The Costed Specification Change
A designer has specified a machined aluminium housing for a portable pump. The housing is turned from solid 6061 bar, 80 mm diameter, with 35% of the material removed as swarf. Unit cost breakdown: material $18, machining $22, finishing $6. A supplier offers a die-cast aluminium alternative at $9 per unit for material and casting, but the die costs $45,000 and the cast surface needs machining on two faces at $4 per unit. Annual volume is 6,000 units, expected for four years. The client wants a 15% reduction in unit cost and is sensitive to lead time: machined parts arrive in 2 weeks, die-cast parts in 8 weeks including tooling lead time. The product is still being refined, with design changes expected in the first year.
1. Calculate the unit costs of both options and determine whether the die-cast route meets the 15% target.
Read the worked answer
Current machined unit cost = material $18 + machining $22 + finishing $6 = $46.
Die-cast unit cost = casting $9 + face machining $4 = $13 per unit, plus the one-off die cost of $45,000.
Amortise the die. Over 6,000 units/year × 4 years = 24,000 units, die cost is $45,000 / 24,000 = $1.88/unit. Total effective die-cast cost ≈ $14.88/unit.
Compare. Saving per unit ≈ $46 − $14.88 = $31.12, about 68% - far beyond the 15% target. Even if the die were amortised over one year only (6,000 units), the die adds $7.50/unit, giving $20.50/unit, still a 55% saving.
Break-even. The die pays back after $45,000 / ($46 − $13) ≈ 1,364 units, roughly three months of production.
So on pure unit cost the die-cast option clearly meets and exceeds the target.
2. Given the design instability and lead-time sensitivity, advise whether to commit to die casting now.
Read the worked answer
The cost calculation says yes; the risk analysis says not yet. Both must be weighed.
Reasons to wait or stage
- Design changes in year one. A die is cut to a fixed geometry. If the housing changes, the die may need modification or replacement - another $45,000 or expensive rework. Committing before the design freezes risks stranding the tooling investment.
- Lead time. Die-cast parts take 8 weeks versus 2 weeks machined. During refinement, the team needs fast iteration; an 8-week cycle slows learning and delays the market launch.
- Volume risk. The four-year, 6,000/year assumption drives the amortisation. If volume falls, the die cost per unit rises sharply.
Reasons to proceed
- The saving is large (about 68%), and break-even is only ~1,364 units - a low-risk threshold once volume is confirmed.
Recommendation. Do not commit the production die now. Instead: (1) continue with machined housings through the refinement phase to keep the 2-week iteration; (2) freeze the design, then place the die order; (3) consider a low-cost prototype or bridge tool for early units; (4) negotiate die ownership and modification terms with the supplier. Revisit the decision when the design is stable and volume is confirmed.
3. The client insists on the 15% saving immediately. Propose a compromise and explain how you would present it.
Read the worked answer
A 15% saving on $46 is a target unit cost of about $39.10. That is achievable without the die.
Compromise options on the machined route
- Reduce material waste. 35% of the bar becomes swarf. A near-net-shape blank or a smaller bar diameter could cut material cost; even a $3 material saving helps.
- Reduce machining time. Review the toolpath, combine operations, or use a more suitable cutter to cut the $22 machining cost.
- Finishing review. Confirm the $6 finish is needed on all surfaces; masking non-critical areas may reduce it.
- Volume pricing. At 6,000/year, ask the machinist for a quantity discount.
Together these could plausibly reach $39–40, meeting the 15% target now.
Presentation. Show the client the costed comparison: the die-cast route is cheaper long-term but carries design-change and lead-time risk. Offer the machined-route savings now as an interim measure, with a commitment to move to die casting once the design is frozen, capturing the larger saving thereafter. This gives the client the immediate reduction they want without stranding a $45,000 tool on an unstable design.