Manufacturing
Overview
Applying Technical Cost Modeling to
the Metals Industry
Ravi Bhatkal and John Busch
Technical cost modeling is a methodology
that breaks cost down into its constituent
elements and estimates these elements based
on sound, validated principles. In any new
technology deployment where cost is an im-
portant maxim of business success—gener-
ally, all situations—cost modeling can and
should be part of the process. This article
discusses the application of technical cost
modeling to the demands of business devel-
opment in metals processing.
INTRODUCTION
Successful companies continually ex-
periment with new technologies, not all
of which are successfully adopted, but
which collectively underpin the success
of these organizations. Sometimes these
innovations are revolutionary, such as
the displacement of open hearth steel-
making with the basic oxygen furnace
process. Other times they are incremen-
tal, such as the adoption of digital pro-
cess controls in place of analog control
systems. In either case, continual pro-
cess innovation is essential, but also ex-
pensive. Adopting a new manufactur-
ing process or process improvement in
most manufacturing industries costs
thousands to millions of dollars and takes
months to years to complete.
One of the critical questions asked in
the analysis of a new technology is its
cost relative to the current way of doing
things. In fact, it can be argued that this
is the critical factor regarding a
new technology. To answer this
question, an apples-to-apples Material
comparison of technologies,
Weight
decoupled from traditional busi-
ness accounting based costs, is Wages
essential. Technical cost model- Material
ing, a computer modeling tech-
Wall Thickness
nique developed by IBIS Associ-
ates, allows such analysis. Weight
TECHNICAL COST No. Cavities
MODELING
Modeling the cost of a manu- Production Volume
facturing process is an exercise
Scrap Rate
in modeling the components of
cost and then summing these Projected Area
components. A good manufac-
turing cost model will predict Wall Thickness
the costs of materials, labor, and No. Cavities
other factors consumed by the
process and provide this infor- Figure 2. A semi-solid forming model logic.
1998 April • JOM
mation before an investment is made in
a prototype or pilot production facility.
To illustrate this concept, consider the
techno-economic position of semi-solid
forming, an emerging technology with
potential uses in a wide variety of appli-
cations. There are many new business
development opportunities that might
involve semi-solid forming technology;
having the capability to model this pro-
cess and predict the costs that will result
is a strategic advantage to any effort.
Technical cost modeling is a four-step
methodology that can be applied to
model the costs of semi-solid forming or
any other manufacturing or nonmanu-
facturing process. The four steps of the
process are define the process, establish
the model logic and framework, gather
information and develop relationships,
Figure 1. A semi-solid forming process flow.
▲
Scrap Material Cost
▲
▲ Cool Time
▲ ▲
▲
▲
Cycle Time Labor Cost
▲ produced, the process being
Machine Utilization Equipment Cost
▲
▲
▲ environment in which the pro-
Clamps Force
▲
▲
Machine Investment
and validate the model and extract in-
sights.
Defining the Process
Defining the process is a matter of
establishing the major sequential steps
involved from the start to the finish of
the process. A process flowsheet, preva-
lent in most manufacturing environ-
ments, is perhaps the best means of
definition (Figure 1).
Having a clear definition of the pro-
cess that is being modeled is important
for two reasons. First, it directly defines
the structure of the model that will be
built. Second, it indicates which of the
many central and incidental activities
associated with the business’s operations
are included in the analysis and which
are not. For example, a flowsheet of the
semi-solid molding process defines
whether or not operations for trimming,
inspection, packaging, and shipping the
finished product are included.
Defining the process is a critical first
step in the modeling exercise. With too
much detail, the resultant model will be
difficult to develop, debug, and apply;
with too little detail, the answers gener-
ated by the model may be misleading or
incomplete.
Establishing the Model Logic and
Framework
After defining the scope of the pro-
cess, a model logic can be devel-
oped for each of the steps. An
example of a model logic is
shown in Figure 2 for the main
forming step of the semi-solid
forming process. This logic con-
sists of a series of equations that
relate input factors to intermedi-
ate computed values and to final
elements of cost. In this example,
the input factors are a set of vari-
ables relating to the part being
employed, and the economic
cess is taking place. A shared
characteristic of all input factors
in a good cost simulation model
is that they are all easily estab-
lished or estimated. Intermedi-
ate computed values in a cost
model are the set of variables
27
 $5.00 SSM
nical literature. Unfortu- input parameters. For instance, as the
Material Cost nately, there is a general thickness of the assumed part is in-
Die Casting
$4.00 Direct Labor Cost reluctance to publish cost creased, does the cycle time increase
Part Cost ($)

Utility Cost information, but pub- proportionately, exponentially, or loga-

$3.00 Equipment Cost lished information is of- rithmically? As annual production vol-
Tooling Cost ten available for the in- ume is increased, does the cost per unit
$2.00 Building Cost termediate technical decrease? Examining the sensitivities of
Maintenance Cost variables, such as process a model is often the best means for iden-
$1.00 Overhead Labor Cost rates and yields. An tifying flaws in the code or logic.
Cost of Capital emerging source of valu- In the example shown, semi-solid
$0.00 able secondary informa- forming appears slightly more expen-
a tion is the Internet, which can often pro- sive than die casting due to higher raw
16 vide not only useful information, but material costs resulting from the use of a
Dedicated Equipment Assumption also direct connections to more valuable thixocast billet. Based on these model-
14 primary sources. ing assumptions, there is no clear cross-
Semi-Solid Forming
Data derived from first principles over point where semi-solid molding
12 Die Casting
Cost Per Piece ($)

