.H 1 "Cost Of Having An Extra Board In The Production"

I spent some time looking into what it cost to have a board in production
and the field.  This was done to try to quantify the cost of doing two
boards for two products as opposed to having one board that could be used by
both products.

The areas that were looked at were inventory, manufacturing and service.

.H 2 "Inventory"

I talked to Phil Harris in accounting to get an idea what it does to production
cost to have to have inventory and FGI for two boards as opposed to one.
He discussed this with his supervisor and they concluded that the savings
would be very small.  It would take many hours work to figure out the
exact savings for a given board.  They did do this in the past for a product
design and found very little savings.

Note: This was a non-biased opinion.  I did not let them know what answer I
was looking for.

.H 2 "Production"

I talked to Greg Herman in production about the production cost of having an
extra board.  His opinion was that there would be no significant extra cost
due to having an extra board (other than setting up production).  There were
other factors that were more important like having well documented, clean
design with dependable sources on all the parts.

.H 2 "Service"

I talked to Rick Greer in service to get an idea of the service cost of having
an extra board.  There are two areas that will be effected by having the
extra board. The first is the board exchange price which will effect the
annual repair cost (ARC) and the second is the holding cost of keeping the
field stocked.  I will discuss both of these with an example that uses
a board with a factory cost of $250, a selling price of $1000 and a failure
rate of 1%.

.H 3 "ARC"

I have attached a work sheet that is used to determine the the exchange price
for boards.  I assume that the average part cost $5 and the board take one hour
to repair.  I will assume that the the service call will cost $300.  The table
below shows the cost of a service call and the average ARC for the example
board.

.DF
.TB "ARC For Different quantities of $1000 board with 1% AFR"
.TS
center tab(\) box;
c|c|c|c
l|n|n|n.
Number of Boards\ Exchange Price\ Repair Cost\ Average ARC
_
100 Boards/month\ $525\ $825\ $8.25
500 Boards/month\ $320\ $620\ $6.20
2500 Boards/month\ $230\ $530\ $5.30
.TE
.DE

This table shows the savings for having higher quantities.

.H 3 "Holding Cost"

Rick Greer talked to two people to get an idea of what the holding cost is for
having a board in the field.  He talked to a person in charge of controlling
the inventory in the field to find out how many boards need to be stocked
in the field.  He estimated this to be 145 board.  He talked to Ed Miller,
the manager of CEO, to find out what the holding cost percentage was.
He said to use 25%.  This was to cover lost boards, floor space,
obsolecence, and opportunity cost.  (Realize that they do make some money
on a board when they sell it.)  These cost are all based on customer cost
and so it is necessary to divide by 4 to show how the compare to factory
cost.  The table below shows the holding cost (converted to factory cost)
for different quantities of boards.

.DF
.TB "Holding Cost"
.TS
center tab(\) box;
c|c|c|c
c|c|c|c
l|n|n|n.
Number of Boards\ Annual Holding Cost\ Per Board Cost\ Factory Cost
 \ 145XExchange Price\ Divide by # of Brds\ Divide by 4
_
1200 Boards/year\ $19000\ $16\ $4
2400 Boards/year\ $19000\ $8\ $2
6000 Boards/Year\ $12000\ $2\ $.50
12000 Boards/Year\ $12000\ $1\ $.25
.TE
.DE

I have attached a plot of additional factory cost vrs. sales/month.  It also
shows what happens if the failure rate goes to 2%/year.  The step happens
sooner because there are more boards to repair.  The ARC would of course
go up a lot.


