/OlJ HH 

Differential 

Manufacturing Cost 

Assessment of 

High Efficiency 

Clothes Washer 

Designs 

Phase II 

Final Report 

Report to 

U.S. Department of Energy 

November 9, 1998 

Arthur D. Little, Inc. 

Acorn Park 

Cambridge, Massachusetts 

02140-2390 

Reference 35539 
Table of Contents 

1.0 Program Status ................................................................................................ 1 

1.1 Program Objective ..................................................................................... 1 

1.2 Phase II Objectives .................................................................................... 1 

2.0 Assumptions ..................................................................................................... 2 

2.1 Definition of High Efficiency Designs ......................................................... 2 

2.2 Manufacturing Assumptions ...................................................................... 2 

2.3 Conventions for Manufacturing Cost Estimates ......................................... 3 

3.0 Approach ........................................................................................................... 3 

3.1 Bill of Materials (BOM) ............................................................................... 4 

3.2 Fabrication Processes ............................................................................... 5 

3.3 Assembly Processes ................................................................................. 6 

3.4 Baseline Manufacturing Assumptions ........................................................ ? 

3.5 Cost Data Aggregation .............................................................................. 7 

4.0 Results .............................................................................................................. 9 

5.0 Variability and Uncertainty in Manufacturing Cost ...................................... 14 

5.1 Key Parameters ....................................................................................... 14 

5.2 Sensitivity Analysis .................................................................................. 14 

6.0 Conclusion ...................................................................................................... 17 
List of Figures 

Figure 1: Full Product Cost ..................................................................................... 3 

Figure 2: Manufacturing Cost Assessment Approach ............................................ 4 

Figure 3: Structured Bill of Materials ....................................................................... 5 

Figure 4: Fabrication Process Cycle Time Estimates ............................................. 6 

Figure 5: Fabrication Process Equipment and Labor Requirements ...................... 6 

Figure 6: Examples of Uniform and Triangular distribution Forms .......................... 8 

Figure 7: Differential Cost Estimates for Higher Efficiency Designs ....................... 9 

Figure 8: Full Production Cost Breakdown by Cost Category for High Efficiency 

and Baseline .......................................................................................... 1 O 

Figure 9: Full Production Cost Breakdown by Sub-Assembly Level for High 

Efficiency and Baseline Vertical Axis Designs ......................................... 1 O 

Figure 10: Overhead Cost Breakdown by Category for High Efficiency and 

Baseline Vertical Axis Designs ............................................................... 11 

Figure 11: Investment cost Breakdown by Major Manufacturing Processes ........... 12 

Figure 12: Sensitivity Analysis of Tooling and Equipment Investment.. ................... 13 

Figure 13: Sensitivity Analysis on Labor Rate ......................................................... 15 

Figure 14: Sensitivity Analysis on Actual Plant Output ............................................ 16 

Figure 15: Sensitivity Analysis on Equipment Depreciation Life .............................. 17 

ii 
List of Tables 

Table 1: Major Manufacturing Processes ................................................................... 5 

Table 2: Key Assumptions .......................................................................................... ? 

Table 3: Key Manufacturing Input Parameters and Monte Carlo Simulation 

Description .................................................................................................... 8 

Table 4: Greenfield Investment for an Annual Production Volume of 1.5 

Million Units .................................................................................................. 12 

iii 
Vertical Axis Baseline Clo.thes Washer 

Manufacturing Cost Assessment 

Phase II - Final Report 

1.0 Program Objective 

The main objective of this project is to quantify the differential manufacturing costs of 

producing high efficiency clothes washers based on ( 1) a proprietary Vertical-axis (V -axis) 

design, and (2) commercially available Horizontal-axis (H-axis) designs. The overall 

project consists of two phases: 

Phase I provides a detailed and objective cost estimate of a state-of-the-art, high volume, 

Y-axis washer as a baseline for further analysis. The major objective of this phase is to 

obtain stakeholder comment on the costing methodology and baseline costs. 

Phase II develops a differential cost estimate for the proprietary Y-axis design and for 

commercially available H-axis clothes washers, relative to the baseline clothes washer 

evaluated in Phase I. 

1.1 Program Status 

This report describes the final results of Phase II and the overall program. Several 

manufacturing plant visits were conducted along with process equipment and supplier 

interviews, complete teardown of 5 clothes washers, sensitivity and risk analysis, and 

incorporation of stakeholder suggestions from the March 11-12 workshop. 

