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«COST EFFECT OF COMPONENT COMMONALITY: MANUFACTURING COST PERSPECTIVE Jouni Lyly-Yrjänäinen Tommi Lahikainen Jari Paranko Tampere University of ...»

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The company is planning to offer the standard roll conveyor modules in several different lengths and in three different widths (400, 500, and 600 mm). The modules can then be used for assembling different conveyor systems according to customer requirements. In driven roll conveyors, the case company has started to use a so-called flat belt drive, in which a plastic belt moves below the rolls and causes them to rotate. The drive, on the other hand, is attached to the conveyor by means of a subassembly called Figure 2. Roll Conveyor.

a motor support.

3.1 Evolution of motor supports The evolution of motor supports is illustrated in Figure 3. The motor support earlier used in project deliveries is Version 1. It consists mostly of sheet metal parts that are manufactured with a laser and then welded together. However, the number of parts and components is rather high and the case company management has not been completely satisfied with its performance either. Furthermore, manufacturing costs turned out to be much higher than expected when modeled by the researchers. New and innovative ideas were needed for improving the subassembly.

A completely new way of thinking about a motor support was introduced by the sales director, i.e. Version 2. Instead of a sheet metal frame, axles identical to those used also for the flat belt at both ends of the conveyor form the body of Version 2. With that innovation, the number of parts in the subassembly is reduced dramatically. The core of the motor support is a thick steel plate, i.e. body sheet, that is welded to the axles and which the motor and gearbox combination is bolted to. A hole has been made for the drive shaft that goes through the body sheet. For different gearboxes, several sets of bolt holes were needed, which, however, was not a problem. Two standard gearboxes were selected and holes were machined for each one. Thus, with two sets of holes, both standard gearboxes could easily be attached to the same body sheet. Despite the new and innovative ideas, Version 2 presented an unexpected problem. When the size of the gearbox increases, also the length of the drive shaft increases, and when that happens, the drive wheel is no longer in line with the flat belt. So, if that Version were used, one motor support would be needed not only for each conveyor width but also for each gearbox. Thus, enabling two different gearboxes to be attached to the same motor support did not seem such a good idea after all.

–  –  –

The technical director came up with an innovative solution to the problem, i.e. Version 3.

Instead of welding the steel plate to the axles, two ferrules would be welded to it. The ferrules would enable the steel plate to be attached to the axles according to Figure 3. When the drive shaft length increases, the body sheet and thus also the drive wheel can be repositioned to the right place by moving the steel plate parallel with the axles, which is illustrated in the rightmost picture in Figure 3. The body sheet is fastened to the axles with the bolts in the ferrules.

The innovation also enables the body sheet to be attached to the conveyor in the assembly phase, which means that different conveyor widths would not need separate motor support subassemblies either. Therefore, because of the standardized construction, only one motor support subassembly is needed for attaching all the standardized drives to all the roll conveyor widths used by the case company.

The impact of different constructions on component commonality can be estimated by comparing the Bill of Material (BOM) of each version. Table 1 illustrates the changes taking place between the different versions. The table shows the number of parts (how many parts the subassembly has in total), the number of components (how many different parts, i.e. ID codes, the subassembly has), the number of subassembly-specific components (components used only in motor support subassemblies), and the number of common components (components used in other products or subassemblies as well). All these measures, in the end, give some background information regarding component commonality.

–  –  –

Version 1 has 36 parts and 19 components, most of which are subassembly-specific. With Version 2, the number of parts and components decreases to a third. However, considering component commonality, the number of motor support specific components drops to two, but at the same time two additional common components are needed. With Version 3, all the measures increase slightly. Attaching different motor sizes with one motor support subassembly requires one additional subassembly-specific component, i.e. the ferrule. The bolts, on the other hand, are common components. Two ferrules and four bolts increase the number of parts by six in total and the number of components by two.

3.2 Component commonality increases production value Since component commonality must not be an objective in itself, also the cost perspective has to be taken into account. Because the company has been a project supplier, it has gathered cost information at the component and subassembly level only every now and then. However, component-level cost information is needed for developing a subassembly that fulfills the cost reduction goals set by the management. Consequently, the researchers have built a cost model that produces component-level cost information suitable for product development purposes.

The model can be used for determining the production value of products at the component level, including all manufacturing – direct and indirect – costs.

Even if Version 1 was a great improvement compared to the motor support subassemblies used several years ago, its manufacturing costs still turned out to be much higher than expected (111 euros). Because Version 2 appeared to be much more simple compared to Version 1, the case company management assumed that manufacturing costs of the motor support subassembly could finally be reduced significantly. However, the manufacturing costs of Version 2 dropped only about 20 euros, which was rather confusing. In order to explain that, it was necessary to analyze the cost structures of the subassemblies in more detail. Table 2 shows the manufacturing costs of the tree versions divided into material, machining, and welding costs. The cost analysis takes into account all the components related to the motor support except the motor and the gearbox. The total manufacturing cost of each version is shown in the last column with the change in manufacturing costs compared to the previous version in parenthesis. The last row shows the change between Versions 1 and 3.

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Version 1 is rather material intensive – materials cover almost 70 percent of the production value. With Versions 2 and 3, material and manufacturing costs are quite close to each other.

Material costs of Version 2 are about 40 % lower compared with Version 1, which is in line with management’s expectations. However, the production value drops only by 20 euros with Version 2, which is explained by the 50 percent increase in machining costs that the case company management had not expected. The increase in machining costs reduces the overall impact of the decrease in material and welding costs, thus decreasing the total cost reduction.

