PBMR critic does not understand manufacturing economics

A letter writer in the Cape Times recently attempted to show that the PBMR was a bad investment based on the fact that the project needs to build a number of units before it can reach a cost per unit that will allow it to compete in the very competitive electricity market in South Africa. You can find the letter at

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Exactly the same criticism can be applied to any new product, whether it is a power plant, an automobile, a computer, or simple plastic cookie cutters.

I included the last one because I have personal experience in taking a product from design to production for a set of plastic cookie cutters designed in the shape of some Disney cartoon characters.

The injection molding company where I was the GM won a contract from a design company with a license to sell Disney products like plastic ware, key chains, and small toys. They produced the designs and worked with us to get the tools built to allow us to produce the product in our injection molding presses. If we had produced just a single bag of cookie cutters, each one in the set of four would have cost approximately $10,000 – $15,000 depending on how you accounted for the time spent in getting the production process right.

Our bid for the project, however, was for 7 cents per cookie cutter. We made that bid with some risk, of course, but we were able to justify that risk because were had a contract for a large number of cookie cutters as long as we could produce them to the exacting specifications provided by our customer. If we had failed the quality assurance test, we would have been out almost $60,000 in lost production, tooling costs, and engineering time. For a small company with annual sales of less than $1 million, that was a substantial investment.

As you might imagine, a company with a license to sell Disney branded products had pretty high standards; they could not afford to lose that license because of poor quality on items costing less than a dime each. We knew from experience that we would be able to refine the production process to the point where the small per unit price would represent a substantial profit for our bottom line.

First of a kind products ALWAYS cost several to many times as much as the same item being produced using a predictable series production process. South African consumers have the right to understand that so that they are armed with knowledge when people with an agenda try to spread Fear, Uncertainty, and Doubt – FUD – about a project that has the potential for large benefits for the entire country.