1.2 Phase II Objectives 

• Use the manufacturing cost assessment methodology developed in Phase I 

• Provide a differential manufacturing cost estimate for a proprietary vertical axis design 

and two commercially available horizontal axis designs compared to the Phase I 

aggregated baseline estimate 

• Report the differential manufacturing costs as a range to maintain confidentiality of the 

data in the results 

• Obtain comment from stakeholders as to the "reasonableness" of the differential 

manufacturing cost estimates and assumptions 
2.0 Assumptions 

2.1 Definition of High-Efficiency Designs 

Three high efficiency clothes washers were selected for the Phase II differential 

manufacturing cost assessment. The two horizontal axis designs were both commercially 

available and the single vertical axis design was disclosed in prototype form by Whirlpool 

Corp. 

Two H-axis machines were disassembled, rather than one, in order to reflect product 

differences between manufacturers and to aggregate the actual component costs to 

maintain confidentiality. Each clothes washer was analyzed and costed separately. The 

costs were then averaged at the sub-assembly level and by category. Since different 

manufacturers have significantly different designs, sub-assemblies are defined by function 

(i.e. suspension, tub and basket, transmission and motor, etc.), rather than by specific 

components. The differential costs were calculated by estimating the costs of the 

proprietary V-axis design, and both commercially available H-axis designs then the 

aggregated cost for the baseline vertical axis machine was subtracted. Using Monte Carlo 

simulations of key model inputs (based on Phase I) a range of differential costs were 

generated for the high efficiency designs. The results were aggregated for the two H-axis 

designs and cost percentages presented by sub-assembly and by cost category. 

2.2 Manufacturing Assumptions 

The same key assumptions used in the Phase I analysis were used in Phase II: 

• An annual clothes washer production volume of 1.5 million units. 

• Capacity utilization at 95 percent. (Sensitivity to capacity utilization was conducted in 

order to understand the relative impact on the differential cost). 

• Investment for a "Greenfield" site, including all new equipment, tooling, installation, 

and building. 

• Non-dedicated equipment with a high degree of automation for the major fabrication 

processes (painting, stamping, welding etc.). 

• Complete manual final assembly to reflect the need for flexibility as multiple models 

are built. 

• Typical industry equipment costs, process cycle times and labor content 

It is understood that the cost of specific models or individual manufacturers will vary from 

this baseline, depending on elements such as the product's precise characteristics, actual 

manufacturing processes, and the product mix in the factory (multiple clothes washer and 

dryer models). Since the same set of assumptions is used in the Phase I analysis, 

differential cost estimate methodology reduces the impact of plant-specific characteristics. 

2 
2.3 Conventions for Manufacturing Cost Estimates 

The cost categories used to summarize the differential manufacturing costs developed in 

Phase II are the same as those used in Phase I which closely parallel the cost categories 

used in the AHAM data collection. Direct material, direct labor and overhead (including 

investment depreciation)' together constitute the full production cost. Other cost 

elements (SG&A, R&D, interest, etc.) are grouped under the non-production cost 

category. Together these costs make up the full cost of the product as shown in Figure 1. 

The manufacturing cost assessment will develop the full production cost estimates. Nonproduction costs will be added based on a top-down analysis of the industry. 

Full c(?st'ot Product 

Full Production Cost 1 

Direct 

Labor 

!. Direct 

Material 

,.. "'"' 

liidirect Labor 

Indirect Material 

Maintenance 

· Oepr9ciilti0n 

•Taxes 

1n5tir~rice related·. 

to a~sets 

Utilities 

Non-Production Cost 

Mkt. reS'earch 

AdVerti~lng ·,:;:-: ,_,., 

:'.pas promotion 

General·&• 

.Adrnin. 

~~,· 

se!Vice& 

1

'Slaff units 

• ~1e5 per~ri· .:< 

.oornP· t,!avet 

.General 

oorporalB 

'o0sts 

'~ romp. etc. 

Logi~ic;>·· 

. : Warehousing·. 

::· Delivery ·. 

:i!Aecord 

·· keeping 

R&D 

Costs 

associated . 

with.efforts ' 

tOfind new 

:o.. improved 

'J)roducts or· 

• flrodUctlon'.:; 

j)iacesses ··· 

Costs 

of.·<. 

borrowing 

.fUi\ds 

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

Figure 1: Elements of Full Cost of Product 

3.0 Approach 

The manufacturing cost assessment methodology described in Phase I and used to 

generate the aggregated baseline cost estimate, is a detailed, component-focused, activity 

based technique for rigorously calculating the manufacturing cost of a product (direct 

materials, direct labor and some overhead costs). This methodology has been 

successfully applied by Arthur D. Little to products at various stages of development, 

from early R&D to production. Figure 2 shows the three major steps in generating the 

manufacturing cost for the baseline and high efficiency designs. 

