefits
Efficiency Engineering of Manufacturing ProcessesProcess Analysis
Process Analysis for Process Economic EfficiencyAfter Process Synthesis do Process Analysis
Rationalize each operation
Why is it required? What happens if it is not done?
Rationalize Division into operations
Is further division required or will combination give better economy?
Rationalize the sequence of operations
Will any change in sequence give more economic benefits?
Simplify Operation (Operation analysis)
Operation Analysis for Operation Economic EfficiencyAfter Operation Synthesis
Subject every resource used in the operation to questioning to find lower cost alternatives.
Uses Operations Research and Statistical Methods (Six Sigma) to optimize the parameters.
Motion AnalysisOperator activity is subjected to principles of motion economy and ergonomics
Thank YouThank You
Ready for Comments, Suggestions and Questions.
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