The production value of Version 3, on the other hand, rises about 6 euros, which is explained by the ferrules. Compared with Version 1, total manufacturing costs fall about 14 euros (13 %), which still is a rather good cost reduction. The paper focuses on Versions 2 and 3 because they offer an interesting additional perspective on component commonality.

4 Commonality measurement – wider perspective needed Considering component commonality, how successful are the new motor support constructions? Component-level analysis as well as production value yielded quite contradictory results. In the literature, the number of parts and components has been considered a measure of a product’s complexity [Labro03]. That, however, is not clear-cut but rather dependent on the context. The case company has focused mostly on minimizing the number of parts in individual products while the goal should have been cost minimizing.

Despite the lower number of components and lower production value, Version 2 is by no means automatically the optimal solution. Analyzing the number of components is not enough; rather, a subassembly-level analysis must be included as well. The case company aims at selling its products to its dealers, who are responsible for final assembly and installation. The motor support subassemblies need to be welded before they are stored in the inventory because the case company wants to ensure fast delivery and because the dealer network is not supposed to be responsible for any welding work.

The fact that assembly is done by dealers incapable of doing welding supports the use of Version 3. As illustrated in Figure 4, Version 2 requires a unique motor support subassembly for each motor and gearbox combination and for each conveyor width, whereas with Version 3 only one motor support subassembly with standard axles is needed. Drive wheels and belt rollers are identical in all the different motor support constructions, which means that they are no longer topics of interest from the component commonality Figure 4. Inventory-stored subassemblies of Versions 2 and 3.


–  –  –

Considering component level analyses, Version 2 has lower (traditionally seen as better) values, except with the number of common components. However, Version 3 has lower values measured from the subassembly and inventory item (number of subassembly-specific ID codes) perspective, the number of inventory items being a very interesting measure as regards component commonality. Version 2 requires 8 inventory items while the standardization innovation reduces the number of inventory items to 4. At the same time, the innovation enabling the change increases the production value of a motor support by 6 euros.

The impact of the standardization innovation of Version 3 on the number of components and subassemblies held in the inventory is also illustrated in Figure 5.

The company management wants to start using Version 3 because the reduction in the number of subassemblies should decrease capital deployed in the inventory. However, the increased production value will override the savings in the cost of capital deployed even with a rather small volume increase [see Lyly-Yrjänäinen et al.04]. Thus, the question is, will the decrease in the number of subassemblies yield additional cost savings, for example, in project management or project sales activities, thus justifying the increased production value of Version 3?

Figure 5. The reduction in number of subassemblies between Versions 2 and 3.

Analyzing the cost behavior of various indirect activities would naturally be an interesting pursuit, and activity-based costing (ABC) is a generally approved tool for that. However, the effect of component commonality on production value is not that clear-cut either. Thus, there is plenty of spadework to be done in analyzing the effect of component commonality on production value before rushing into indirect activities or various overhead recovery factors.

It has been claimed that 30-40 percent of a company’s expenses could be assigned using various cost drivers related to product structure [Larson & Åslund01]. However, as illustrated by the case, cost behavior is quite complex even with such a simple construction. Thus, detailed-level case examples are needed for understanding such a complex phenomenon as the cost effect of component commonality. Despite the fact that generalizations, in general, should be the reserve of various statistical survey studies [see e.g. Stake95;Yin94;

Alasuutari99], the findings of this case are certainly transferable [Marshall&Rossmann99] to other companies and other case studies based on the ideas of contextual generalization [Lukka&Kasanen95].

5 Conclusions

The objective of the paper was to analyze the cost effect of component commonality and its measurement from the manufacturing cost perspective. The paper has analyzed three versions of a subassembly used for attaching motors in roll conveyors. The three versions have been analyzed from the “number of component” perspective. In addition, the number of subassemblies and thus also the number of inventory items were discussed, which gave an interesting new perspective to the case. Thus, it is not clear-cut at what level component commonality should be analyzed. With Version 3, the number of components increases, but at the same time the number of subassemblies decreases, which will have an impact on inventory holding costs. Considering manufacturing costs, Version 2 turned out to be the most cost-efficient. That, however, is no surprise, because various authors have claimed that standard solutions are always somewhat more expensive from the purchase or manufacturing cost perspective than product-specific or “unique” solutions. Lower manufacturing costs, in this case, are mainly explained by lower material costs – Version 2 is 6 euros cheaper compared to standardized Version 3.

However, this paper focuses on component commonality and its cost effect from the manufacturing cost perspective. Component commonality has a significant impact on indirect activities that were not included in the analyses. An interesting topic for future research is whether standardization innovation will in the end enable cost savings when several overhead costs such as product development, project management, and sales and logistics activities are also included in the analysis. Furthermore, when the effect of component commonality is estimated, it is necessary to include also those products or subassemblies that share components with the motor support. That, however, is the objective of a new three-year research project that is just about to start.

Alasuutari, P., "Laadullinen tutkimus", Vastapaino, Tampere, 1999.

Baker, K. R., Magazine, M. J., and Nuttle, H. L. W., "The effect of commonality on safety stock in a simple inventory model."

Management Science, Vol.32, No.8., 1986, pp 982-988.

Coughlan, P. and Coghlan, D., "Action research for operations management." International Journal of Operations & Production Management, Vol.22, No.2., 2002, pp 220-240.

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