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Material Storage and Material Storage and Dispensing Device for the Dispensing Device for the
KitchenKitchen
Charles E Schaefer, Jr. School of EngineeringCharles E Schaefer, Jr. School of EngineeringDepartment of Mechanical EngineeringDepartment of Mechanical Engineering
E 421 Engineering EconomicsE 421 Engineering EconomicsFinal PresentationFinal Presentation
Thursday, December 11Thursday, December 11thth, 2003, 2003
Mechanical EngineeringMechanical EngineeringEthan JaysonEthan Jayson
Cora LaFranceCora LaFranceJudy NgJudy Ng
Advisor: Professor Zhenqi ZhuAdvisor: Professor Zhenqi ZhuSponsors: Mark Miller & Josh PorterSponsors: Mark Miller & Josh Porter
Project Description - Technical Project Description - Technical
To Develop a Conceptual Design and To Develop a Conceptual Design and Prototype for a Material Storage Device with Prototype for a Material Storage Device with the Ability to Accurately Measure and the Ability to Accurately Measure and Dispense Powdered or Dry Food Items for Dispense Powdered or Dry Food Items for Kitchen Use.Kitchen Use.
Define Customer Needs
3D CAD Modeling
Perform Market & Patent Research
Develop ConceptualDesigns
Design forManufacturability
FEA AnalysisPrototypeIndustrial Design
Assessment
Project Description - Business Project Description - Business
Design and Build a Product to Store and Design and Build a Product to Store and Dispense Common Kitchen Dry GoodsDispense Common Kitchen Dry Goods
Target Markets: Target Markets: HomeownersHomeowners Parents of Newborn BabiesParents of Newborn Babies
Business ModelBusiness ModelITEMITEM BUSINESS FUNCTIONBUSINESS FUNCTION OUTSOURCEOUTSOURCE IN HOUSEIN HOUSE
11 Conduct Market Research, Preliminary DesignConduct Market Research, Preliminary Design XXXX
22 Research and Development (R&D)Research and Development (R&D) XXXX
33 Product/Process/Service Testing: Alpha, BetaProduct/Process/Service Testing: Alpha, Beta XXXX
44 Licensing Technology FROM OthersLicensing Technology FROM Others XXXX
55 Fabricate ComponentsFabricate Components XXXX
66 Develop SoftwareDevelop Software XXXX
77 Assembly Components (Final Assembly)Assembly Components (Final Assembly) XXXX
88 Test Final Assemblies, Pack & ShipTest Final Assemblies, Pack & Ship XXXX
99 Distribute Product/Process/Service to CustomerDistribute Product/Process/Service to Customer XXXX
1010 Market to OEM, DistributorsMarket to OEM, Distributors XXXX
1111 Market Directly to End UserMarket Directly to End User XXXX
1212 Train Customers, End UsersTrain Customers, End Users XXXX
1313 Provide After Sales ServiceProvide After Sales Service
(Training, Adjustment, Repair, Replacement, (Training, Adjustment, Repair, Replacement, Refund)Refund)
XXXX
1414 Consult on Product/ Process/ServiceConsult on Product/ Process/Service XXXX
1515 License Technology TO OthersLicense Technology TO Others XXXX
Business Model-Out Source vs. Business Model-Out Source vs. OwnOwn
OutsourceOutsource Make YourselfMake Yourself
Distribution
ManufactureComponents
Customer
Marketing to
Retailers
R&DLicensing
Marketing to End Users
CustomerService
Assembly
Business TypeBusiness Type
Product Business Product Business Consumer MarketConsumer Market FunctionsFunctions
Research & DevelopmentResearch & Development Market Research Market Research Customer Needs Customer Needs Develop Device to Store and Dispense Bulk Dry Goods for Develop Device to Store and Dispense Bulk Dry Goods for
Kitchen UseKitchen Use
AssemblyAssembly In-House Final AssemblyIn-House Final Assembly
Customer ServiceCustomer Service Train RetailersTrain Retailers After-Sales ServiceAfter-Sales Service
Customer/NeedsCustomer/Needs Customer Need:Customer Need:
A Centralized Location for Cooking IngredientsA Centralized Location for Cooking Ingredients One Device to Store, Measure, and Dispense IngredientsOne Device to Store, Measure, and Dispense Ingredients
