22/02/2012 - Where's my screwdriver?
Tooling more than tools
The BBC has recently looked at the Apple i-phone in the light of voided warranty claims. In the process the programme arranged to have one opened up – very much a job for the specialists. In fact there are “strip down” videos on Youtube which take such devices and disassemble them into their core structures.
Even at this level they are not taken down to the component parts. This is due to the (almost) permanent bonding of components to the circuit board. The smallest of these necessary parts measures 0.2 x 0.1mm. To put that in perspective, ground black pepper is of similar scale provided that it is not too coarse!
Looking elsewhere, there are a variety of reports suggesting that Amazon is making the Kindle and selling it at a loss. There are also suggestions that some purveyors of other high-tech goods are selling them for more than they cost.
Back to business
Please forgive a brief overview of basic economics. I assume that the majority of readers are employed (2/3) and the self employed (1/3)will resonate with what follows. So, the process starts with the “home” and stays more straightforward if we look at the employed position.
It is assumed that the majority of people go to work with a primary motive of earning money. This means that at the end of the week/month some form of compensation (usually money) is expected for the hours of toil. This is in apparent conflict with Amazon's position, where there Kindle is contracted and sold for no immediate return.
The process of going to work and being paid results in a monetary figure. This is the “sales” value of your endeavour. It would be analogous to the turnover in a business. However, most people are painfully aware that this figure is not all available for the family “piggy bank”. The costs of house, food and transport eat a large chunk of that in many cases. By the time you add in the utility bills and a few other annual costs, there is little left. This could equate conceptually to the “profit” of a business.
Putting it bluntly, there needs to be a profit in order to keep things sunny side up. A lack of profit is a loss, which requires cash to maintain the state of affairs. This is borrowing or debt which is a trade of current position against future earnings. In desperation, borrowing may be less than ideal.
However, many people (who are now considered fortunate) have a mortgage. It is a long term loan that allows the procurement of a valuable asset. The primary aim is a place that can call your own and provide certain levels of security. You also have control over the running, upkeep and modifications to the dwelling.
Long term investment
Over the long term, there is historical evidence to show that houses go up in value. This can result in another form of profit, if the house sells for more than was paid for it. Here we are not concerned with that possibility. The concept focuses on the fact that over a period of time the house purchase yields lower living costs and is a form of investment for that reason alone.
Where does this match business without talking about commercial premises? We started looking at the Apple strip down. There are a myriad of parts, some for dollars at a time and many pieces that are pennies each. In our consumer world we look at the things we buy with complete dismissal as to what went into their design and manufacture.
In the case of the Apple products the “design” has been widely discussed in its exterior form. This avoids all the design that goes on inside the product. If you took a couple of home radio transmitters, a digital camera, a small screen device, battery and some computing power, you would soon have a cluttered desk or table. Yet all this is “folded up” inside something that is smaller and costs much less than than the table-top collection.
Custom parts and hidden tooling
What does it take to make such a small compact device? In simple terms it takes markets, money and strategy. You may need the same but probably in far smaller scale for your product too.
The penny pieces of the Apple (for that also read other mobile phones and sat navs) come about because they are tailor made to exacting requirements with the minimum of material. The sheet of metal for a a cover or EMC screen (the internal metallic covers for the circuits) is precision cut, usually in one “hit” from a giant sized machine.
The machine has a cost measured in parts or multiples of a million dollars. In addition, the cuts and folds are formed by precision tooling, which is bolted into the machine. That tooling is effectively a large chunk of machined metal. Each tooling part is made by engineers in a tool shop. Each tool is the result of very many man hours of work. Since they go to work to earn money, they have to be paid and the cost of the tooling is accumulated.
What about plastic parts? The same kind of process exists, although the details are different. It still comes down to a large machine that melts and injects molten plastic. The moulds into which this liquid is injected are large chunks of metal formed into shape by paid people in a tool shop.
In summary, every one of these penny parts has a large initial cost. This cost comes in advance of any revenue. The benefit does not come in the first few parts but when the scale is sufficient the costs make sense. The profit on all the component parts eventually pays for the tooling and generates further profits from the ongoing sales.
Thankfully, circuit boards are a commodity for which there is a whole industry scaled to make custom parts without huge outlay. The circuit board companies made a large investment to acquire the machines. You can access the benefits of this alongside many other companies who need circuit boards and between us we share the investment.
There is still a level of bespoke “tooling” for your particular circuit board. This does not come in the form of chunks of metal. These days we do not even have artwork stored in a drawer. It is all generated by human input on a computer and stored as files. These files can be transmitted anywhere in the world and frequently are.
Can you imagine trying to connect 200 components by hand, where just one of these is perhaps 144 pins, each 0.5mm apart? Even if you could, it would take many hours to make each circuit and cost a fortune as a result. Suppose we managed to create this hand built marvel, how would it perform? The answer is not very well at all. The power and signals would very likely interfere with each other. Distances between parts would in some cases be too great for the circuit to operate in the intended fashion.
Back at the computer, every part (even if it is only 0.1 x 0.2mm or a “massive” 1.25 x 2.0mm) is positioned to accuracy of thousandths of an inch (or microns in metric). The part position and orientation is critical. This is connected with “wires” (copper tracks) that are thousandths of an inch wide with a separation on the same scale. Little wonder that it takes a while to do. Even though computers can assist, they do not have the insights of a human mind and cannot create an optimum layout on their own.
Preferably, your designer needs to understand all the processes of manufacture and their commercial implications. If you are fortunate you will find a designer that has some accounting and legal knowledge too.
The moral of the tale is that the process of setting up mass produced (more than one or two) products requires a level of investment. This investment is not a trivial sum but does yield cost and performance benefits.
Unless you are Amazon, you have to make a profit from your product or the outlook is bleak. Amazon is not alone in its strategy. Printer manufacturers frequently offer their wares at lower than normal prices. These activities skew our consumer awareness of what things cost and how they come into being. Amazon will make their profits from the sale of “electronic books” in the same way that printer manufacturers make money from the ink refills or consumables.
Next time you look at a product or just the Apple logo, it may be worth thinking about the bits you cannot see – the tooling. It may not be the origin of the Apple logo, but the bite could represent the chunk of money that was expended before a single item was sold.
Posted by: Peter Hawkins on 22/02/12.