Feasibility Studies and Costing Models
for Composite Products
Feasibility studies and costing models are aimed at product developers who need to move their composite product's concept into an economic frame work that can be incorporated into a business plan.
Typically this occurs when a new product concept is preparing for commercialization and requires the involvement of investors and team members.
In general, a full Feasibility Study includes Costing Models that cover several different cases along with additional analysis to flush out the economic viability of a new product concepts. This viability information can take the form of preliminary structural models, equipment specifications, material specifications, potential suppliers, and potential manufactures.
The costing model works by recording the accumulation of manufacturing cost as the composite component travels through the production stages. This shows the investment of material, labour, and equipment at any point in the production process. This costing method has advantages for many of the team members typically involved.
- Why pay for it when I can get quotes for free?
- Thorough Understanding of the manufacturing economics
- Everyone on the Same Page
- What's in it for Product Development team members?
- What's in it for Financial team members?
- What's in it for Sales team members?
- What's in it for Production team members?
- What's in it for Quality Control team members?
- What's in it for Investors?
- What's in it for Suppliers?
The most frequent pit falls for new product development is the economic justification, or rejection, is based only on data from free quotations. The following points highlight the downfall of this reliance.
- Thoroughness and Padding:
Unless you have a history with the supplier, and your product can generate immediate and substantial business for the manufacturer, the manufacturer can rarely merit allocating the sales resources required to provide a comprehensive costing. Given this is the case, the free quotation will likely be inaccurate or generously padded.
With the above in mind it is generally impossible to separate out the amount allocated in the quotation for uncertainties associated with both the developmental nature of the product and the thoroughness of the quick shallow quotations.
In the end this thoroughness and padding can break the economic indicators particularly when making decisions beyond the prototype stage into higher production volumes.
This is always an issue with free quotations. It is usually required to sent out several Requests For Quotes (RFQ) before receiving a response back. With new developmental concepts, intellectual property rights are fragile and susceptible to being derailed by disclosing sensitive patent information in these RFQ prior to a Provisional Patent application or the final Patent Application.
Free quotations are in general limited in their openness, because either the manufacturer may have not worked out all the details or they would like to protect their time investments by limiting the disclosure on the specific manufacturing steps.
Other aspects that is rarely disclosed is profit margins. Costing models expose suppliers profit margins that are associated with the manufacturing of new products. This exposure creates an open dialogue that allows all parties involved to achieve their prescribed profit margins while also preventing distrust between team members, and allows members to address problems directly without jeopardizing their associated margins.
- Limited Offerings:
Manufactures supply free quotation to generate business specific for the processes they have in-house, or in their sister companies. For a new product's success it is important to choose the best suitable process from the whole industry rather than narrow the selection to a few processes.
- Thoroughness and Padding:
A thorough understanding of your products manufacturing steps is important in maintaining your quality, flexibility in sourcing, and maintaining your market place advantage.
It is often the case where key marketing features in the new product concept will have some positive or negative consequences to the costing. Unfortunately, even though it would benefit the new product, manufactures will rarely disclose the costing of individual steps in enough detail for a product developer to weigh out the cost relative to the importance of key marketing features.
In the long term view, product developers also need to be aware that manufacturers, for their own efficiencies, tend to revert to prior practices. If this does not coincide with the needs of the new product and is left unchecked by a knowledgeable product developer, it can lead to quality control problems and a loss of marketing differentiators. Return to Index
A feasibility study is the catalyst for engaging stakeholders at the start of the development process. This allows for cross pollination and early team member participation for identification of problems, implications, and potential marketing opportunities. Return to Index
The costing model gives a detailed look into the cost of individual design components and the implication of adding design features. Also the accumulation of cost through the different production stages and with each different component helps gives a financial perspective to tight tolerance, and tolerance stacking requirements. With this costing information the development team can then optimize which components are to be considered for tight tolerances in efforts to limit potential financial losses from QC rejection. Return to Index
Gives heads up on areas that may require financial and purchasing attention for raw materials, components, and equipment for meeting the products financial and timing benchmarks. The study also provides correlations between capital supplied to the final product cost on the different stages: prototypes, first off's, low volume and mass production runs. The costing models also supply variable and fix costs to help with assessing long term financial flexibility Return to Index
Provides an early heads up on the sales targets required for the new product line to meet its economic indicators with respect to first off's, low volume production, and mass production runs. Gives the Sales members the ability to provide input on product features increasing the new product's appeal to potential clients. It will also show the effect of such requests on the products cost. Return to Index
Gives early information of processing steps required to produce the new product line along with equipment list, material handling requirements, and staffing required at the different stages of the production line. The costing models also shows the critical path which determines the end production rate and the costing model provides the accumulation of cost to give production the information required to decide at which point to scrap, or repair, components that fall out of specification. Return to Index
The accumulating cost which is embedded in components moving through the production process is an important aspect for quality control. Using this knowledge and working along side the Product Development team enables Quality Control members to identify problematic tolerance stack-ups and limit potential financial losses due to QC demands. Return to Index
Investors benefit in several ways. Primarily they can take comfort in the detailed cost disclosure which is available for full scrutiny. Feasibility studies also include preliminary assessments outlining areas of potential production and structural problems. Investors also have access to the timing for capital financing and the amount of capital required to move the product line from prototyping, first off's, low volume run, and to the end goal of mass production and full commercialization.
Sharing the feasibility study and costing models with the suppliers and manufacturers gives them an early indication of the product development direction and the base production information. The feasibility study also infers to the suppliers and manufacturers the product developers level of seriousness. Access to costing model data will allow them to quickly assess their level of interest. If interested, costing models will allow them to focus their allocated quoting time on costing refinements and reducing their level of uncertainty.
For the protection of intellectual property rights, all of the above can be done within one year after the Provisional Patent application but prior to the final patent. This helps to eliminates the confidentiality problems with any suppliers and manufacturers. Return to Index