Benefits:Benefits: All-In-One Aspect – Time & Space EfficientAll-In-One Aspect – Time & Space Efficient High-Tech Appeal to Kitchen High-Tech Appeal to Kitchen Reduce Risk of Spills of IngredientsReduce Risk of Spills of Ingredients
Primary Customers:Primary Customers: Age Group: 30 to 60 Year-Olds (Male and Female)Age Group: 30 to 60 Year-Olds (Male and Female) Homeowners Homeowners Newborn ParentsNewborn Parents
Total Market Share:Total Market Share: 2.8 million People by Year 5 (1% of U.S. Population, 20% of market)2.8 million People by Year 5 (1% of U.S. Population, 20% of market)
Competitor AnalysisCompetitor Analysis
Main Competitors:Main Competitors: KitchenArtKitchenArt®®
Appliance/Kitchen Goods CatalogsAppliance/Kitchen Goods Catalogs
Feature & Attribute ComparisonsFeature & Attribute Comparisons Ability to Store IngredientsAbility to Store Ingredients Accurate Measuring CapabilityAccurate Measuring Capability User FriendlinessUser Friendliness Aesthetic AppealAesthetic Appeal
Price/Performance to CompetitorsPrice/Performance to Competitors Competitor Product Prices: Range $20 to Competitor Product Prices: Range $20 to
$75$75 Our Target Price: $20 to $30Our Target Price: $20 to $30
KitchenArt®
Sunpentown
Competitor AnalysisCompetitor Analysis FeaturesFeatures
Detachable compartmentsDetachable compartments Adjustable measuring spoon (1/8 to full Adjustable measuring spoon (1/8 to full
teaspoon)teaspoon) Shaker port for light seasoningShaker port for light seasoning Pour feature for heavy seasoningPour feature for heavy seasoning
ProsPros Centralized location for materialCentralized location for material Detachable compartmentsDetachable compartments Adjustable measuring spoonAdjustable measuring spoon Different exit ports for different amounts Different exit ports for different amounts
of seasoningof seasoning ConsCons
Difficult to refill compartmentsDifficult to refill compartments Limited measuring capabilitiesLimited measuring capabilities Measuring spoon must be cleaned after Measuring spoon must be cleaned after
each useeach use
Product Name: Adjust-A-Spoon Spice Carousel
Manufacturer: KitchenArt®
Sample Product Assessment
Price of ProductPrice of Product
Price Basis Range Price
1. Cost plus Profit $20 to $30 $30
2. Competition Price Adjusted for Features
$30 - $80 $50
3. Value to Customer $20 - $30 $22
Logic: Price Chosen Based on Value to Customer
Cost to CommercializeCost to Commercialize
Total Cost of Alpha Test = $21,000Total Cost of Alpha Test = $21,000 Total Cost of Beta Test = $81,000Total Cost of Beta Test = $81,000
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
$90,000
Alpha Beta
$
Finances-Income StatementFinances-Income Statement
YearYear 00 11 22 33 44 55
Operating Revenue (K)Operating Revenue (K) $0$0 $12,320$12,320 $19,219 $19,219 $16,657$16,657 $10,394 $10,394 $7,206$7,206
Cash Expenses (K)Cash Expenses (K) $0$0 $2,982$2,982 $12,049$12,049 $11,110$11,110 $8,619$8,619 $7,410$7,410
Depreciation (K)Depreciation (K) $0$0 $125$125 $200$200 $120$120 $72$72 $72$72
Pretax Net Income (K) Pretax Net Income (K) $0$0 $2,587$2,587 $6,627$6,627 $5,256$5,256 $1,585$1,585 ($336)($336)
Income taxes (K)Income taxes (K) $0$0 $776$776 $1,988$1,988 $1,577$1,577 $475$475 ($101)($101)
Net Income (After Tax) Net Income (After Tax) (K)(K) $0$0 $1,811$1,811 $4,639$4,639 $3,679$3,679 $1,109$1,109 ($235)($235)
Total Cash Flow (K)Total Cash Flow (K) ($3,061)($3,061) $1,137$1,137 $3,992$3,992 $2,902$2,902 $231$231 ($1,171)($1,171)
Finances-Capital-One TimeFinances-Capital-One Time
YearYear 00 11 22 33 44 55 66
Principal Principal RepaymentRepayment $0 $0 ($798,284)($798,284) ($846,181)($846,181) ($896,952)($896,952) ($950,769)($950,769) ($1,007,815)($1,007,815) $0$0
Equity CapitalEquity Capital $3,625,175$3,625,175 $0 $0 $0 $0 $0 $0 $0 $0 $0$0 $17,995 $17,995
Loan ProceedsLoan Proceeds $4,500,000 $4,500,000