1 Overhead costs in the AHAM data collection do not include investment depreciation 

3 
Raw Fabrication Finished 

Materials Materials - Processes ~ 

Bill of - - Assembly 

Materials Purchased Parts Processes -- Figure 2: Manufacturing Cost Assessment Approach 

3.1 Bill of Materials (BOM) 

The first step in the differential manufacturing cost assessment was the creation of a 

complete and structured bill of materials from the physical tear down of three high 

efficiency clothes washers. To conduct the tear down, two H-axis clothes washers were 

purchased and completely dismantled and a prototype V-axis machine was dismantled and 

examined at Whirlpool, Benton Harbor, Ml. Each part was characterized according to 

weight, dimensions, material, and quantity. A separate BOM for each clothes washer was 

created. 

The BOM incorporates all materials, components, and fasteners with estimates of raw 

material costs or purchased part costs, as appropriate .. Assumptions on the sourcing of 

parts and in-house fabrication were based on previous industry experience, recent 

information in trade publications and discussions with major clothes washer 

manufacturers. To improve our understanding of the industry's current manufacturing 

practices, interviews and plant visits were conducted at major clothes washer 

manufacturing facilities (primarily during Phase I). These visits focused on observing and 

characterizing current manufacturing practices for the majority of the parts in the baseline . 

and high efficiency clothes washers. For internally fabricated parts, manufacturing 

processes were identified on the BOM for each component. 

Cost estimates for raw materials and purchased components were drawn from the Phase I 

analysis and where appropriate from Arthur D. Little's manufacturing databases, 

manufacturers and suppliers. Adjustments to the cost estimates for purchased parts and 

raw materials were made, as appropriate, to include price discounts typically available at 

the purchase volumes in question. Figure 3 is a section from the structured bill of 

materials of one high efficiency clothes washer. This section of the structured bill of 

materials lists the part number (arbitrarily defined during disassembly), description, 

material category, sourcing category (fabricated or vended), quantity, dimensions, weight, 

percent of scrap in processing, and estimated material cost. 

4 
.... I I Category I V I I OD or I ... Mu I I Pro! 1Neighl!lbs) I Scrap I Material 

No. Dtscriolion I I ? I • I 'Mdlh I Thknesa ThkOS$ I L•noth I .... I s1 .. 1 I -· I " I Cot.ts 

1.00 Tub & a.kit AIMmblv ,<·/?> .. ,,,. ' '"'·'·• ·,• ' "' .. ······ .'i•Y ··.· 

109 Rear of Tub pp 1 ?< 01 0.18 1' 49087 15"" S4.92 

···--· ~"'''"!'·l \;;::{ !\:<"';'{ .·. .. · . ··' ••.''.' 

1.17 Cover/Seal b' =- PPGf I I 1 I 9 I 0.1 01 I 01 I 54.00 I I 0.250 I S0.19 

1.10 Stidcer Msc V I 1 I 2 I I 5 I I I x 

1.Vi ~;, ·;. d A;~-: : '· . .~.:; ,, ...• .•.· '" , .. ~.' 

1.()6 TLl:>TlbSed foan v 25 0.225 0.058 SQ.34 

1.07 Front of Tub pp " n1 01• 9 '" 7• <:].QA 

1.08 Larae Screws Fa;tEra v 23 0.5 0.2 2.36 0.588 S2.30 

1.12 TLl:>f<areSed ffioctl Srnto v l 1.924 ,.,,•, S770 

1.13 Stiffrer PPGF l 10 0.115 0.115 15 15.00 0.184 S0.14 

1.14 RirYiSMSnirYJ SrrirYI v 1 9 0.037 0.186 0.090 Sl.58 

1.15 Disn:ric.erQrTTT 8aS 1 3.25 (1.08 1.25 0.010 L>. SO.OD 

109 Front Counterwetahl Brace GCRS 60 0.065 1.85 1.650 5% S049 

,<."?C, i r;· t.' ( <:-!! ~·: , ·:: '''. ''t t. ~ ·, ' ,.,, .. ,.' ' ' ,., :us ?c:;>: ~~''·'':!! ''-f< ;'-: ::; ~'-~ ' 

1.02 Fl s GCRS 10 1.34 0.06 1.55 0.346 5% so 10 

1.03 Bolls Fcstener V I 8 I 055 I 0.22 4.65 0.407 I Sl 20 

104 Washers GCRS I 8 I 1.25 I 0.06 I I 0.12 I I 0.158 I 15% I SOOS 

1.05 Lcdmuts Fcslme< V I 8 I 0.435 I I I 0.3 I I 0.062 I ·. ·1 S0.16 

... co 1.bl'.}~ t<.H'.·\< '' ,, ' l.11 Motor Screws Fcstener v 0.535 0.215 1.65 0.062 ''· S0.20 

