Hamed Fazlollahtabar (Department of Industrial Engineering, School of Engineering, Damghan University, Iran)
Mohammad Saidi-Mehrabad (Faculty of Industrial Engineering, Iran University of Science and Technology, Iran)

Cost Engineering and Pricing in Autonomous Manufacturing Systems

ISBN: 978-1-78973-470-6, eISBN: 978-1-78973-469-0

Publication date: 12 March 2019


Fazlollahtabar, H. and Saidi-Mehrabad, M. (2019), "Prelims", Cost Engineering and Pricing in Autonomous Manufacturing Systems, Emerald Publishing Limited, Leeds, pp. i-xv.



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Copyright © 2019 Emerald Publishing Limited

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Cost Engineering and Pricing in Autonomous Manufacturing Systems

Title Page

Cost Engineering and Pricing in Autonomous Manufacturing Systems

Hamed Fazlollahtabar

Department of Industrial Engineering, School of Engineering, Damghan University, Iran

Mohammad Saidi-Mehrabad

Faculty of Industrial Engineering, Iran University of Science and Technology, Iran

United Kingdom – North America – Japan India – Malaysia – China

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Emerald Publishing Limited

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First edition 2019

Copyright © 2019 Emerald Publishing Limited

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ISBN: 978-1-78973-470-6 (Print)

ISBN: 978-1-78973-469-0 (Online)

ISBN: 978-1-78973-471-3 (Epub)


List of Figures ix
List of Tables xi
Preface xiii
Acknowledgments xv
Chapter 1 Introduction 1
1.1. Autonomous Manufacturing System 1
1.2. Costing and Pricing 3
  1.2.1. Opportunity Cost 4
  1.2.2. Opportunity Costs and Market Prices 6
  1.2.3. Price 6
Chapter 2 Concepts of Costing in Automation 9
2.1. Overview 9
2.2. Introduction and Related Works 10
2.3. Model Development 12
  2.3.1. Key Dimensions for Managing Automation Supply Complexity 12
  2.3.2. Reference Automation Agent Architecture Model 14
2.4. New Paradigm: The Use of Automation Resources 17
  2.4.1. Economic Aspects of the Automation Life Cycle 17
  2.4.2. Maximum Benefit of the Product Life Cycle 19
2.5. Data Integration Model 20
  2.5.1. Costs and Benefits of IS 21
  2.5.2. Balancing Benefits against Implementation Costs 21
2.6. Discussions and Concluding Remarks 22
Chapter 3 Concepts of Pricing in Automation 25
3.1. Overview 25
3.2. Introduction and Related Works 25
3.3. Model Development 29
  3.3.1. Automation Energy Pricing Model 30
  3.3.2. Concession Pricing Model 32
  3.3.3. Representative Automation Pricing Methods 36
3.4. Discussions and Concluding Remarks 41
Chapter 4 Cost Parameters and Costing Models in Autonomous Manufacturing 43
4.1. Overview 43
4.2. Introduction and Related Works 43
4.3. Cost Accounting Concept 45
  4.3.1. Documenting Cost Accounting Policies 46
4.4. Cost Object 47
4.5. Manufacturing Costs 51
4.6. Costing Model Development 53
4.7. Application Study 55
4.8. Discussions and Concluding Remarks 62
Chapter 5 Cost Engineering in Autonomous Manufacturing 65
5.1. Overview 65
5.2. Introduction and Related Works 65
5.3. Cost Engineering 72
5.4. Cost-Minimization/Profit Maximization 72
  5.4.1. Short-run Cost Minimization 74
  5.4.2. Long-run Cost Minimization 75
  5.4.3. Application Study 75
  5.4.4. Cost Functions 77
5.5. Cost of Quality 81
  5.5.1. Application of CoQ in Autonomous System 83
5.6. Discussions and Concluding Remarks 87
Chapter 6 Cost and Price in Autonomous Manufacturing 89
6.1. Overview 89
6.2. Introduction and Related Works 89
6.3. Model Development 93
  6.3.1. Time-varying Pricing 94
  6.3.2. Production Function 97
  6.3.3. Electricity Cost Function 99
  6.3.4. Labor Cost Function 101
6.4. Manufacturing Profit Maximization 102
6.5. Example 103
6.6. Discussions and Concluding Remarks 105
Chapter 7 Pricing Models in Autonomous Manufacturing 107
7.1. Overview 107
7.2. Introduction and Related Works 107
7.3. Model Development and Analysis 110
7.4. Discussions and Concluding Remarks 114
Chapter 8 Price Optimization in Autonomous Manufacturing 117
8.1. Overview 117
8.2. Introduction and Related Works 117
8.3. Smart Manufacturing 121
8.4. Pricing in Manufacturing 123
  8.4.1. Profitable Selling 125
  8.4.2. Cost System for Advanced Manufacturing Systems 126
8.5. Estimating RWSC 127
8.6. Application of the Cost Model 134
8.7. Discussions and Concluding Remarks 135
References and Further Reading 137
Index 157

