During one phase of my professional career, I realized that I needed to learn more about manufacturing and operating a business. A typical person with my upbringing – son of a school teacher and an engineer – might have decided that the best way to fill in that knowledge hole was to go back to school. Fortunately for me, my life situation at the time did not include that as an option – I had a family to think about, an insufficient bank account and a dislike of borrowing money.
During a conversation with a good friend who was the part owner of a small factory producing custom packaging machinery, I learned about an opportunity to obtain an MBWA – management by walking around – at a local plastic product factory that was in need of a general manager. He introduced me to the factory owner – Jim Garlets – a man who had worked his way up from sweeping the floors of a factory while in high school. I realized there was an opportunity to learn by doing, so I accepted the job. It was not an easy three years, but the practical lessons that experience provided have been more deeply ingrained than most of the lessons in any of the thousands of formal lessons that made up my classroom training.
Jim was an excellent teacher; like many of the best he often left the remainder of the problems to be solved as homework. Very soon after my arrival, Jim gave me a single sheet of paper that had obviously been reproduced a few times and told me that it might be a good idea for me to make some copies for my own use. The paper had a list of variables with blanks next to them and then three copies of a rather straightforward equation. (Unfortunately, I did not save a copy, so I am recreating this 15 year old experience from memory.)
The variables described all of the inputs needed to determine the cost of producing a part using the injection molding machines that Jim had collected and turned into the production end of his factory. The list included the type of plastic, the mass of a single part, the cost per unit mass of the plastic, the cycle time of the machine, the number of cavities in the mold, the number of operators required, the size of the machine required, the amount of time required to set up the job, the mass of the sprue that distributed plastic to each of the cavities, the success ratio of the production (which factored into the waste of both time and material from parts that failed inspection), an allowance for post production finishing, the number of parts per box, the cost of each box, the number of parts in each production run, and the time required to clean up from the job and make the machine ready for the next job.
For a new part, there was another single page to fill out. The results of that page supported an estimate for the one time costs of designing a new mold, producing that new mold, testing the production set up, producing samples, and rework. The results of that one time sheet became a single number for the cost per part sheet for those parts that were going to be added to our internal product line. For custom jobs, they became part of the response to a request for a quote (we normally operated off of verbal requests). For the internal product line parts headed to retail markets, there was a third sheet for contracted costs like designing and printing marketing materials and obtaining packaging services.
Before Jim would bid on any production job and before he would release an internally developed part for marketing, he would painstakingly go through the process of determining each of the inputs and run the calculation for the production cost for each part at least three times using at least three different inputs for production runs – low, medium and high volume. When I first looked at the sheet, I did not quite understand how much difference that single input made until I had “done the numbers” for several different parts that were already in our product line. (During the three years on the job, I ran those numbers for hundreds of different parts and automated the process with some refinements.)
Because of the effects of set up and clean up costs, the cost per part could vary by several orders of magnitude depending on the size of the production runs. For those parts that we designed and added to our own inventory, the effects of the initial tooling were hugely important. A high quality, heavy duty injection mold can cost several tens of thousands of dollars, even when the parts that drop out of the mold with each cycle of the machine get sold for a few pennies.
Some of our customers were not terribly sophisticated and had a difficult time understanding why they would get such a wide variety of quotes depending on the size of their orders. They would often try to convince us to sell them 100 pieces, but charge them the 10,000 piece price. The inventors who had a new idea were often the most difficult – they sometimes wanted physical samples of production parts and could not understand why a product that might sell for a few dollars could cost thousands of dollars to produce in sample quantity.
It took some training to help our small sales force understand why it was so much more profitable for them to sell large quantities of parts for which we already owned the tooling than to get excited about a new idea for a toy or a kitchen gadget. We did produce some new products each year, but the process of selecting those products was very careful and required a number of challenging discussions backed by hard nosed estimates. The money at risk was mostly Jim’s, but everyone in the discussion understood just how important it was to make choices based on realistic numbers.
If you have gotten this far without giving up, you might be wondering what this has to do with the atomic energy industry.
I have spent a number of hours over the past few weeks thinking about the stalled “nuclear renaissance”, the vision of a fleet of identical EPRs that Unistar’s Mike Wallace shared with the ANS Utility Working Conference about 4 years ago, and the importance of obtaining an economic order quantity before making a production decision. Though I wish the world was different, my conclusion is that I fully understand why Constellation Energy has announced that it is willing to sell its interest in Unistar for a buck and a partial recoupment of the money that it has spent.
If the leaders in the US think that we can restore an industry that has the capability to build large nuclear power plants on what amounts to a tiny trickle of orders in the single digits over the next ten years, they need some lessons from Jim Garlets about the importance of obtaining orders with a high enough unit volume to make a new product development worth the effort.
Unless we change directions soon and start investing some risk capital in actually building new facilities, I fear that the universe of required suppliers will move on. My bigger concern is that the influx of new engineering and technical students who were attracted by the noise are going to have to put their computer skills to use for something besides running core neutronics models. There will be jobs in operating and maintaining existing plants, but many of the fresh grads did not go through the hard days of study to prepare for participation in a stagnant industry.
I am not giving up and not negative about the prospects of at least some success, but it is time for a resounding wake up call to the people who are sitting on the sidelines and afraid to spend money for new production facilities during a time when money is really, really cheap.
I am in the process of obtaining a 30 year fixed rate mortgage for a non productive asset – a house that we hope to make into a welcoming home for grandchildren and their parents to visit. We have locked in an interest rate on that loan that is 1/3rd of the interest rate that my wife and I paid on our first house.
We bought that house in February 1983, about the time that project costs on plants like Vogtle 1 & 2 and South Texas Project 1 & 2 were soaring into the stratosphere due to interest rates that exceeded 15% and long, TMI related delays. To give you an idea how important that difference in interest rate is for a 30 year loan, our house payment will be about 40% higher than the payment on our first house – for a loan that is about six times as large on a house that contains more than twice as many square feet and about 4 times as much land.
I have a money market account where we have been accumulating the down payment for that house; the interest on that account, with its five digit balance, is so close to zero that I do not expect to obtain more than $5 for the entire year. I would love to find an investment that would reliably pay 3-4% per year. Are there any investment professionals out there who are setting up funds specifically aimed at lending money to nuclear facility builders who can see just how valuable new plants will be once people recognize that “cheap gas” is a mirage dependent upon a brief dip in market demand and a temporarily favorable regulatory decision giving an exemption to the Clean Water Act?
Update: (Posted at 0555 on October 19, 2010) On a much happier note, I found an article about a proposed two unit EPR in California’s San Joaquin Valley titled Can Solar, Nuclear or Both Save California’s San Joaquin Valley? Here is a sample quote:
“Nuclear’s getting a lot more popular than it was before,” said John Hutson, president and chief executive of the Fresno Nuclear Energy Group, during the CPUC appearance, part of the commission’s “Thought Leaders” discussion series on energy topics. Although Mr. Hutson did not mention it, President Obama has said that expansion of nuclear power generation in the United States is necessary.
“We will ultimately carry the day,” Mr. Hutson said of potential litigation or other impediments to the nuclear plant’s construction. “There are no issues left to address.”
One more happy note. Just in case my early morning pessimism is wrong and the leaders of the nuclear industry do get their act together and begin ordering the components required for building a number of new nuclear power plants in the United States, we might need to have some excited young people getting prepared to take on the important task of building and operating long lived, reliable power stations. My friends at PopAtomic Studios have just entered into a partnership with the Michael Krupinski Memorial Foundation to raise money to support atomic education by selling sharp looking cases displaying pieces of graphite from CP-1. Get one before they are all gone!