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Figure 2.33
Phase I (initial phase) fixed cost estimatetotal $33 million. |
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2.5.1 Phase 1: Development |
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Depending on its complexity, a processor takes anywhere from 12 to 30 months of development effort before the first unit can be shipped from manufacturing (first customer ship, or FCS, is an important milestone in any program). During this phase, the bulk of the fixed costs are assumed by the project. Initial development costs as shown in Figure 2.32 consist of a good deal more than simple hardware design. Assuming that this is indeed a new product, and not an evolutionary design based on an earlier product design, it is reasonable to expect 24 months to first customer ship. Even a fairly spartan project, consisting of perhaps 3040 hardware and software designers, CAD design and support personnel, etc., incurs between $9 million and $12 million of salary and indirect costs out of a probable total development cost of $1520 million. Even so, that does not include all of the fixed costs incurred during this development phase. |
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Development phase costs also include manufacturing startup costs, inventory costs, and initial marketing and sales costs, as well as general and administrative overhead, as shown in Figure 2.33. The marketing costs include obvious items such as market research, strategic market planning, pricing studies, competitive equipment analysis, etc., as well as the more obvious sales commissions, sales planning, and advertising costs. Manufacturing startup cost is a variable area. We could spend more money here, for example, in automation and test equipment, and achieve a higher-quality product and lower the ultimate cost. On the other hand, if it is essential to keep the fixed costs low, manufacturing startup cost can be reduced by subcontracting out special tooling production and assembly requirements. General and administrative (G&A) ''overhead" includes a proportional share of the "front office"the executive management, personnel department (human resources), financial office, and other costs. Frequently, G&A overhead is included in an indirect charge on development and manufacturing salaries. We have chosen to break it out here to distinguish it from these other charges. Development costs assumed here are simply salaries plus those charges that support an individual designer in an office environment, such as rent, heat, light, secretarial/administrative services, etc. |
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2.5.2 Phase 2: Early Manufacturing |
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In the beginning of the manufacturing process, unit cost remains high. It is not until about a thousand units are shipped, perhaps six months to a year into the program, that the marginal manufacturing cost can even begin to approach the ultimate manufacturing costs (Figure 2.34). In addition to the |
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