Does product design really determine 80% of manufacturing cost?

46 Pages·1993·1.9 MB·English

by  Ulrich, Karl T

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WORKING PAPER
ALFRED SLOAN SCHOOL OF MANAGEMENT
P.
Does Product Design Really Determine
80% of Manufacturing Cost?
by
Karl T. Ulrich
Scott A. Pearson
WP
#3601-93 August 1993
MASSACHUSETTS
INSTITUTE OF TECHNOLOGY
50 MEMORIAL DRIVE
CAMBRIDGE, MASSACHUSETTS 02139

Does Product Design Really Determine
80% of Manufacturing Cost?
by
Karl T. Ulrich
Scott A. Pearson
WP
#3601-93 August 1993
J 2 1993
Does Product Design Really Determine 80% of Manufacturing Cost?
Karl T. Ulrich* and Scott A. Pearson
Massachusetts Institute ofTechnology
Sloan School of Management
Cambridge, Massachusetts 02139
Abstract
Many design researchers and practitioners motivate their work with the claim that 80% of the
eventual manufacturing cost ofa product is determined by the product design. The meaning of
this assertion has not been well defined, nor has much empirical evidence been presented to
support it. This paper addresses the question of how much product design influences the
manufacturing cost of a product. In doing so, we define the research question formally, we
develop a methodology for answering the question, and we provide a specific answer, under a
particular set ofassumptions, for a class ofhigh-volume, electromechanical consumer products
—
automatic drip coffee makers. Our methodology includesproduct archaeology, the use ofthe
product artifact as a source ofdata, and manufacturing cost modeling. We find that for coffee
makers, the variation in manufacturing costs attributable to differences in product design is
slightly smaller in magnitude than the variation in costs attributable to differences in
manufacturing systems, for a specific range of assumed manufacturing system parameters.
Acknowledgments
The research described in this paper was supported by the National Science Foundation as pan of
a Strategic Manufacturing Initiative Grant and by the MIT Leaders for Manufacturing Program, a
partnership among MIT and 13 major corporations. E. Yung Cha gathered much of the data on
component prices and wage rates. We are grateful for the many people at Tredegar Molded
Products who generously provided time, data, and insights at various stages ofthis project; in
particular Carl Peasley, Guy Vachon, and Doug Miller. The staffofProduct Genesis, Inc.
contributed to this research by evaluating the industrial design ofthe products in our data set.
We also acknowledge helpful comments, on a previous draft, by Steven Eppinger, Stephen
Graves, Chris Kemerer, Richard Locke, and Marcie Tyre.
* Address all correspondence to this authorat MITSloan School ofManagement, 50 Memorial Drive, Room E53-390,
MA
Cambridge, 02139, email: [email protected].