How to Justify the Cost of A Rapid Prototyping System

MAKING THE CASE

How to Justify the Cost of a Rapid Prototyping System

Who is Stratasys

FDM Technology

Today’s Event

Host Kim Killoran, Stratasys, Inc.

Presenter Todd Grimm, founder and president,

T. A. Grimm & Associates, Inc.

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

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

Executive Summary

Executive summary Will make (or break) the case

State: Challenge, solution, investment and return 2 or 3 paragraphs

Highlight the highlights Emphasis on the numbers

Tip: Be succinct

Tip: Be compelling

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

TELCO

Sales R&D Prototypes + ECOs

$50M $2.5M (5%) $80K/year $50K/year

Situational Analysis

Proposed solution(the treatment) Describe the additive manufacturing

proposal• What is being proposed• Total investment• Implementation time

Detail the benefits• Stress the hard numbers• Reference the softer gains

TELCO

AM System On-Going Savings

$105K $34K/year $75K/year

Tip: State end result

Tip: Lead with hard

numbers

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

Financial Justification

Two alternatives Cost reduction Revenue increase

Two parts Capital expenditure

• And on-going costs Return (value)

Investment

Initial investment System Ancillary equipment & licenses Installation & training Shipping IT expenditures Facility modifications

TELCO

AM System Equip/License Install/Train

$90K $8K $7K

Investment

On-going expenses Maintenance contract Routine maintenance Materials/consumables Labor Facility charges

Input needed Estimated part count Operational estimates

TELCO

Maintenance Consumables Labor

$15K $12K $7K

Financial Justification

Year 0 Year 1 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)

Return - - - - - - - - - - - -

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)

TELCO

ANALYSIS SUMMARY

RETURN ON INVESTMENT (ROI) (5 year) - -

Simple annual ROI - -

INTERNAL RATE OF RETURN (IRR) - -

NET PRESENT VALUE (15% cost of capital - -

PAYBACK PERIOD - -

Return

Challenge: hard numbers 2 weeks = $________ ?

Recommended approach Three-tiered

• Hardest to softest Iterative

• Realistic yet compelling

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

Return

Outsourced costs Part, engineering, labor Expedite fees, shipping, taxes

In-house Internal cross charges Seek cost accounting assistance

TELCO

Prototypes Patterns Total

$60K $5K $65K

Tips: Create buckets Use averages Document

everything

Financial Justification

Year 0 Year 1 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)

Return

- Outsourced $65,000 $65,000 $65,000 $65,000 $65,000

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

TELCO

ANALYSIS SUMMARY

RETURN ON INVESTMENT (ROI) (5 year) 48%Simple annual ROI 10%

INTERNAL RATE OF RETURN (IRR) 15%NET PRESENT VALUE (15% cost of capital) -$1,100

PAYBACK PERIOD 46 months

Returns

Tier 2 Increasing prototyping activity Due to speed, ease, convenience & cost

Leverage Generally accepted values

Concept

Design

Test

Pilot

ProduceP

P

PP P

PP

P

Project Increased prototype activity Resulting return

TELCO

ECOs

$10K

Financial Justification

Year 0 Year 1 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)

Return

- Outsourced $65,000 $65,000 $65,000 $65,000 $65,000

- ECOs $10,000 $10,000 $10,000 $10,000 $10,000

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

TELCO

ANALYSIS SUMMARY

RETURN ON INVESTMENT (ROI) (5 year) 95%Simple annual ROI 19%

INTERNAL RATE OF RETURN (IRR) 27%NET PRESENT VALUE (15% cost of capital) $32,400

PAYBACK PERIOD 31 months

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

Financial Justification

Year 0 Year 1 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)

Return

- Outsourced $65,000 $65,000 $65,000 $65,000 $65,000

- ECOs $10,000 $10,000 $10,000 $10,000 $10,000

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

ANALYSIS SUMMARY

RETURN ON INVESTMENT (ROI) (5 year) 95%Simple annual ROI 19%

INTERNAL RATE OF RETURN (IRR) 27%NET PRESENT VALUE (15% cost of capital) $32,400PAYBACK PERIOD 31 months

TELCO

Business case Financials Situational analysis Executive summary

Recommendations Concise & compelling Compelling & realistic Realistic & tangible

Recap

Stratasys

• Stratasys uses tough engineering-grade thermoplastics• Dimensionally stable materials lock in accuracy• Technology can be used for manufacturing tools & end-use parts

More Information

More information: www.stratasys.com/CostJustification Request a free sample part, download White Paper, presentation &

more

Method Cost Time

Injection molding

$60,000 70 days

In-house FDM prototyping

$1,200 2 days

Savings $58,800(98%)

68 days(97%)

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

Questions?

More information: www.stratasys.com/CostJustification Request a free sample part, download White Paper & presentation