Manufacturing Systems Inc.

  HELPING TO KEEP AMERICAN MANUFACTURING STRONG BY PROVIDING CREATIVE-COST EFFECTIVE AUTOMATION & MANUFACTURING SOLUTIONS

FAQ 

     
1)  Why hire a consulting Engineer:

2)  Why consulting engineers are not as expensive as they look:

3)  The advantage of 2 phase projects:

4)  The advantages of "time and material" projects:

5)  Why MSI does not have a machine or a panel shop:

6)  "Off the shelf" industrial robots vs. custom built CNC controlled equipment:

   
 
1)  Why hire a consulting Engineer:
  
Too much work for any set of resources results in overtime costs, mistakes and general increased levels of frustration.  Too little work also has negative consequences.  Therefore it becomes very important for a company to balance the workload with internal resources.   Of course one approach is to authorize overtime.  However, when there are large “spikes” in the work load, such as with special projects, one of the best ways of coping with these challenges is the judicial use of consultants and outside resources.

One example of the proper use of outside resources was an internal shop that maintained high tolerance compaction dies.  When the process went out of control it was not uncommon for a number of tool sets to need to be repaired or replaced at the same time.  The original approach was to have several full time highly qualified machinists to deal with such problems.  However, when the process was running smoothly there just wasn’t enough work to keep everyone busy.  The manager invested in “developing” a network of appropriate shops and outside resources.  These were very high quality shops that demanded premium costs.  However, the headcount of the internal shop was reduced by approximately 15 highly paid employees.  A further advantage was that since there were a number of qualified shops, the response time of the external resources was considerably improved.  The premium costs of the outside resources were only a fraction of the cost of maintaining the high level of internal resources.

Good management should constantly work to balance the internal resources while developing a “qualified” network of external resources.  If this balance is done properly, the result can easily be improved service at lower costs.  This is especially true in economies that experience large peaks and valleys.  There are also many hidden costs of hiring, firing, and training full time employees that can be eliminated by the use of a good network of consultants and outside resources.

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2) Why consulting Engineers are not as expensive as some view them to be:

Because of the accounting practices in some companies it is not uncommon to view internal resources as being virtually free.  And in other cases the hourly rates of Consulting Engineers are at their face value higher, however functionally such comparisons are "apples and oranges".  All cost, including salary, benefits, and overhead expenses are built into the Consulting Engineer rates.  Unfortunately, it is not uncommon to make a direct comparison between the Consulting Engineering rate and the average hourly rate of a fulltime internal engineer.  The hidden cost of benefits and overhead are typically under estimated by many companies. 

However, probably the biggest cost is when times are slow.  When the economy is sluggish, but not so slow as there needs to be cut backs, the efficiency of full time employees really suffers.  In harsher economic times, Companies are then faced with the expense of laying off, hiring, training etc. Because of the independent nature of the relationship with Consultants, all of these costs are avoided.  Because Consultants "eat" their "out of pocket" time, this is one reason why the rate for Consulting services appear to be a little higher than full time employees but in reality may be very competitive.

If managed correctly, a good Consultant should be more efficient then internal employees.  First, the full time employees usually have a full work load and "special" projects can become a major source of interruptions.  When the amount of interruptions get to a certain point, the efficiency and frustration level of employees greatly increases.  Many times the full time employee is having to learn or develop a new skill or technical expertise.  This time is usually 100% paid by the Company.  One of the great advantages of working with Consultants is that if the correct resource is selected the company will be paying a minimum for "training".  The end result of this is that while the employee may be working at a lower rate, it is very possible that their level of experience is considerably less which will require much more time.  It is not uncommon for less experienced internal resources to be "competing" with some of the best resources available with extensive experience. Internal resources may have lower rate but the amount of time required may be significantly greater.

Companies need to carefully evaluate the use of internal resources for special projects to determine if the cost of the investment in the employee is going to result in a reasonable return.  While learning new skills can be satisfying for employees and provide some value to the company, care should be taken if the learning costs carry any long term benefits with them.  Regardless of individual situations Consultants can provide high value abilities as will as being excellent back up resources in the event of emergencies.  A good network of appropriate consultants should be developed and maintained.

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3.  The advantage of 2 phase projects:

It is not uncommon for clients to desire the "security" of a "turnkey" project.  A turn key project is a project where there is a single specification, quote and purchase order for a project.   Clients often believe that there are more guarantees with turnkey projects and therefore they believe that their risk is lower. 

Companies that quote turn key projects also understand that there are expectations that the equipment will meet the performance requirements for a fixed price.  However, given that there will probably be unexpected design issues, significant contingency dollars are added to turn key quotes. 

Furthermore, while engineering costs are fairly easy to predict, it is not uncommon for the build costs to be low by a factor of 2 to 4 times the original estimates.  Fairly minor changes to the design, tolerances or materials can significant impact build costs. Unpredictable build costs demand additional contingency dollars.

A good example is a machine that cost $50k to build.  The engineering cost was approximately $12k, bringing the project cost to $62k. If this had been a turnkey project, it would not be uncommon for there to be a 25% to 50% contingency for the build costs on this custom machine. With a 25% contingency, ($12.5k) the turn key fixed quote could have been $74.5k. Even with this relatively low percentage, these contingency dollars provide very little value to the client and the percentage could have easily been 50% or higher.