List of Figures

Fig. 2.1. Impact of Automation Supply Complexity on Focal Company. 13
Fig. 2.2. The Switch of the Responsibilities. 15
Fig. 2.3. The Product Life Cycle. 18
Fig. 2.4. The Course of the Cost and Benefit in the Product Life Cycle. 19
Fig. 3.1. Comprehensive Structure for Pricing in Automation Projects. 32
Fig. 3.2. Concession Pricing Parameters of Automation Projects. 34
Fig. 3.3. Causal Loop Diagram for Concession Pricing of Automation Projects. 35
Fig. 3.4. Equivalent Marginal Cost Pricing (Emcp) Model in Automation Pricing. 39
Fig. 3.5. Emcp Model in Automation Pricing. 40
Fig. 4.1. Dimensions for the Analysis to the Cost Object. 48
Fig. 4.2. Dimensions for the Analysis Related to the Computations Challenge. 50
Fig. 5.1. Combination of Robot and Resources for Cost Minimization. 74
Fig. 5.2. Combination of Robot and Resources for Profit Maximization. 74
Fig. 5.3. Short-run Cost Minimization with One Fixed Input. 76
Fig. 5.4. Cost Function Behavior. 78
Fig. 5.5. Lundvall–Juran Curve Depicting Relationship between Conformance (Prevention) and Nonconformance (Appraisal + Failure) Costs and the Tradeoff Point (Eql). 82
Fig. 5.6. Type I and Type Ii Errors. 84
Fig. 5.7. Representation of a Double-stage Acceptance Sampling Flow Diagram. 85
Fig. 5.8. Schematic Representation of Double-stage Accepting Sampling. 86
Fig. 6.1. Decomposition of the Profit (a) and the Total Cost (b). 94
Fig. 6.2. Diagram of a Typical Manufacturing System. 97
Fig. 6.3. Results of Example 1. 103
Fig. 7.1. The Price–Demand Curve (One Period). 111
Fig. 7.2. The Price–Demand Curve (Two Periods). 111
Fig. 7.3. The Price–Demand Curve (Three Periods). 112
Fig. 8.1. Six Pillars of Smart Manufacturing. 122
Fig. 8.2. A Cost System Supporting Analysis of Advanced Manufacturing Systems. 127

List of Tables

Table 2.1. Shares of Costs, Revenue, and Benefits of a Manufacturing Cell as an Example (in US$). 20
Table 3.1. The Summary of Pricing Literature. 30
Table 3.2. Price Adjustment Coefficient of Reference Cases. 36
Table 3.3. Energy Pricing Mechanisms in Some Countries. 38
Table 4.1. Sample Worksheet for Mold Manufacturing Time Calculation. 57
Table 4.2. Sample Worksheet for Assembly Cost Calculation. 61
Table 4.3. Parameters Used for High-cost Manufacturing Environment And Low-cost Manufacturing Environment (Hourly Rates). 62
Table 5.1. Keywords and Combinations. 69
Table 5.2. AB – Application Area from Costing Method. 70
Table 5.3. AC – Level of Integration Between Costing Methods and Production Process. 71
Table 5.4. AD – Advantages Resulting from the Application of Costing Methods. 71
Table 5.5. AE – Difficulties in the Deployment and Utilization of Costing Methods. 73
Table 6.1. Typical Pricing Profiles in New York, Usa. 95
Table 6.2. Typical Tou and Cpp Pricing Profiles in California, Usa. 96
Table 8.1. Computer System Functions for Automated Manufacturing. 120
Table 8.2. Five Cases Considered for Failure Cost Estimation. 131


