## Phase II: Differential Manufacturing Cost Estimates for High Efficiency Clothes Washers Presentation to Department of Energy Workshop December, 1998 Arthur D. Little, Inc. ---- Acorn Park 

### c:::} Cambridge, Massachusetts 02140-2390 

# r-- (617) 498-5000**~** Reference 35539-21 

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### Clothes Washer Manufacturing Cost Assessment PhasedProgram 

## The program was divided intotwo phasesto provide for stakeholder review and comments.**~** """ y**~** '-"' , V A**''"~ ~..**  -- ':.A ,;

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### Provide a detailed and objective cost estimate of 

# I two state-of-the-art, high volume, vertical axis · clothes washer for further analysis

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### Develop a differential cost estimate for a proprietary vertical axis design and for two commercially available horizontal axis designs

SM/rev25147/dlf798 1

### Clothes Washer Manufacturing Cost Assessment Phase 11 Objectives 

## Phase II followed the development ofthe methodology and baseline vertical axis manufacturing costs, and stakeholder review and comment. • Use the manufacturing cost assessment methodology developed in Phase I
• Provide differential manufacturing costs for several high production volume, high efficiency clothes washer compared to the Phase I aggregated baseline estimate
• Maintain confidentiality of the data in the results
• Obtain comment from stakeholders as to the "reasonableness" of the manufacturing cost estimates and assumptions

SM/rev25147/dlf798 2

### Clothes Washer Manufacturing Cost Assessment Program Plan 

## We completed the Phase I and Phase II programs in approximately 12 months.

Task 1: Tear Down of Baseline Vertical Axis Clothes Washers Task 2: Manufacturing Cost Estimate Task 3: Stakeholder Review of Cost Estimate and Production Facility Visits Task 4: Final Report Task 1: Construct a BOM for Horizontal Axis Design (2) Task 2: Construct a BOM for Vertical Axis Prototype Task 3: Develop Differential Manufacturing Cost Estimates Task 4: Review Manufacturing Cost Estimates and Processes Task 5: Stakeholder Comments and Response Task 6: Final Report 

### ..&. Meetings 

# + Report

SM/reV25147/dln98 3

### Phase II Key Assumptions Product Specifications 

## Two horizontal and one prototype high efficiency vertical axis clothes 

## washer were selected forteardown analysis. Clothes Washer Characteristics:

. 

## oescripilon·.·
• 27" overall width 

### VAxis 1 • 3 wash/rinse temperature settings • Unheated rinse 

# i-----------4• 3 Settings for load size • 2 wash/spin speeds 

### V Axis 2 • 8 or more wash cycles • Super capacity wash basket 

### HAxis 1 Commercially Available Designs 

### HAxis 2 V Axis Prototype Whirlpool Prototype Design

SM/rev25147/dl/79B 4

### Phase II Key Assumptions Manufacturing FacilityAssumptions 

## A "typical practices" clothes washer manufacturing

## facility was developed forthe baseline and differential manufacturing cost assessment. Baseline Clothes Washer Manufacturing Facility: • Production volume of 1.5 million units peryear • 95 percent capacity utilization • All non-dedicated equipment • "Greenfield" investment [all building and equipment is new] • A relatively high degree of automation in the majorfabrication processes (painting, stamping, welding) • Manual final assembly • Typical industry equipment costs, process cycle times and labor content

SM/rev25147/dln9B 5

### Phase II Key Assumptions 

### Manufacturing CostConventions 

## Our analysis estimatesthe full production orfactory cost segmented by direct labor, materials and factory overhead.

Full Production Cost 1 Direct Labor Direct Material Overhead Selling 

### Non-Production Cost General & Admin. R&D Interest

1Tax Reform Act of 1986, essentially, requires companies to measure cost ofgoods sold as thefull production cost ofthe goods sold.
SM/rev25147/dl/798 6Phase II Key Assumptions Manufacturing Financial Factors 

## The financial factors are based on general industry practices

<" v> 'fo ,,.,_, ; > N < 'h« " V**~;** ;**<~** :. V '\_"' v0:> 'f'ivJ <<.Category ,,, , 0'AssumQtidi)I**,,:~**
h v - •-'**~}-,,"~** >A,y YN"'-""' vv NV ' v - MN"''-'**V~** <**':'.:'t~v** y NJ Work Days per Year 240 days 

# I Shifts per day plant average 2.0 shifts*

# ~ Runtime per Shift 8 hrs Lot Size 1 work day Equipment Uptime 90% 

# I Assembly Downtime 20% 

# I Wages $24 per hour

# ~**~.** Capital Recovery Rate 0% 

# I Equipment Depreciation Life (Average) 10.1 years** 

# I Maintenance 4% of Equipment Cost 

# I Utilities 1.7% of Materials Cost 

# I Taxes 0.9% of Factory Cost

, Insurance 0.8% of Factory Cost FiUf&t**,,,-~'"~ ~~}l** **'<'~:~v~v.,_** "' •""" ,.,,,- ..,.,,

*Fabrication 2.5 shifts, Assembly= 1.0shift **Equipment Average= 10.1 years, Building+ conveyor - 23.5 years Average Total plant depreciation= 17.1 years SM/rev25147/dln9B 7

### Differential Manufacturing Cost Estimates Differential Cost Estimates 

## The V-axis prototype differential cost is well within the range ofthe H-axis designs. 200 180 Range 

### =$146 to 190 160 

### 0 140 Range 

### =$71-$175 

# - 

# - ti) 0 120 0 

## ca 100 

### += c Cl> 80 

# ... Cl> 

# = i5 60 40 20

0 V-Axis Aggregated Prototype H-Axis Note: Range is based on 1000 trialsfor Monte Carlo simulations; aggregated baseline Vaxls unit cost is constant 

### The differential manufacturing cost range is based on different designs and Monte Carlo simulations of key parameters used in the baseline analysis. SM/rev25147/dl/798 8'Differential Manufacturing Cost Estimates Key Parameters 

## To better understand the impact of variability and uncertainty in the cost estimate we conducted sensitivity analysis and Monte Carlo simulations on several parameters.