;;;.'f; t.:<!'i•! i.;;:~'!' S·;~ ,\"-!,.> .. , ,., .,,, '' ' ., .. ·' ,'" ·.· ,' ,'"''··'· ."?·.< 

1.50 Basktt Sub-Au 

1.51 Recr Pen SS 22 0.00 1 2.778 20% S347 

1.52 Si<:eWdls SS 22 0.03 12 4.630 10% S514 

1.53 Fr01tP1ece SS 22 003 1 1.852 50% S3 70 •::A I'' r, -~·. ,,f~->~: -ul:.-i:>.'. '· " 154 SS Drive Svstem Bolts Fasteners 0 505 0.31 1.16 0 148 125 

155 A.artabr Koobs PPGf 2.5 0.08 013 95 23.75 0710 $0.54 

1.56 AnrtaklfScrews Fasteners 0.36 0.185 0.65 0.014 $0 13 

Fd::>Ass; 

Tctds 86 12.79S 24.690 $35.S9 

Figure 3: Structured Bill of Materials (High Efficiency Clothes Washer) 

3.2 Fabrication Processes 

After each detailed BOM was completed for the three high efficiency designs, the 

variations in the Phase I manufacturing processes were identified. The Phase I processes 

are listed in Table 1. 

Table 1: Major Manufacturing Processes 

Fabrication 

Fixturing 

Stamping/Pressing (Large, Medium, Small) 

Brake Forming 

Finishing Assembly/Joining 

Adhesive Bonding 

Spot Welding 

Seam Welding 

Cut & Shearing 

Machining 

Washing 

Powder Coating 

Enameling 

Deburring Integral Fastener (i.e. clinching) 

Other Fasteners 

Injection Molding (Large>1500 ton, Smalk800 ton) 

Casting 

Press Fitting 

Inspection & Testing 

Information on equipment and tooling costs, typical processing cycle times, and materials 

used for fabrication were copied from the Phase I analysis and additional data for 

processes variations were obtained from the ADL manufacturing databases and suppliers. 

The fabrication process cycle times were directly entered in the BOM and linked to the 

specific parts being fabricated. Each part had a processing time and labor cost assigned 

based on an overall labor rate. 

For this analysis $24.00 was used as the average fully burdened labor rate based on typical 

yearly wages and benefits for union employees. Sensitivity analysis was conducted on this 

parameter because labor rates can vary considerably, depending on geographic location, 

availability of skilled labor, and level of union representation. 

5 
Figure 4 contains an excerpt of the non-assembly processing times (seconds per process) 

associated with each component listed on the left. This section of the model has all the 

processes listed in Table 1, but for brevity a single page was presented in Figure 4. Figure 

5.is from the equipment summary section, which includes total equipment and summarized 

labor requirements for each fabrication process. 

1,09 Roar of Tub I 171 

1.17 Cover/Seal lor Caoe 

1.10 Sicker 

15{) 

1.06 

1.07 

1.08 

1.12 

1.13 

1.14 

1.15 

1.09 

1.02 

1.03 

1.04 

1.05 

1.11 

Tlb-TubSeal 

Front of Tub 

Lama Screws 

Tub·Frame Seal fBooll 

Slffner I 

Ana Seal..,........, 

Disoenser aarm 

Front Counlerweietlt Braoa 

f'laMAS 

Bdls 

Washers 

LocknU1S 

Mr>tor At:~>'v' 

Motor Screws 

I I 

74.0474681 

7.50 7.50 

11.098 I 

10.042 

I .. l.Mgo •. -m Snl' · •- ·Cul& · • Pllsticllold t-----..,.1.50=!:-Bu""'u"""l.;-Su.,...l>A,._11_._+-1--+-t--tl-------1. p,. ... '. P11• · ...... : .F .... · · ·SfliNF': "lleolllftO ~:'.;\l--:'~--+'='11oc1""1u=m"T--=5m1-=-1--t 

1.51 Rear PM 5.0 5.0 

1.52 ISkle Walls 25.0 SD SD 

1.53 Front Piece 5.0 5.0 

SS Drive $VI fem Bolts 

1.55 Acitator Knobs 10.601 

1.56 Aritator Saews 

I I I 

I Tolab 10 33 15 5 8 245 22 10 

Figure 4: Fabrication Process Cycle Time Estimates (High Efficiency Clothes Washer) 

