Most manufacturing businesses are under continuous pressure to minimise costs. Production engineers and management usually have a few ideas on how to improve processes and equipment, but are always under time constraints when it comes to managing the daily flow of tasks. By Alexander Berdyshevski.
One quite common approach is to invite a potential supplier of the services required, explain an improvement idea, and ask for a quote. It usually works well for a simple straightforward application, but for complex cases this approach presents the number of issues. The main cause for all the issues listed below is the high level of uncertainty of project details on this stage.
Automation/integration engineering projects usually face a number of possible solutions – for example variable levels of automation require different capital spending. Attempts to lock in a single solution without investigating all the possible options carry a risk of going along the less efficient path. Adjustments during project implementations are always costly and very stressful for both customer and supplier. A single-option approach can also be a show-stopper if the capital cost is hard to justify for the current business needs.
High levels of uncertainty present a challenge for potential suppliers. To insure themselves from potential losses there has to be a large safety margin allocated in the estimation to cover the unknown variables. In some cases the resultant price estimates reach a level where project becomes unviable. But if a potential supplier reduces the safety margin to win the tender and runs out of the funds in the middle of the project it can cause a stalemate for the project.
In conclusion: if a quote is requested at the very start of the project, the high level of uncertainty can create multiple unfavourable scenarios, where a business misses the opportunity to implement the project, selects the less efficient option, or incurs funding issues during implementation stage.
A common practice to minimise the uncertainty during quotation stage is to develop a document outlining user requirements. This document is always very helpful during the project estimation stage, but it still does not provide the level of detail to significantly minimise design uncertainty. It also does not allow options to investigate multiple options for the most efficient solution.
Implementing a conceptual design stage before requesting a final quote provides a number of benefits to the business.
The purpose of the conceptual design stage is to generate a few possible conceptual solutions with sufficient level of details to allow evaluation and selection of the most efficient option in a specific business environment. The usual scope includes time studies, process details calculations, manufacturing lines layout, basic 3D modelling, simulations, preliminary capital spending estimations, expected saving and payback, and net present value (NPV) calculations.
Increased levels of detail after the conceptual design stage make it easier for potential suppliers to provide an estimate with reasonable accuracy. In some complex cases proposed engineering solutions may be associated with high implementation risk. It makes sense to include prototyping in the conceptual design stage to prove the proposed design solution.
One of the additional benefits of the conceptual design stage is an improved justification of the project to the management due to the high level of details. Our experience demonstrates that expenses associated with conceptual design stage have a quick payback.
In one recent case, initial quotations for the automation project were between $550k and $700k, which made the project unviable. After a conceptual design stage where three options were generated, the most suitable one was selected, with capital requirement of $350k and payback under two years. Provision was made to implement a certain design solution to undertake stage 2 of the project later on if business conditions are changed. The conceptual design stage cost was less than $8k, with payback estimated at under one month, and the additional benefit of making the project viable.
In another example, conceptual design demonstrated that the original user requirements were not providing the best possible solution. As a result, payback was reduced from four to 1.8 years.
Even if the result of the conceptual design stage is negative – for example, if the decision was made not to proceed with any options – it still produces an important piece of knowledge and protects the business from making the wrong decision, for a minor cost compared to the overall cost of the project. The resulting documentation will also be valuable in the future if business conditions change.
Alex Berdyshevski is the Owner and Principal Engineer at Manufacturing And Design Solutions
Bosch Australia
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