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### Rrollabil,ity**.":~** ; ;' .r " ' 

### ,Key,Rarameter**Rar~~~~er:,mange** 

### ,, ,**M~st** 

### Likely Value ' I

, ,, 

### Distrillutian >:t " ;, '**~-** - -**~~** - , A A A ,0 ' , , , ' ' ,, ,, > :;-v_.yA >/->. ,_A_,-r.,) ;1./ ' A -< A A j,};**"'~** ,**,;;~:..,** 'A{<" Labor Rate Uniform $17to $28 per hour Actual Plant Output Triangular 900,000 to 1.5 million 1.425 million 

# I Equipment Depreciation Uniform 7 to 15 Life Total Investment Triangular 50°/o to 150°/o 100°/o Maintenance Uniform 2.5°/o to 5.5°/o 4°/o Equipment Uptime Triangular 70°/o to 95°/o 90°/o Utilities Triangular 1°/o to 3.5°/o 1.7°/o

, ._ \**~Atsi~-iS.S~<;£;,;,....."'""''.'=='"fidY'.WJ..(¥/.Wk&~** '#t&t&i&ti '**~::~:ill** ' '>,**~** 

## These parameters formed the basis for the range of differential manufacturing costs.

SM/rev25147/dln98 9Differential Manufacturing Cost Estimates 

### Distribution Forms 

## We used two simple distribution forms for the Monte Carlo analysis.**~** 

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### a.. Uniform Distribution



### Baseline

17 24 28 Labor Rate ($/hr.) Triangular Distribution



### "MostLikely Baseline"= 1.425million

900,000 1.5 million Plant Output

SM/rev25147/dlf798 10.,


### Cost Drivers in High Efficiency Clothes Washers Production CostBreakdown 

## The controls are a major cost driver making up a significantly larger percentage ofthe overall costs in the higherefficiencywashers. 

## (30-40°/o compared to 

## 20°/o}

100%

90%
80%
70%
60%
50%
40%
30%
20%
10%
Aggregated Baseline Aggregated H-axls V-axis Prototype ll!IMisc. +Final Assy lliilCabinei D Pump, Controls, & Valves D Suspension IITrans/Motor lll!Tub &Basket

SM/rev25147/dll798 11

### Differential Manufacturing Cost Estimate Investment 

## Although H-axis and V-axis prototype designs are higherthan the baseline manufacturing cost, the equipment and tooling investment is comparable.

Aggregated V Axis 

### $116 9.30 $226 16.3 Aggregated H-Axis 

### $82 10.6 $192 18.3 V Axis Prototype 

### $124 10.3 $234 16.60**}icfl:ii.f:i\t'~A~~** , :h**i~¥&&%t%-t1$:t'.fft.J**

Note: Building and conveyor investment is held constant at $110.43 million and a depreciation life of 23.5 years.

SM/rev25147/dl/798 12100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 

### Differential Manufacturing Cost Estimates Investment Drivers 

## The overall investments are similar ($190 - 230 MM) but emphasis is on different manufacturing operations.

Aggregated V-Axis Aggregated H-Axis V-Axis Prototype IICoating IllStamping/Bending IllMachining D Injection Molding D Fastening/Fixturing



## The investments in the h-axis and vertical axis prototype are driven more by injection molding and sheet metal forming operations, while the baseline vertical axis unitsfocus on machining.

SM/rev25147/dln9B 13

### Differential Manufacturing Cost Estimates 

### Factory CostBreakdown 

### The higher efficiency clothes washers exhibit significantly higher material 

### costs when compared tothe aggregated baseline vertical axis machine.

Direct Labor 15% ,,. Baseline XI-Axis Washers, {'**~** '' ' ,',**>;-:::~ ~"**  ,...'; " ' ' Overhead

60% - Average of Higffi**EffiClen~y,** -

- Designs , ¥**~ ~**  ""**'~** "' Direct Labor 10% Overhead

Materials 75%

SM/rev25147/dlf798 14Differential Manufacturing Cost Estimates Overhead CostBreakdown 

### The higher efficiency clothes washers exhibit similarfactory overhead cost structures when compared to the aggregated baseline vertical axis machine.

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__:_ ·--Baseline-V-Axis-cWaslfiers**:.~** ·**Ave~~ge_**oJ, t\iigl'.'I, Efficienc&.**'~** .,..**,~** x**~** '' ::**~** : i --- :--- .. ---- D'esig

## nS::-

--- -- -- - 6%

5% 9% 23% 6% 24% 5%

Ill Indirect Labor Teardown and industry analysis 

# • Indirect Materials Teardown analysis 

# • Maintenance 4.0% of total capital investment D Utilities 1.7% of material costs Iii Depreciation Teardown analysis 1111 Truces 0.9% of full production cost

### i--~~~~~~~~+-~~~~~~~~~--11**~~~~---+~~~~~~•** Insurance 0.8% of full production cost SM/rev25147/dln9B 15

### Clothes Washer Manufacturing CostAssessment 

### Phase II Results 

## Based on the methodologyand aggregated baseline cost developed in Phase I, the Phase II results indicate a differential factory cost of$75 to $190 depending on design options selected. • The h-axis machines have a wide variation in cost depending on features and product attributes
• The v-axis prototype clothes washer as evaluated is within the range of differential costs ofthe h-axis machines
• Performance and product features are driving costs in both the h-axis and v-axis prototypes

SM/rev25147/dl/798 16