10
8 may be theoretically sound, they must
6
4 the case that a situation-specific nuance
2 theoretical optimum.
0 500 1,000 1,500 2,000
Annual Production Volume
b
Figure 3. The (a) cost structure of semi-solid
forming vs. die casting and (b) the cost sensi-
tivity of semi-solid forming and die casting to
annual production for a door handle part.
that directly influence costs, but are not
easily known or estimated at the outset.
For instance, the uptime, yield, or cycle
time of a process may not be known, but
can be estimated through known or de-
veloped relationships. Elements of cost
include materials, direct labor, energy,
equipment, tooling, and other factors,
which together represent the total cost.
Gathering Information and
Developing Relationships
Gathering the data to populate a cost
model is by far the most time-consum-
ing and critical step in the methodology.
The adage “garbage in equals garbage
out” is especially true in cost modeling.
There are many sources of data, and all
of them should be tapped to insure the
greatest accuracy of results. These
sources are broadly divided into three
categories: primary, secondary, and de-
rived. Data derived from all three sources
should be cross-checked to look for con-
flicts and inconsistencies.
Primary information comes from di-
rect, person-to-person contact with indi-
sources include factors such as cooling
times, solidification rates, and equip-
ment size requirements. While these data
always be cross-examined from the view-
point of business practicality. It is often
will define the variable, rather than its
2,500
Validating the Model
If gathering the data is the most diffi-
cult step, validating the model and ex-
tracting insights from it is the most im-
portant step. A model is validated by
comparing its output with known or
expected values. For instance, with the
semi-solid forming model, a compari-
son can be made with the costs of pro-
ducing an established component. Both
cost structure and cost sensitivities can
be modeled for semi-solid molding and
for the competing processes. Figure 3
shows the cost structure and a cost sen-
sitivity comparison of semi-solid form-
ing and die casting for a generic alumi-
num-alloy door handle part over a range
of production volumes.
Of equal importance, the intermedi-
ate computed variables within the model
can be compared with known standards.
For example, the predicted cycle time
can be compared with the actual time
required to produce a production part.
When known standards are not avail-
able, a model can be partially validated
by checking its behavior to changes in
Non-Dedicated Equipment
$6.00
Semi-Solid Forming
Die Casting
$5.00
Cost per Piece ($)
becomes cheaper. In this analysis, it was
assumed that a direct substitution of
semi-solid forming for die casting would
occur. The attraction of semi-solid form-
ing, however, is that it can produce higher
performance parts, particularly in terms
of mechanical properties; a direct substi-
tution of a semi-solid molded part for a
die-cast part is hardly reasonable, un-
less the die-cast part was significantly
underdesigned and prone to failure.
Therefore, the next logical question be-
comes, how much lighter than the die-
cast part does the semi-solid molded
part need to be before it becomes cost
competitive? The answer is not obvious,
and requires insight provided by the
model. An example of such an insight
extracted from the cost model is shown
in Figure 4. In this example, the cross-
over point where the weight of an semi-
solid molded part allows it to compete
with a die-cast part is shown; a weight
reduction of 17% must be realized be-
fore substitution can be justified on pure
economic grounds.
CONCLUSIONS
The prescribed methodology for mod-
eling costs can be applied to any process.
In developing technical cost models,
there are two ingredients of major im-
portance—data collection and experi-
ence. Since a model is no better than the
data on which it is based, data collection
should constitute at least two thirds of
the activity of modeling a process. Expe-
rience is important in validating the data,
in drawing on lessons learned from simi-
lar situations, and in injecting plain com-
mon sense into analytical exercises.
ABOUT THE AUTHORS

viduals knowledgeable about the pro-
cess being modeled or an element of the
process (e.g., energy consumption or
equipment sizing). Primary information
sources include equipment suppliers,
materials suppliers, service providers,
direct competitors, and the customers of
competitors—anyone with direct knowl-
edge of the process.
Secondary information is extracted
from the published literature, including
patents, promotional literature, and tech-
Ravi Bhatkal earned his Ph.D. in materials
science and engineering at Rensselaer Poly-
$4.00 technic Institute in 1995. He is currently a
project manager at IBIS Associates.
John Busch earned his Ph.D. in materials
$3.00
science and engineering at Massachusetts
Institute of Technology in 1987. He is cur-
▲ rently president of IBIS Associates.
$2.00
400 0600200 800 1000
For more information, contact Ravi Bhatkal, IBIS
Part Weight (Grams) Associates, 55 William Street, Suite 220, Wel-
Figure 4. The equivalent cost crossover point lesley, Massachusetts 02181; (781) 239-0666;
for semi-solid forming part weight. fax (781) 239-0852; e-mail rmbibis@aol.com.

28 JOM • April 1998