· Manufaclull• .... •::&mall . 'llnlke Cut• ·. ~ij Plastlc lldd 

'.i)P19sa ·. Fonn Shear Mac:Hne' Medium SrnaD t-----+---+----+---+------t:ii'::!' u;;:n: Seconds 25 21 61 24 8 220 60 258 127 70 

# of Distinct Pans per Operation 5.00 5.00 17.00 6.00 3.00 3.00 20.00 4.00 14.00 22:00 

#Total E uioment RAnLiired forNon-Oedicatiii:t Use 3 3 7 3 1 22 6 26 13 B 

7 e ./ ·1 < .. •22"" "'· 20 "26 ... ModellnoutlDeoendsondedicationl • :'1'3 · • 3 ·" .. " 13 ;~<>s<··: 

#Peoole/Macline 1.50 1.00 1.00 0.50 0.50 0.50 0.50 1.00 1.00 1.00 

Actual #Clnorators Reouired ·. }"t ~~.·:,;3,.,<" .'·. 1 :', i/,~>tl"' 1-0 :',,, I'' ·13 ',/_8,~',ji 

Em.iomentDeorecialion ISMtNYear S.43 S.27 S.11 S.14 S.02 51.63 S.01 S2.63 S.44 S.12 

Total Eal.ioment Investment !SMM s9 ~ s1 s1 s s13 s s29 ss s1 

Material Cost/Unit 5.0 2.1 3.1 0.0 0.0 1.1 0.0 0.9 0.5 0.2 

Figure 5: Fabrication Process Equipment and Labor Requirements (High Efficiency 

Clothes Washer) 

3.3 Assembly Processes 

In the final step of the cost assessment, assembly times and associated direct labor costs 

were estimated. Assembly cycle times were primarily derived from reversing the 

disassembly of the selected tear-down clothes washers. The assembly sequence was built 

into the structured BOM, culminating with final assembly, testing and packaging. 

The structured bill of materials and manufacturing process summaries provide detailed 

direct material, direct labor, indirect material, and investment costs. Indirect labor costs 

were estimated by assuming a consistent indirect labor content from the baseline high 

6 
volume vertical axis washer. Although today's labor content maybe higher in the three 

high efficiency designs, we assumed that high volume production of these designs over 

several years would improve production efficiencies and result in an indirect labor content 

comparable to the current baseline vertical axis designs. In Phase I the indirect labor 

content was calculated to be on average 0.5 labor hour per unit which was added to the 

direct labor content derived from the teardown analysis. In Phase II we took the 

proportion of indirect to direct labor (32%) derived from Phase I and applied it to each 

high efficiency design evaluated. This resulted in an average indirect labor content for the 

high efficiency designs of 0.39 hours. The indirect labor is included in the overhead 

estimate, along with indirect materials, utilities, depreciation, maintenance, taxes, and 

msurance. 

3.4 Baseline Manufacturing Assumptions 

Table 2 lists the key manufacturing assumptions used in the baseline manufacturing cost 

assessment. 

T able 2: Key Assumot1ons 

Cateaorv 

Work Days per Year 

Averai:ie Shifts per days 

Runtime per Shift 

Lot Size 

Equipment Uptime 

Assembly Downtime 

Wai:ies 

Capital Recovery Rate 

Equipment Depreciation Life 

Total Plant Depreciation {includes buildinQ and conveyor) 

Maintenance 

Utilities 

Taxes 

Insurance 

Capacity Utilization 

*Fabrication, 2.5 Shifts, Assembly 1.0 Shifts 

**Building and conveyor - 23.5 year depreciation 

Assumption 

249 days 

2.0 shifts* 

8 hrs 

1 work day 

90% 

20% 

$24 per hour 

0% 

10.1 years** 

17.1 years 

4% of Equipment Cost 

1. 7% of Materials Cost 

0.9% of Factory Cost 

0.8% of Factory Cost 

95% 

These financial assumptions are based on general industry practices, determined from 

manufacturer interviews, 1992 U.S. census data, and internal Arthur D. Little sources. 

3.5 Cost Data Aggregation 

To preserve the confidentiality of the manufacturing cost data, we have aggregated the 

H-axis differential manufacturing cost and presented the results of the Whirlpool V-axis 

prototype and H-axis costs as a range. The range was generated by a Monte Carlo 

simulation on the key manufacturing input parameters to our baseline analysis. The input 

parameters and distributions are show in Table 3 and Figure 6. 

