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 w 

(Jj 
Clothes Washer Manufacturing Cost Assessment Phased Program 

The program was divided into two phases to provide for stakeholder 

review and comments. 

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. ~" ·· . ~l"lase J . . . :' _ i ' - , ~ vf.Y:;: >~ ,.. 

' ' N y ' y A 

~ x ~ '\ ~ "" 

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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!. •· .,., ,~l"lase·:: ,y., :: · - ~;:; ,, ~ 0 

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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 of the 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 for teardown analysis. 

Clothes Washer Characteristics: 

. oescripilon·.· 

• 27" overall width 

V Axis 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 

H Axis 1 

Commercially Available Designs 

H Axis 2 

V Axis Prototype Whirlpool Prototype Design 

SM/rev25147/dl/79B 4 
Phase II Key Assumptions Manufacturing Facility Assumptions 

A "typical practices" clothes washer manufacturing facility was 

developed for the baseline and differential manufacturing cost 

assessment. 

Baseline Clothes Washer Manufacturing Facility: 

• Production volume of 1.5 million units per year 

• 95 percent capacity utilization 

• All non-dedicated equipment 

• "Greenfield" investment [all building and equipment is new] 

• A relatively high degree of automation in the major fabrication 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 Cost Conventions 

Our analysis estimates the full production or factory 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 

1 Tax Reform Act of 1986, essentially, requires companies to measure cost of goods sold as the full production cost of the goods sold. 

SM/rev25147/dl/798 6 
Phase 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= 1.0 shift 

**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 of the 

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 trials for 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. 

" I , , ~ -<->. v 

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 $17 to $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 9 
Differential Manufacturing Cost Estimates Distribution Forms 

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

~ 

:.a 

n1 

.0 

0 

"-

a.. 

Uniform Distribution 

Baseline 

17 24 28 

Labor Rate ($/hr.) 

Triangular Distribution 

"Most Likely 

Baseline"= 

1.425 million 

900,000 1.5 million 

Plant Output 

SM/rev25147/dlf798 10 
., 

Cost Drivers in High Efficiency Clothes Washers Production Cost Breakdown 

The controls are a major cost driver making up a significantly larger 

percentage of the overall costs in the higher efficiency washers. 

(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 

II Trans/Motor 

lll!Tub & Basket 

SM/rev25147/dll798 11 
Differential Manufacturing Cost Estimate Investment 

Although H-axis and V-axis prototype designs are higher than 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 12 
100% 

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 

II Coating 

Ill Stamping/Bending 

Ill Machining 

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 units focus on machining. 

SM/rev25147/dln9B 13 
Differential Manufacturing Cost Estimates Factory Cost Breakdown 

The higher efficiency clothes washers exhibit significantly higher material 

costs when compared to the 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 14 
Differential Manufacturing Cost Estimates Overhead Cost Breakdown 

The higher efficiency clothes washers exhibit similar factory overhead cost 

structures when compared to the aggregated baseline vertical axis machine. 

' ' <-"" ,'< '.i: " < :,, <':;~' ' ,, ; ~ 

__ :_ ·--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 T eardown analysis 

• Maintenance 4.0% of total capital investment 

D Utilities 1.7% of material costs 

Iii Depreciation T eardown analysis 

1111 Truces 0.9% of full production cost 

i--~~~~~~~~+-~~~~~~~~~--11 

~~~~---+~~~~~~• 

Insurance 0.8% of full production cost 

SM/rev2514 7/dln9B 15 
Clothes Washer Manufacturing Cost Assessment Phase II Results 

Based on the methodology and 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 of the h-axis machines 

• Performance and product features are driving costs in both the h-axis and 

v-axis prototypes 

SM/rev25147/dl/798 16