How to Justify the Cost of A Rapid Prototyping System
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The document outlines a business case for justifying the costs of a rapid prototyping system using Stratasys FDM technology, emphasizing the importance of time, cost, and quality. It provides a structured approach for constructing the business case, including sections such as executive summary, situational analysis, proposed solution, and financial justification. Key insights include a focus on quantifying benefits and addressing risks to persuade stakeholders of the value in adopting additive manufacturing solutions.
How to Justify the Cost of A Rapid Prototyping System
- 1. MAKING THE CASE How to Justify the Cost of a Rapid Prototyping System
- 2. Who is Stratasys FDM Technology
- 3. Today’s Event Host Kim Killoran, Stratasys, Inc. Presenter Todd Grimm, founder and president, T. A. Grimm & Associates, Inc.
- 4. Additive Manufacturing Justification Enormous value… Time, cost and quality But… Difficult to quantify Difficult to put into words Getting to “Yes” How to build a business case
- 5. Business Case Report that summarizes: Proposed capital expenditure Associated value, risk and investment Business case includes: Executive summary Situational analysis • • • • Current challenge/opportunity Proposed solution Alternatives Risk Financial (cost) justification Tip: Seek help & guidance
- 6. Executive Summary Executive summary Will make (or break) the case State: Tip: Be succinct Tip: Be compelling Challenge, solution, investment and return 2 or 3 paragraphs Highlight the highlights Emphasis on the numbers
- 7. Situational Analysis Current situation (the diagnosis) Describe the challenge or opportunity • State who is affected and how Hone in on one justifiable aspect Emphasize the numbers Sales R&D Prototypes + ECOs $50M $2.5M (5%) $80K/year $50K/year TELCO
- 8. Situational Analysis Proposed solution(the treatment) Describe the additive manufacturing proposal • What is being proposed • Total investment • Implementation time Tip: State end result Tip: Lead with hard numbers Detail the benefits • Stress the hard numbers • Reference the softer gains AM System On-Going Savings $105K $34K/year $75K/year TELCO
- 9. Situational Analysis Alternatives List options considered State why each was not selected Risks List possible risks State how each will be addressed Tip: List only the obvious
- 10. Financial Justification Two alternatives Cost reduction Revenue increase Two parts Capital expenditure • And on-going costs Return (value)
- 11. Investment Initial investment System Ancillary equipment & licenses Installation & training Shipping IT expenditures Facility modifications AM System Equip/License Install/Train $90K $8K $7K TELCO
- 12. Investment On-going expenses Maintenance contract Routine maintenance Materials/consumables Labor Facility charges Input needed Estimated part count Operational estimates Maintenance Consumables Labor $15K $12K $7K TELCO
- 13. Financial Justification ANALYSIS SUMMARY -- RETURN ON INVESTMENT (ROI) (5 year) TELCO -- Simple annual ROI INTERNAL RATE OF RETURN (IRR) NET PRESENT VALUE (15% cost of capital Year 1 -- PAYBACK PERIOD Year 0 --- Year 2 Year 3 Year 4 Year 5 Investment - CapEx ($105,000) - On-going expense ($34,000) ($34,000) ($34,000) ($34,000) ($34,000) -- -- -- -- -- -- Total ($105,000) ($34,000) ($34,000) ($34,000) ($34,000) ($34,000) CUM. TOTAL ($105,000) ($139,000) ($173,000) ($207,000) ($241,000) ($275,000) Return
- 14. Return Challenge: hard numbers 2 weeks = $________ ? Recommended approach Three-tiered • Hardest to softest Iterative • Realistic yet compelling
- 15. Return Tier 1 Savings from transition of work to AM system Two sources Outsourced • AM and conventional In-house Collect historical data 12 to 36 month look back
- 16. Return Outsourced costs Tips: Create buckets Use averages Document everything Part, engineering, labor Expedite fees, shipping, taxes In-house Internal cross charges Seek cost accounting assistance Prototypes Patterns Total $60K $5K $65K TELCO
- 17. Financial Justification ANALYSIS SUMMARY RETURN ON INVESTMENT (ROI) (5 year) TELCO 10% Simple annual ROI INTERNAL RATE OF RETURN (IRR) NET PRESENT VALUE (15% cost of capital) Year 1 Year 2 Year 3 15% -$1,100 46 months PAYBACK PERIOD Year 0 48% Year 4 Year 5 Investment - CapEx ($105,000) - On-going expense ($34,000) ($34,000) ($34,000) ($34,000) ($34,000) $65,000 $65,000 $65,000 $65,000 $65,000 Return - Outsourced Total ($105,000) $31,000 $31,000 $31,000 $31,000 $31,000 CUM. TOTAL ($105,000) ($74,000) ($43,000) ($12,000) $19,000 $50,000
- 18. Returns Tier 2 Increasing prototyping activity Due to speed, ease, convenience & cost Leverage Generally accepted values Concept P P Design P Test P Produce Pilot P
- 19. Project Increased prototype activity Resulting return ECOs TELCO $10K
- 20. Financial Justification ANALYSIS SUMMARY RETURN ON INVESTMENT (ROI) (5 year) TELCO 19% Simple annual ROI INTERNAL RATE OF RETURN (IRR) NET PRESENT VALUE (15% cost of capital) Year 1 Year 2 Year 3 27% $32,400 31 months PAYBACK PERIOD Year 0 95% Year 4 Year 5 Investment - CapEx ($105,000) - On-going expense ($34,000) ($34,000) ($34,000) ($34,000) ($34,000) - Outsourced $65,000 $65,000 $65,000 $65,000 $65,000 - ECOs $10,000 $10,000 $10,000 $10,000 $10,000 Return Total ($105,000) $41,000 $41,000 $41,000 $41,000 $41,000 CUM. TOTAL ($105,000) ($64,000) ($23,000) $18,000 $59,000 $100,000
- 21. Returns Tier 3 Value of speed Recommend Omit from calculation Include as added value If needed to justify Locate last-in-process step Show cause-and-effect
- 22. Financial Justification ANALYSIS SUMMARY RETURN ON INVESTMENT (ROI) (5 year) TELCO 19% Simple annual ROI INTERNAL RATE OF RETURN (IRR) NET PRESENT VALUE (15% cost of capital) PAYBACK PERIOD Year 0 Year 1 Year 2 Year 3 95% Year 4 27% $32,400 31 months Year 5 Investment - CapEx ($105,000) - On-going expense ($34,000) ($34,000) ($34,000) ($34,000) ($34,000) - Outsourced $65,000 $65,000 $65,000 $65,000 $65,000 - ECOs $10,000 $10,000 $10,000 $10,000 $10,000 Return Total ($105,000) $41,000 $41,000 $41,000 $41,000 $41,000 CUM. TOTAL ($105,000) ($64,000) ($23,000) $18,000 $59,000 $100,000
- 23. Recap Business case Financials Situational analysis Executive summary Recommendations Concise & compelling Compelling & realistic Realistic & tangible
- 24. Stratasys • Stratasys uses tough engineering-grade thermoplastics • Dimensionally stable materials lock in accuracy • Technology can be used for manufacturing tools & end-use parts
- 25. More Information More information: www.stratasys.com/CostJustification Request a free sample part, download White Paper, presentation & more Customer Success: Polaris Previously used injection molding for prototypes Purchased a Fortus machine Evaluated physical part, improved design Would have required $60,000 in mold revisions Method Cost Time Injection molding $60,000 70 days In-house FDM prototyping $1,200 2 days Savings $58,800 (98%) 68 days (97%)
- 26. Questions? More information: www.stratasys.com/CostJustification Request a free sample part, download White Paper & presentation