Antoine Guivarch

guivarch@mit.edu
Taesik Lee
tslee@mit.edu
Carissa Tudryn
tudi@mit.edu

2.875
Mechanical Assembly and its Role
in Product Development
Dr. Daniel Whitney

Project Assignment #6
Quartz Analog Alarm Clock
Economic Analysis and Discrete
Event Simulation

Unit cost estimation

We used Payback period method as described in the class material with 5 years of
payback period assumption.

Unit cost = Variable cost + 
Fixed cost / (P * Q)
P : Payback period
Q : Annual production volume
From the cost component table,

Variable cost: 3.83 [$/unit]

Fixed cost: $69,338
Annual production volume: 115,000 [units]

With a payback period of 5 yr,

Unit cost = 3.95 [$/unit]

Net Present Value calculation

We used the spreadsheet, “Econ DEMO-Stanley Hammer.”
The following table shows the parameter values for our economic analysis model. A
period is one quarter of a year, and it gives 28750 units of sales volume per period. For
simplicity, we did not consider the fact that the sales volume tends to change as a
function of time. The currency unit is $1,000.

Since we are not dealing with the entire product development process, the development,
testing, tooling and ramp-up cost are assumed to be the cost of assembly process/line.
For Tooling and Ramp-Up cost, the estimated fixed-cost is used. Unit price is assumed
to be $8 which is about 60% of US retail price ($13). We assume that the price does not
change throughout our analysis periods (20 periods). Unit production cost was
calculated above.

We did not assign much of the marketing cost considering the business environment of
the clock mfg. company.

The following table summarizes the input values we used in Econ DEMO worksheet.
MODEL VALUES
base
first last burn rate
Development 1 2 -2
Testing 1 2 -1
Tooling and Ramp-Up Costs 2 2 -69
Market Introduction 2 2 -8
Ongoing Marketing Costs 2 14 -4
unit sales 2 20 28750
unit price 2 20 0.008
unit production cost 2 20 -0.004
Discount rate per time period 3.50%

Investment (first two periods): $47,620

NPV: $888,000
Return on investment: 19
NPV value and Return on Investment turned out to be very high mainly due to the
assumption of $8 sales price.
Cost of Parts/ Step per product

Cost/Item
Step & Item (cents)

Step #1
SS1 $0.05
SS4-sub $0.10
SS2 $0.05
SS3 $0.05
GB1 $0.50
GB2 $0.05
BSS1 $0.05
BSS5 $0.10
BSS2 $0.20
BSS3 $0.05
BSS4 $0.05
SUM $1.25

Step #2
GB3 $0.25
GB3 $0.25
FC3 $0.10
FC4 $0.10
FC5 $0.20
Wires $0.0014
SUM $0.90
 Step #3
FC2 $0.05
FC1 $0.15
BC1 $0.15
BC2 $0.05
BC3 $0.10
BC4 $0.05
Screws $0.02
SUM $0.57
Step #4
BC5 $0.05
FC7 $0.05
FC8 $0.05
FC9 $0.05
FC10 $0.05
FC6 $0.15
Screws $0.02
SUM $0.42

Total Material Cost per Product $3.14

Labor Costs/Station
Hourly wage $2.00
Vacation benefit $0.04
Sick leave (1 day/month = 12/year) $0.04
(assumption: if not sick gets more vacation)
Health & medical insurance/year $0.83
Total labour cost per hour $2.91
 Daily labor cost for 8+1 operators $210
Daily production volume 383.33
Labor cost per unit $0.55

Variable Cost Quantity Cost / unit

(work 50 weeks/year & 2300 cycles/week)
Workstation #1
Parts $1.2500
8 oz. Bottles of Drip Oil 1 every 500 cycles @$4/each $0.0080
towel 1 every 4600 cycles (2 weeks) @$2.50/tool $0.0005
pen 1 every 9216 cycles (2 months) @ $1/pen $0.0001
laundry for towel 1 every 384 cycles (1 day) @$.1/towel $0.0003
$1.2589
Workstation #2
Parts $0.9014
Soldering Alloy $0.0100
$0.9114
Workstation #3
Parts $0.5700
Glue 2 every 768 cycles (2 days) @ $10/each $0.0260
$0.5960
Workstation #4
Parts $0.4150
$0.4150
Other Variable Costs
Labor cost $0.5472
Energy costs $0.0522
Shipping costs $0.0500
$0.6494

Total Variable Cost (per unit) $3.8308

Fixed Costs
Fixed Installation Costs
Purchase of Facilities and land to house assembly process $30,000
Shelving for the storage room $1,000
Company @ $25/hr (parts included in the price per hour)
Build 5 workbenches 5 hours/bench $625
5 feeders 1 hour/feeder $125
Bins (one for part and one to replenish the part) 74 total @ $30/bin $2,220