7 
Table 3: Key Manufacturing Input Parameters and Monte Carlo Simulation Description 

:!llKev , ,,,,-:&}:_~ R~ramet~r !}}*"" >', .;~ml ~r.;:m 4iwRr:i~i:!l~11~•11R.aramete~·~~nge ', "' iqk7"~ ~iEost i, :..~ mlc~l1walue , ~4""~""~ 

Labor Rate Unifonn 

Actual Plant Output Triangular 

Equipment Depreciation Unifonn Life 

Total Investment Triangular 

Maintenance Unifonn 

Equipment Uptime Triangular 

Utilities Triangular 

Baseline 

17 24 28 

Labor Rate ($/hr.) 

$17 to $28 per hour 

900,000 to 1.5 million 

7to15 

50%to 150% 

2.5%to 5.5% 

70%to 95% 

1% to 3.5% 

1.425 million 

100% 

4% 

90% 

1.7% 

"Most Likely 

Baseline"= 

1.425 million 

900,000 1.5 million 

Plant Output 

Figure 6: Examples of Uniform and Triangular Distribution Forms 

By using a range of differential costs we have provided sufficient data for DOE's 

engineering analysis to be completed but protected the confidential manufacturing cost 

data estimated for several clothes washer manufacturers. 

8 
4.0 Results 

Figure 7 presents the range of differential costs associated with the higher efficiency 

clothes washer designs. The cost range for the H-axis designs is based on the two 

machines that were dismantled and therefore has a much greater range ($104) than the 

Y-axis prototype ($44 ). The range of differential cost of the Y-axis prototype is at the 

upper end of the aggregated H-axis differential cost range. 

200 

180 Range= $146 to 190 

160 

Range= $71-$175 

140 ~ 

o; 120 0 

0 

~ 100 

c 

~ 80 

~ c 60 

40 

20 

0 

V·Axls Prototype Aggregated H·Axis 

Note: Range is based on 1000 trials for Monte Carlo simulations; aggregated baseline Vaxis unit cost Is constant 

Figure 7: Differential Cost Estimates for Higher Efficiency Designs 

Comparison of the higher efficiency designs with the aggregated baseline based on the 

cost categories used in the AHAM data submittal (direct materials, labor and overhead) 

indicates a marked increase in the percentage of direct material costs. Figure 8 graphically 

compares the three higher efficiency designs and the aggregated baseline Y-axis washer. 

Although the percentage increase is approximately 15%, on average, the direct material 

costs for the higher efficiency designs is nearly twice the direct material costs for the 

baseline Y-axis washer. A closer examination, at the sub-assembly level, of the full 

production cost of the aggregated H-axis designs and the Y-axis prototype identifies a 

significant increase in the percentage of costs for the pump, controls and valves. In the 

higher efficiency designs, the pumps, controls, and valves make up 30 to 40% of the total 

cost, while in the baseline Y-axis machines the pumps, controls, and valves account for 

only 20 percent of the total. These components clearly are a major cost addition in the 

high efficiency models. 

9 
-

8 

u 

c 

0 

:;::: 

u 

:II 

,, 

e 

A. 

"5 

"" 0 

-

c 

GI 

e 

GI 

A. 

100% 

90% 

80% 

70% 

60% 

50% 

40% 

30% 

20% 

10% 

0% 

Aggregated Baseline Aggregated H-axis V-axis Prototype 

CJ Overhead 

CJ Direct Labor 

•Direct Materials 

Figure 8: Full Production Cost Breakdown by Cost Category for High Efficiency and Baseline 

;; 

0 

" c 

~ ~ 

... 

. 

A. 

0 

c 

Q, 

~ 

100% 

90% 

80% 

70% 

60% 

50% 

40% 

30% 

20% 

10% 

0% 

Aggregated Baseline Aggragated H-axls V -ax Is Prototype 

EJM1sc. +Final Assy 

•cabinet 

cPump, Controls, & Valves 

•Suspension 

cTrans/Motor 

•Tub & Basket 

Figure 9: Full Production Cost Breakdown by Sub-Assembly Level for High Efficiency and 

Baseline Vertical Axis Designs' 

A breakdown of the overhead costs for the baseline V-axis and high efficiency designs is 

shown in Figure 10 with the key assumptions for each cost category. These costs are 

estimated based on the teardown analysis and typical values for the appliance 

10 
24% 

se;. 

:1F;;ltciist c&t~ory ,' ~,;iJi\IJ ll,-8asiS '"r*h ._, ihhv' 

• Indirect Labor Teardown and industry analysis 

• Indirect Materials Teardown analysis 

• Maintenance 4.0% of total capital investment 

D Utilities 1.7% of material costs 

!ill Depreciation T eardown analysis 

• Taxes 0.9% of full production cost 

Insurance 0.8% of full production cost 

Figure 10: Overhead Cost Breakdown by Category for High Efficiency and Baseline Vertical Axis 

Designs (Starting with indirect labor at 3 o'clock and continuing clockwise) 

manufacturing industry. We have included the overhead costs to more accurately predict 

the total differential cost of the higher efficiency designs, but the difference in overhead 

costs for the baseline and higher efficiency designs has a minor effect on the final 

differential cost estimates. 