However, since the two phase approach was used, the contingency dollars were reduced to 10%.  When the project was completed, the client paid less than 2%, (which is typical for MSI).  Not only did the two phase approach significantly reduce the costs, but the client had the opportunity to review the design before the drawing package was completed.  In addition, the client had a higher confidence in the build costs because multiple quotes were obtained.
   
Another area that is significant with turnkey projects is that the final acceptance criteria is typically a set of  "performance" tests.  Performance testing is sometimes very advantageous.  However, the client should be fully aware that such projects requires the equipment vendor to also be responsible for the "process" design.  If the equipment vendor has extensive experience for the particular processes involved, then the project will probably be successful.  Unfortunately, it is very common for clients to have considerable more experience with their own processes, resulting in high costs for the vendor's learning curves while paying for even higher contingencies.
 
Since two phase projects create more of a team environment, (less rigid specifications and acceptance criteria) it is much easier for the client's process expertise to be implemented into the design phase. Since process development contingencies are even higher than build contingencies, the two phase approach has significant cost and other advantages over fixed quote projects.

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4)  The advantages of "time and material" projects:

The primary advantage of "time and material", (T&M) is that the client only pays for the engineering hours that are necessary to complete the project.  Whereas the Client pays all contingency dollars on "fixed" quoted price projects, regardless of if the contingency dollars are needed or not.

A secondary result of fixed quoted price projects is that the initial specifications and all scope changes need to be much more clearly defined.  In order to arrive at a "fixed" price, all of the requirements must be very clear at the beginning of the project so that the engineer has a fair opportunity to include all of the expected costs.

Sometimes a much more detailed specification has a great advantage, but many times the additional time and effort that that both the Client and the Engineer are required to provide with fixed quotes results in very little value towards the completed project.  It is also very common for the Client to not know exactly what they need and only as the design is developed will many of the hidden issues be discovered.  T&M projects allow for a tremendous amount of flexibility, whereas fixed quote projects are much more rigid since a change order is required for every design variation from the original quote.  Change orders have some value but there are higher costs and the process can negatively impact the schedule.

However, there is one key requirement for T&M projects to be successful.  Both the Client and the resource must be interested in developing and maintaining a long term working relationship.  A "team" relationship where trust is highly valued by both parties.

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5)  Why MSI does not have a machine and a panel shop:

There are a number of reasons why MSI has adopted not to provide Machine and Panel Shop services. The first reason is that it is important for MSI to focus on the engineering and the design. The goal has been to develop and invest in diverse engineering skills rather than in shop skills and equipment. There has also been a wide variety of good qualified shops that have also elected to focus on what they do best. Most of the shops that MSI recommend have typical provided services having some of the best machinists and equipment in town. Therefore they are very hard to compete against.
 

By providing good drawing packages, MSI has been able to effectively obtain good competitive quotes while minimizing build costs.   With close to a perfect record for meeting delivery schedules, the resulting equipment from high quality shops has been extremely successful.


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6)  "Off the shelf" industrial robots vs. custom built CNC controlled equipment:
 

  

The comparative "effective" costs between options is usually the ultimate factor for making any decisions.   However, when it comes to the selection of various applications of "numerical control", the intrinsic values  of the "cool" factor sometimes carries unearned influence for selecting off-the-shelf Industrial Robots.  While the "cool factor" can be hard to argue against, there are relatively few hard and fast rules for selecting custom machine design over off-the-shelf robots.   However, here are a couple of general guidelines:

-  Circular interpolation:  This term describes the challenge of coordinating various axis of a machine into circular motions, (similar to drawing a circle with an etch-a-sketch).  Circular interpolation has been one of the primary building blocks of most Industrial Robots software designs.  Therefore, if the part or the process requires motion through irregular or circular smooth paths then Industrial Robots can provide some tremendous advantages.  However, if the function is basically only "point-to-point", (ie. the path between points is relatively unimportant) then the Industrial Robot are probably not the best financial decision.

- Heavy loads, long reaches and high accuracy:  If the process only requires relatively short reaches and light loads, Industrial Robots offer some very impressive abilities.   However, as the reach increases the load capabilities quickly diminish as well as the repeatability tolerances, whereas, the design of a custom piece of equipment can be optimized to meet virtually any set of requirements.  Of course, as the weight and reach increases the price of custom equipment designs increases, however, the rate of cost increases for custom equipment is almost always less than for increasing the size of Industrial Robots.


Another major issue that applies to both approaches is the development of the "process".  It has been my experience with the development of custom manufacturing equipment, designing and building the equipment is only the first phase of the project.  The second phase is to implement the "process".  It is relatively easy to design and build a piece of equipment that runs perfectly and meets all of the requirements but at the end of the project the equipment only produces junk.  Process development can be extremely difficult to predict.  A major problem with off-the-shelf solutions, (of any kind) is that because of the relative ease of implementation they can also promote attitudes that underestimate the difficulty of the process development phase.  Attitudes that should be carefully guarded against.


In conclusion, if the process involves relatively small parts, over relatively short distances, and smooth circular motions, then Industrial Robots are probably a strong candidate.  However, as the number of these types of requirements diminishes, CNC Custom Equipment will probably have a much higher justification.


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