Automation will substantially disrupt markets throughout the economy in the coming decade, ranging from construction to financial services. By understanding how technological changes will impact these markets, businesses can take advantage of the situation. Most importantly, buyers should be aware that those falling wages costs will help slow price growth in these markets, potentially providing the flexibility to delay purchasing decisions. Due to high tendency in employing high-tech machines and devices in industry and with respect to extensive consideration in automation, it is significant to investigate specific problems and challenges related to autonomous systems. However, such expensive systems require large amount of economic investment. Thus, identifying cost factors, analyzing them, and developing engineering paradigms for control and optimization need to be studied. Engineering design impacts whole-life cost of products produced. Understanding true cost of a product and the cost drivers during the design stage could guide the design process to obtain more competitive solutions. Cost engineering is concerned with cost estimation, cost control, business planning and management, profitability analysis, cost risk analysis and project management, planning, and scheduling. There are many different approaches and methods for estimating or assessing costs, all of which have advantages and disadvantages under particular circumstances. Cost estimating helps companies with decision making, cost management, and budgeting with respect to product development. It is the start of the cost management process. Cost estimates during the early stages of product development are crucial.

Also, to have more productive system and to obtain profit, appropriate pricing models should be developed to handle the operational costs in autonomous manufacturing systems. Price is one of the most flexible elements of the marketing mix, which interferes directly and in a short term over the profitability and cost effectiveness of a company. In fact, businesses can combat the destructive pricing environments that result from increased competition and globalization by implementing a more strategic pricing approach. This method provides businesses with the ability to maximize profit by providing visibility to pricing sensitivity – allowing you to maximize price in every transaction.

Therefore, both academicians and practitioners can find the book helpful. Graduate students can use the book as a course textbook or as further reading source. Industrial practitioners can learn significant concepts and applied models to be employed in real cases investigations and implementations.

Therefore, this book encompasses variety of topics in cost analysis for autonomous systems and pricing models. Different topics such as scheduling costing, agent-based costing, cost parameters of an advanced manufacturing system and operations planning with respect to cost management and cost minimization are considered in the book. Also, due to high competitive market and profit aspects, pricing concepts and models for autonomous manufacturing systems are developed. The models are novel and adapted based on autonomous manufacturing systems. Some of the distinct properties of the book are listed as follows:

  • A pioneer book in cost engineering for autonomous systems.

  • Introducing cost parameters, elements, and optimization models.

  • Pricing models adapted for autonomous manufacturing.

This book covers several general and technical concepts involved in optimal decision making for manufacturing systems and also the use of autonomous systems as industrial automation for both researchers and executive managers. The book can be employed as a course book in graduate studies of industrial and systems engineering, operations management, logistics, etc.

Structure of the book and the materials in each chapter are further explained here.

In Chapter 1, an overview of the book and significance of the concepts considered in the book are given. In Chapter 2, the basics of costing and different cost models are explained within a scheduling problem in advanced manufacturing system. In Chapter 3, pricing models are discussed in detail and a case is investigated. Analytical studies on the performance of the pricing models in different conditions are also included. In Chapter 4, various cost parameters in manufacturing systems and costing models are reported and detailed in a case problem where specific data are extracted and a costing model is implemented. The impact of each cost parameter is also analyzed. In Chapter 5, cost minimization is discussed with respect to engineering paradigm in product design and manufacturing planning. In Chapter 6, cost/price interaction for profit modeling is handled. Profit maximization is a common goal of manufacturing needing to consider both cost and price at the same time. In Chapter 7, pricing model for advanced systems is detailed and implemented for a specific system. In Chapter 8, price optimization with respect to costs is modeled for an advanced manufacturing system. The model considers a comprehensive set of parameters and provides a generic framework for other systems.


We would like to express our gratitude to the many people who saw us through this book; to all those who provided support, talked things over, read, wrote, offered comments, allowed us to quote their remarks and assisted in the editing, proofreading, and design.

We would like to thank Iran National Elites Foundation and Damghan University for enabling us to publish this book. Above all, we want to thank our families, who supported and encouraged us in spite of all the time it took us away from them. It was a long and difficult journey for them.

Our specific thanks to Iman Dadashpour and Ahmadreza Rostami for their warm and effective cooperation in preparing the materials of the book in different stages. Last and not least, We beg forgiveness of all those who have been with us over the course of the years and whose names we have failed to mention.

Hamed FazlollahtabarMohammad Saidi-Mehrabad