Allocating Responsibility for Manufacturing Cost

July 11, 2008
Hypertherm's implementation of DFMA software offers a business model for improving U.S. global competitiveness.

"We in the United States have mistakenly allocated the responsibility for [production] cost to the manufacturing folks. We forget that the cost has already been designed into the product."

That's Mike Shipulski, director of engineering with plasma cutting technology provider Hypertherm Inc., reflecting on one of the lessons learned from implementing Design for Manufacturing and Assembly (DFMA) software. The accomplishments include a 600% increase in profit per square foot of factory floor space within a five-year redesign program. Correspondingly, warranty cost per unit declined more than 75% during the same period, from January 2003 to January 2008.

Shipulski emphasizes two other lessons about barriers to DFMA acceptance:

"First, the magnitude of the savings can lead management to disbelieve that the savings are actually possible. So they don't try it. The reason: The DFMA potential is compared with more conventional initiatives where success is merely meeting cost reductions that tend to be in the 2% to 3% range.

"Second, the engineering fraternity tends to think that DFMA methods are time-consuming and difficult to accomplish, and we found that not to be true."

Mike Shipulski, director of engineering, Hypertherm Inc.Hypertherm's DFMA project started with a vision to make radical improvements in both product performance and product economies, Shipulski notes. "We met both of those goals by aggressively applying Boothroyd Dewhurst's software within our existing programs for robust design and lean manufacturing. We found their product simplification software made it easy for us to improve a product's performance-to-cost ratio. We simplified the product design while improving product functionality and performance. Moreover, we learned that DFMA ideas and financial estimates also lead to profound savings beyond labor and part cost, creating a domino effect downstream' in operational areas of our organization."

All of the company's technology and product development and manufacturing is done in New Hampshire. By simplifying product designs, Hypertherm has decreased labor expenses by 70% on redesigned products. That achievement has proven that design simplification is a fundamental and highly effective competitive strategy for negating the effect of cheap foreign labor rates. In fact Hypertherm actually sells more of its products in regions such as Europe, Asia and South America than in the United States.

Other Hypertherm five-year benchmarks tied to its engineering innovation and management practices include:

  • Greater private stock value and profit sharing for all associates.
  • Flat product prices to customers (inflation-based increases only), despite rising material and outside business expenses.
  • Win-win supplier strategies focusing on waste reduction rather than reducing supplier margins.

Hypertherm is a good example of what can be accomplished by deploying engineering technology as a foundational strategy, points out John Gilligan, president of Boothroyd Dewhurst. "They are integrating their DFMA program with lean concepts, smart use of automation, employee empowerment and other outstanding approaches. Most unique from our perspective is that Hypertherm carefully tracks cause and effect -- from the DFMA design station to the shipping dock. They monitor the correlation between part count reduction and business improvement." The profit results should send a strong signal to other U.S. manufacturing industries about what can be achieved through redesign, adds Gilligan.

Chart reveals (in units of 100%) the results of five years of product redesign with DFMA software at Hypertherm Inc. The blue line shows the percent reduction in warranty costs per unit of product. The orange bars show the percent increase in profit per square foot of factory floor space.

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