Tool costs
Step 1 Cast Iron Bell Fixture $25
Step 1Tool for Ring Placement $10
Step 1 Hammer $5
Step 1 Hook for towel $1
Step 1 Clipboard $5
Step 2 Soldering irons $132
Step 3 Electric screw drivers $60
Step 4 Power supply (for inspection) $100
Step 4 Electric screw drivers $30
Cart $10,000

Other costs
Insurance $5,000 a year * payback period of 5 years $25,000

Total Fixed Costs $69,338

Unit Cost Calculation

Payback Period year 5
Yearly production volume units 115,000
Unit Cost $/unit $3.951
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Part 6b: Discrete event simulation of the line
The Cell Sim software was used to simulate the whole assembly line designed so far.
The actual floor layout and processes were simplified in order to become compatible
with the software. In order to simplify the assembly model, parts were grouped in four
categories, depending on where they are delivered on the plant (parts for the subsystem
subassembly, for the soldering, for the clock assembly and for the front face). The graph
would have been very hard to understand with a total of 32 different parts. The
assembly model includes four “machines” (workstations actually), each with only once
process. Their details follow and can also be visualized on the screen pictures in the
next page.

MACHINES

1. Subsystem Assembly:
Input: “parts for subsystem assembly” from the part storage room
Process: proc1, assemble each subsystem
Output: queue formed by the feeders to step 2
Mean time: 69.94sec
Standard deviation: 5sec (normal distribution)

2. Soldering station: (4 different ones)

Input1: feeders from 1
Input 2: “parts for soldering” from part storage room
Process: proc1, solder subsystems and other parts together
Output: queue formed by the feeders to step 3
Mean time: 224sec
Standard deviation: 20sec (normal distribution)

3. Clock Assembly station: (2 different ones)

Input 1: feeders from 2
Input 2: “parts for clock assembly” from part storage room
Process: proc1, assemble soldered subsystems on front casing and close the clock
Output: queue formed by the feeders to step 4
Mean time: 135.14sec
Standard deviation: 13sec (normal distribution)

4. Front face and testing:

Input 1: feeders from 3
Input 2: “parts for front face” from Part storage room
Process: proc1, assemble hands and test the completed clock
Output: final product storage room
Mean time: 57.31sec
Standard deviation: 15sec (normal distribution)
QUEUES

Part storage room (4 items)

Parts for subsystem assembly, initial stock: 100
Parts for soldering, initial stock: 100
Parts for clock assembly, initial stock: 100
Parts for front face, initial stock: 100

Feeders from 1 to 2 (1 item)

Proc1 from Subsystem assembly, capacity 10, initial stock 0

Feeders from 2 to 3 (1 item)

Proc 1 from Soldering stations, capacity 10, initial stock 0

Feeders from 3 to 4 (1 item)

Proc1 from clock assembly, capacity 10, initial stock 0

Final product storage room (1 item)

Proc 1 from front face & testing, that is the completed clock, capacity 100, initial stock
0

No failure mode or scrap queues were introduced to simplify the model.

Here are a few results from a simulation with pace of 75 seconds and 100 cycles.
 The bottleneck of the assembly line is the subsystem assembly station, utilization
percentage is 100% as long as there are some input in the part storage room, and
starving time is negative through the whole sequence. The reason for this is fairly
simple: this station has the highest process time in the chain. Soldering stations have
an average utilization ratio of 87, 83, 80 and 73% (it seems that when there are
several workstations in parallel the algorithm assigns more work in the reverse order
of the stations), the clock assembly stations 96 and 95% and the front face 78%.
 Queues in between stations were already assumed of small capacity, but they never
actually have more than one item in because the assembly is designed to flow
constantly.
 With a pace of 75 seconds, which was the assumed cycle time in the previous
reports, derived from an assumed annual production volume of 115,000, it can be
seen that the final product storage room fills quicker than the number of steps. That
is because 75 seconds is higher than 69.94 seconds, the longest through-put time of
the assembly, for the first workstation.

If the pace is lowered to 69.94 seconds, which is the lowest possible to avoid permanent
starving of soldering stations, one clock is exactly produced at each cycle. This means
that from our design, even with uncertainty of non zero standard deviations in the
process times, annual production volume could be increased without changing anything
to the floor layout and time efficiency increased. From 115,000 units with a cycle time
of 75 seconds, production could reach 300*8*3600 / 69.94 = 123,500 clocks per year.