3M Company's Use of Crystal Ball Improves Unit Cost Estimates CUSTOMER OF THE MONTH (DEC. 1998)

Michael Muilenburg works in the Process Development area at 3M Company in St. Paul, Minnesota. In this area, Michael works as an interface between the Design Engineers, R&D Laboratory, and various manufacturing plants. The laboratory develops prototype products, the engineers design the production scale equipment, and the manufacturing plants complete the actual production. Michael has used Crystal Ball in the past to help identify the optimum production process steps as well as the types of equipment and raw materials to use in manufacturing processes.

Crystal Ball played an important role in projecting unit cost figures for products early in the development stage. This is often a very complex and time-consuming process and includes many different variables. The unit cost projection process began after Michael received proposals for the production of a new product. He then contacted Purchasing to gather cost figures for the raw materials necessary to produce the product. Rather than look at only the most current raw material prices, he collected data over a 12 to 24 month period. This allowed him to easily view raw material price trends and to determine the range and distribution of the prices over time. With this information Michael was able to compensate for the fluctuations in his model.

Other important variables that were part of the unit cost calculations included production rates, material waste, changeover costs, and capital expenditures. As Michael incorporated more variables into his model, he was able to generate a clearer picture of the influence each input had on the unit cost projection. Crystal Ball's sensitivity analysis provided a particularly helpful way to graphically display the impact of each variable. Michael was able to create different scenarios by changing production speeds, raw material costs or other important variables. This flexibility in the planning stages provided a great opportunity to understand all of the costs and their relationships to one another. Ultimately, this also allowed Michael to come up with a more reliable unit cost estimate which, in turn, allowed 3M to get products through production and to market with no cost surprises.

Michael's previous method for doing these types of analysis was to perform a manual "what-if" simulation in Excel. After performing lengthy calculations, a best, worst and most-likely result was generated. In most cases, the most-likely scenario was selected without the confidence level provided by Crystal Ball. Crystal Ball gave Michael the ability to quantify his decisions and target unit cost levels that contribute to 3M's competitiveness in the marketplace.