Monday, September 9, 2013

Economically Efficient Design of Products and Production Processes - Presentation Transcript

Economically Efficient Design of Products and Production Processes 

Economic Decision Making and Design and Process Changes by Engineers

Dr. K.V.S.S. Narayana Rao

Professor, NITE, Mumbai
Kvssnrao55 @
Industrial Engineering Knowledge Center
Engineering Economics, John M.Watts, Jr., and Robert E. Chapman

KVSSNRao - Social Media Ids

A Poem

Engineers design engines
Engineers produce engines
Engineers maintain engines
Engineers redesign engines

Engines work
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

Engineers strain
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 Designer

The 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, Luci├źnne Blessing Springer, 06-Aug-2007 - Technology & Engineering - 639 pages Page 1

Design Intent and Alternative Ways of Implementing It

The 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 Steps

Improvement and Optimization

Engineering Economy: An Explanation

An 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 Making

Every 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 Making

George 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 Responsibility

Designers 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 Efficiency

O.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 Selection

The goal of equipment selection in a business system is acceptable financial efficiency, not engineering efficiency.

Searching for Low Engineering Efficiency Alternatives

If 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 - Capital

Finance 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 Capital

The 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 Study

The 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.


Data 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.


For 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 Skills

Contributing to data collection
Support to accounting function
Cost estimating
Economic analysis

Economic Analysis Concepts

Time 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 Efficiency

Industrial 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 Design

Economic Material Selection
Economic Tolerance Selection
Value Engineering

Basic Steps of value Analysis

1. Identify the function. 2. Evaluate the function by comparison 3. Cause value alternatives to be developed.

VA aim – Answers to Questions

1. 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 Techniques

Miles provided 13 ideas as value analysis techniques.
Avoid generalities
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 Articles

Article by L.D. Miles
Book by L.D. Miles
Download from above link
Value Engineering – Recent Examples, Cases and Benefits 

Efficiency Engineering of Manufacturing Processes

Process Analysis
Operation Analysis
Motion Analysis

Process Analysis for Process Economic Efficiency

After 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 Efficiency

After 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 Analysis

Operator activity is subjected to principles of motion economy and ergonomics

Thank You

Thank You
Ready for Comments, Suggestions and Questions.

Case Studies

Economically Efficient Design of Solar Reflector 2009

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