Depreciation costs from fixed investments in equipment and tooling, a major overhead 

cost element, have been estimated based on the requirements derived from the component 

cycle times and production volumes. Production volumes, in conjunction with equipment 

process times, will determine the number of pieces of equipment necessary and the plant 

investment costs. For the sizing of the plant and the number of pieces of equipment, we 

have assumed an up-time of 90%. Table 4 shows the investment for a plant capacity of 

1.5 million units per year for the baseline Y-axis and the high efficiency designs. 

11 
Table 4: Greenfield Investment for an Annual Production Volume of 1.5 Million Units 

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 16.6 

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

years. 

The variation in investment between the baseline and high efficiency designs is explained in 

Figure 11: the percentage breakdown of the tooling and equipment investment. The 

investment costs are primarily driven by design choices and manufacturing process 

selection. The percentage of investment in machining operations for the aggregated V -

axis baseline is substantially greater than the machining investment for the high efficiency 

designs. Also the high efficiency designs differ in manufacturing process selection with the 

H-axis designs emphasizing injection molding operations more than the V-axis prototype 

which has a greater percentage of metal forming (i.e. stamping, bending, etc.). 

100% 

90% 

80% 

70% 

60% 

50% 

40% 

30% 

20% 

10% 

Aggregated V·Axls Aggregated H·Axls V·Axls Prototype 

Figure 11: Investment Cost Breakdown by Major Manufacturing Processes 

•coating 

CIStsmplng/Bendlng 

•Machining 

Dln)ectlon Molding 

•Fa ate nlng/Flx turlng 

The building investment currently assumes 1,000,000 square feet at $100/sq. ft. and 10.7 

miles of conveyor at an average price $185/foot. A multiplier of 1.6 (additional 40% for 

installation and 20% for auxiliary equipment) was used on the purchased equipment costs 

to calculate the total equipment investment. Because of the high volume production, hard 

12 
tooling is included in indirect material costs and is amortized yearly. We have assumed 

that the useful life of the equipment and building on average is 17 .1 years (which agrees 

reasonably well with the 1992 census of manufacturers) and we used a simple straight line 

depreciation assumption to calculate the yearly amortized per unit cost. These 

assumptions can vary greatly, and have a significant effect on the total investment and the 

depreciation element of the overhead costs. Figure 12 shows the impact of a± 50% 

variation in investments on the manufacturing cost differential for the aggregated H-axis 

and v-axis prototype designs. Although the variation in investment is large the high 

volume production and significant percentage of direct material and labor costs result in a 

relatively minor impact on differential cost. 

c 

2. 

fl 

$175.00 

$150.00 

() $125.00 

]i 

I 

$100.00 

$75.00 

50% 60% 70% 80% 85% 90% 95% 100% 105% 110% 115% 120% 130% 140% 150% 

Actual Investment Relative to Estimate 

Figure 12: Sensitivity Analysis of Tooling and Equipment Investment 

We have not included the cost of capital in the products full production cost, since this 

cost is an interest which is considered in the estimate of the non-production cost. For 

future analysis, the methodology can apply a capital recovery factor (CRF) to the total 

investment in order to estimate the yearly cost of capital, but at this time we have not 

included it in the baseline units full production cost. 

The full cost of the product, which includes non-production costs (SG&A, R&D, and 

interest, see Figure 1) were established for Phase I using the industry cost structure 

developed in an earlier study by Arthur D. Little. 

Phase II focused on full production differential cost, therefore we have not analyzed any 

differential costs in marketing, sales or research and development. This differential cost 

13 
element will be considered later during manufacturer impact analysis and evaluated using 

the Government Regulatory Impact Model (GRIM). The results of our differential cost 

analysis presented in this report consider full production cost only. 

5.0 Variability and Uncertainty in Manufacturing Cost 

Since the current differential cost assessment represents only a fraction of the clothes 

washer models available, and the estimates have inherent variability and uncertainty, we 

have conducted sensitivity and cost simulations to understand the impact of this variability 

and uncertainty on the differential manufacturing cost. This analysis will provide us with a 

greater understanding of the range of probable differential costs. We use primarily two 

methods to analyze the variability and uncertainty in the manufacturing cost assessment: 

• Sensitivity analysis is used to quantify the impact of variability and uncertainty for any 

one specific parameter. 

