The Economics of Lights Out Manufacturing

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The Economics ofLights Out Manufacturing

• David O. Kazmer, PE, PhDUniversity of
  Massachusetts Lowell

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Modern Manufacturing
3
Cost Structures
TotalProduction Costs
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Cost Parameters

• Cost parameters N.E. China
• Operator labor 13/hr 0.70/hr
• Eng/Mgt labor 30/hr 3/hr
• Energy cost 0.08/kWh
• ABS resin 1477/ton 950/ton
• Machinery cost 30/hr 15/hr
• Facilities cost 7.00/ft2 4.20/ft2
• Maintenance rate 10 20

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Injection Molding Economics

• Case Study for a Mid-Sized Molder
• 200 million parts per year
• Average part weight 10g

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Obsolete Molder

• 8 cavities/mold with cold runners
• Poorly selected hydraulic machines (26 kW)
• 50 seconds per cycle (optimistic)
• Cooling issues semi-automatic
• 95 quality level (optimistic)
• 1 operator per 1 machine
• 1 eng/mgt per 15 operators
• 2 shifts, 5 days per week
• 4 hour setup per 10,000 parts

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Obsolete Molder Characteristics
Operators
Machines
Eng/Mgt
Energy Use
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Standard Molder

• 16 cavities/mold with 50 hot runners
• Well selected hydraulic machines (30 kW)
• 45 seconds per cycle (optimistic)
• 98 quality level (optimistic)
• 1 operator per 2 machines
• 1 eng/mgt per 15 operators
• 2 shifts, 5 days per week
• 2 hour setup per 10,000 parts

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Standard MolderCharacteristics
Operators
Machines
Eng/Mgt
Energy Use
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Lights Out Molder

• 32 cavities/mold with hot runners
• Electric machines (35 kW)
• 35 seconds per cycle
• Fully automatic including crating, etc.
• 99.9 quality level
• 1 operator per all machines
• 1 eng/mgt per all machines
• 3 shifts, 7 days per week
• 0.5 hour setup per 10,000 parts

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Lights OutCharacteristics
Operators
Machines
Eng/Mgt
Energy Use
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Comparison

• New England

• China

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Head to Head Competitive Assessment
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Validation World Production

• US Plastics industry went from surplus of 894
  million in 2000 to a deficit of 1,387 million in
  2002
• A swing of 2,281 million.
• In 2001, China exported 6bn of fabricated
  plastic products last year.
• In 2002 China doubled the volume of its exports
• China also exports plastics in many other forms
• China is world's largest petrochemical importer
• Chinese petrochemical demand is doubling every 8
  years.

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Validation Molded Utensils

• In 2003, US imported more than 100bn plastic bags
• A coalition (Intelplast Group, PCL Packaging and
  Sonoco Products) claimed that Asian countries
  were flooding the US market with below-cost PE
  bags and demanded an anti-dumping duty
• In September, the US Interl Trade Commission
  determined that "there is a reasonable indication
  that a US industry is threatened with material
  injury by reason of imports of polyethylene
  retail carrier bags from China, Malaysia and
  Thailand that are allegedly sold in the United
  States at less than fair value".

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Investment, Risk, Specialization

• Lights out costly to achieve in lower volume
  applications
• Sensing quality control protocols
• Robotics materials handling
• Scheduling switchover
• What volumes make sense?
• Existing plant or green field plant?

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Break Even Comparison
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Risk Factors

• Volume wont materialize
• Application may be yanked
• Investment in technology wont work
• Time value of money not realized

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Manufacturing Strategy

• Enter long term contract, give concessions

• Make strategic investment in lights-out

• Develop long term relationships
• Contract stability
• Rational quoting
• Risk/profit sharing between customers suppliers
• Specialize in technology/application area
• Unique capabilities knowledge
• Fewer competitors
• Focused set of manufacturing tools
• Reduction re-use of investment

• Redefine standard procedures

• Quote based on new cost structure

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Summary

• Two primary drivers in marketplace
• Technology drives molder productivity
• Internationalization consolidation enables
  leverage
• Future shock for custom molders
• High volume applications go lights out
• Definition of high volume going down
• Profit margins driven by manufacturing efficiency
• Lower volume applications will remain
• Sampling, point of use, specialty applications
• Profit margins widely variable