Capital Capital Gains/LossesGains/Losses $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0$0 $80,004 $80,004
Working CapitalWorking Capital ($6,686,364)($6,686,364) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $6,686,364$6,686,364
TotalTotal $1,438,811$1,438,811 ($798,284)($798,284) ($846,181)($846,181) ($896,952)($896,952) ($950,769)($950,769) ($1,007,815)($1,007,815) $6,784,663 $6,784,663
Finances-Summary FoMsFinances-Summary FoMs
FOMFOM VALUESVALUES
MARRMARR 12%12%
IRRIRR 64.97%64.97%
NPVNPV$5,878,339$5,878,339
Payback in YearsPayback in Years 1.75 yrs1.75 yrs
Financial LeverageFinancial Leverage
Equity CapitalEquity Capital LoanLoanIRR IRR
(6% APR)(6% APR)
IRRIRR
(3% APR)(3% APR)
100%100% 00 39.39%39.39% 39.39%39.39%
80%80% 20%20% 39.27%39.27% 39.61%39.61%
60%60% 40%40% 48.51%48.51% 49.36%49.36%
Conclusion:
GOOD NEWS! As the loans increase, the IRR increases as well
Breakeven/Payback AnalysisBreakeven/Payback Analysis
At 40.41% Equity ($4,500,000 Loan)At 40.41% Equity ($4,500,000 Loan) Breakeven Occurs At:Breakeven Occurs At:
1.75 Years1.75 Years Sales Level of $7,432,690Sales Level of $7,432,690 Sales Volume of 126,865 UnitsSales Volume of 126,865 Units
At 100% Equity ($0 Loan)At 100% Equity ($0 Loan) Breakeven Occurs At:Breakeven Occurs At:
2.6 Years2.6 Years Sales Level of $7,432,690Sales Level of $7,432,690 Sales Volume of 126,865 UnitsSales Volume of 126,865 Units
Sensitivity AnalysisSensitivity Analysis
Key (at 10%)Key (at 10%) RatioRatio RankRank
PricePrice 5.8205.820 11
VolumeVolume 4.0264.026 22
Total Operating Total Operating ExpensesExpenses
-4.285-4.285 33
MARRMARR 0.5550.555 44
Interest RateInterest Rate 0.6930.693 55
Borrowed Capital Borrowed Capital 0.14350.1435 66
Conclusion: Unit Price is the most sensitive element with Sensitivity Ratio of 5.820
Patent AnalysisPatent Analysis
Existing Patents Existing Patents Dispenser for Granulated and Powered Dispenser for Granulated and Powered Dry Material Dry Material Dispenser Dry Material Dry Material Dispenser Dry Product DispenserDry Product Dispenser
Patent PotentialPatent Potential The Combination of Dispensing MechanismsThe Combination of Dispensing Mechanisms
Overall Assessment of Product’s Intellectual PropertyOverall Assessment of Product’s Intellectual PropertyGOOD! GOOD!
Possible Alteration or Improvement to Patented IdeasPossible Alteration or Improvement to Patented Ideas Project Encourages of Innovative Thinking Project Encourages of Innovative Thinking Patents! Patents!
Risk Analysis of VentureRisk Analysis of Venture
Low to MediumLow to Medium HighHigh
LowLow Medium to HighMedium to High
Markets
NewExisting
Exi
stin
gN
ewT
ech
nol
ogy
Year 0
Year 5
Venture CapitalistVenture Capitalist
Attractiveness of Project to VC:Attractiveness of Project to VC: New Innovative ConceptNew Innovative Concept Large Target MarketLarge Target Market Low Risk & High ReturnLow Risk & High Return Few CompetitorsFew Competitors
No defined competitionNo defined competition Existing products need improvementsExisting products need improvements
Decision: Decision: Will Not Seek VC FundingWill Not Seek VC Funding Would Lose Control of BusinessWould Lose Control of Business Positive Cash Flows Will Kick in Quickly AnywayPositive Cash Flows Will Kick in Quickly Anyway
Lesson Learned-TechnogenesisLesson Learned-Technogenesis®®Lesson Learned-TechnogenesisLesson Learned-Technogenesis®®
Economics of EngineeringEconomics of Engineering Business FeasibilitiesBusiness Feasibilities Technical Feasibilities Technical Feasibilities Risk vs. RewardRisk vs. Reward
Lesson Learned-E421Lesson Learned-E421
Combination of Economics and EngineeringCombination of Economics and Engineering Impact of Economics on Engineering DesignImpact of Economics on Engineering Design Importance of Patent and Existing Product Importance of Patent and Existing Product
ResearchResearch Value of Team WorkValue of Team Work Project Management/LeadershipProject Management/Leadership