• To understand the interaction and impact of multiple parameters we use Monte Carlo 

simulations. This analytical technique allows us to input a range of data with 

probability distributions and generate an estimated range for the manufacturing cost 

with a quantifiable level of certainty. 

5.1 Key Parameters 

The physical teardown and activity based cost estimating conducted on the baseline and 

high efficiency clothes washers removes much of the uncertainty about materials, 

components, and manufacturing processes. Many of the manufacturing processes 

however, carry some variability based on individual manufacturers and product 

differentiation. This results in some variation in the total capital investment, the 

utilization of that capital, maintenance costs, and equipment uptime. Also average labor 

rates for different manufacturers can vary, so sensitivity analysis to determine the impact 

oh costs is warranted. 

In addition to the variability in for example, input parameters, .a certain degree of 

uncertainty accompanies the estimation of manufacturing process capabilities and 

equipment investment estimates. The impact of this uncertainty is quantified by using 

sensitivity analysis. 

5.2 Sensitivity Analysis 

Based on our Phase I analysis (we have conducted numerous) sensitivity analyses on the 

higher efficiency differential costs. We have identified the most appropriate and significant 

parameters that will impact full production cost and the significance of the variation on the 

engineering analysis. The sensitivity results are presented as a range for the v-axis 

prototype and aggregated H-axis designs to maintain confidentiality. 

14 
We have presented sensitivity analysis on labor rates, capacity utilization (plant output) 

average equipment depreciation life and investment (see section 4.0) since these 

assumptions have the most significant impact on product cost and are a major source of 

differentiation in the manufacturer impact analysis phase of this rulemaking. 

Labor Rate 

The 1992 Census data for household laundry equipment manufacturers indicates an 

average fully burdened labor rate of $18 per hour while some union wages could be as 

high as $28 per hour. Therefore, we conducted a sensitivity analysis of this parameter in 

order to understand the impact of this variability. 

0 

"' ::. 

1ii 

0 

$175.00 

$150.00 

0 $125.00 

]! 

E 

i 

$100.00 

$75.00 

17 18 19 20 21 22 23 

Labor Rate (USO/hr) 

Figure 13: Sensitivity Analysis on Labor Rate 

24 25 26 27 28 

The manufacturing cost model indicates that a $17 to $28 labor rate variation would result 

in approximately a $20 differential in full production cost. This variation is similar to the 

results obtained during Phase I sensitivity analysis. 

15 
Capacity Utilization(Plant Output) 

One important source of variability is the utilization of a plant's capacity. We therefore 

considered lower utilization of the 1,500,000 million unit per year Greenfield plant 

outlined in this study. The impact on differential cost of this production capacity range 

(900,000 to 1.5 million units) is approximately $20/unit. 

$200.00 

$175.00 

$150.00 

iS 

~ ;; 

~ $125.00 .!! 

i 

Cl 

$100.00 

$75.00 

.90 .95 1.00 1.05 1.10 1.15 1.20 1.25 1.30 1.35 1.40 1.45 1.50 

Actual Output (Mllllons of Units per Year) 

Figure 14: Sensitivity Analysis on Actual Plant Output 

Equipment Average Depreciation Life 

The depreciation life of a piece of manufacturing equipment has been investigated, and 

there still remains a significant degree of variability between manufacturers. To 

understand the impact of this variability, we conducted sensitivity analysis. 

16 
.. 

• 

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CJ) 

2. 

u; 

$175.00 

$150.00 

~ $125.00 .!! 

'C 

I!! 

~ c 

$100.00 

$75.00 

5.0 6.0 7.1 8.1 8.6 9.1 9.6 10.1 10.6 11.1 11.6 12.1 13.1 14.1 15.1 

Actual Equipment Life (Years) 

Figure 15 Sensitivity Analysis on Equipment Depreciation Life 

We assumed that the average depreciation life on the equipment could vary from 7 to 15 

years, which translates into a cost differential of approximately $11 

6.0 Conclusion 

Arthur D. Little has completed the manufacturing cost assessment of a Y-axis baseline 

clothes washer and the differential manufacturing costs of several high efficiency designs. 

Our estimate of the full production cost of the baseline vertical axis washer was $202. 

The differential cost for the H-axis designs range from $71 to $17 5 depending primarily 

on design and variations in key input parameters (see Table 3). The high efficiency 

vertical axis prototype differential cost varies from $146 to $190 based on variations in the 

same manufacturing parameters. The wide range of costs in the H-axis concepts are 

driven by the individual product features and attributes.· In general, the differential 

manufacturing cost for the higher efficiency designs is based on performance and product 

features and not strictly efficiency improvements. 

17