Material Storage and Material Storage and Dispensing Device for the Dispensing Device for the

KitchenKitchen

Charles E Schaefer, Jr. School of EngineeringCharles E Schaefer, Jr. School of EngineeringDepartment of Mechanical EngineeringDepartment of Mechanical Engineering

E 421 Engineering EconomicsE 421 Engineering EconomicsFinal PresentationFinal Presentation

Thursday, December 11Thursday, December 11thth, 2003, 2003

Mechanical EngineeringMechanical EngineeringEthan JaysonEthan Jayson

Cora LaFranceCora LaFranceJudy NgJudy Ng

Advisor: Professor Zhenqi ZhuAdvisor: Professor Zhenqi ZhuSponsors: Mark Miller & Josh PorterSponsors: Mark Miller & Josh Porter

Project Description - Technical Project Description - Technical

To Develop a Conceptual Design and To Develop a Conceptual Design and Prototype for a Material Storage Device with Prototype for a Material Storage Device with the Ability to Accurately Measure and the Ability to Accurately Measure and Dispense Powdered or Dry Food Items for Dispense Powdered or Dry Food Items for Kitchen Use.Kitchen Use.

Define Customer Needs

3D CAD Modeling

Perform Market & Patent Research

Develop ConceptualDesigns

Design forManufacturability

FEA AnalysisPrototypeIndustrial Design

Assessment

Our DesignOur Design

Project Description - Business Project Description - Business

Design and Build a Product to Store and Design and Build a Product to Store and Dispense Common Kitchen Dry GoodsDispense Common Kitchen Dry Goods

Target Markets: Target Markets: HomeownersHomeowners Parents of Newborn BabiesParents of Newborn Babies

Business ModelBusiness ModelITEMITEM BUSINESS FUNCTIONBUSINESS FUNCTION OUTSOURCEOUTSOURCE IN HOUSEIN HOUSE

11 Conduct Market Research, Preliminary DesignConduct Market Research, Preliminary Design XXXX

22 Research and Development (R&D)Research and Development (R&D) XXXX

33 Product/Process/Service Testing: Alpha, BetaProduct/Process/Service Testing: Alpha, Beta XXXX

44 Licensing Technology FROM OthersLicensing Technology FROM Others XXXX

55 Fabricate ComponentsFabricate Components XXXX

66 Develop SoftwareDevelop Software XXXX

77 Assembly Components (Final Assembly)Assembly Components (Final Assembly) XXXX

88 Test Final Assemblies, Pack & ShipTest Final Assemblies, Pack & Ship XXXX

99 Distribute Product/Process/Service to CustomerDistribute Product/Process/Service to Customer XXXX

1010 Market to OEM, DistributorsMarket to OEM, Distributors XXXX

1111 Market Directly to End UserMarket Directly to End User XXXX

1212 Train Customers, End UsersTrain Customers, End Users XXXX

1313 Provide After Sales ServiceProvide After Sales Service

(Training, Adjustment, Repair, Replacement, (Training, Adjustment, Repair, Replacement, Refund)Refund)

XXXX

1414 Consult on Product/ Process/ServiceConsult on Product/ Process/Service XXXX

1515 License Technology TO OthersLicense Technology TO Others XXXX

Business Model-Out Source vs. Business Model-Out Source vs. OwnOwn

OutsourceOutsource Make YourselfMake Yourself

Distribution

ManufactureComponents

Customer

Marketing to

Retailers

R&DLicensing

Marketing to End Users

CustomerService

Assembly

Business TypeBusiness Type

Product Business Product Business Consumer MarketConsumer Market FunctionsFunctions

Research & DevelopmentResearch & Development Market Research Market Research Customer Needs Customer Needs Develop Device to Store and Dispense Bulk Dry Goods for Develop Device to Store and Dispense Bulk Dry Goods for

Kitchen UseKitchen Use

AssemblyAssembly In-House Final AssemblyIn-House Final Assembly

Customer ServiceCustomer Service Train RetailersTrain Retailers After-Sales ServiceAfter-Sales Service

Customer/NeedsCustomer/Needs Customer Need:Customer Need:

A Centralized Location for Cooking IngredientsA Centralized Location for Cooking Ingredients One Device to Store, Measure, and Dispense IngredientsOne Device to Store, Measure, and Dispense Ingredients

Benefits:Benefits: All-In-One Aspect – Time & Space EfficientAll-In-One Aspect – Time & Space Efficient High-Tech Appeal to Kitchen High-Tech Appeal to Kitchen Reduce Risk of Spills of IngredientsReduce Risk of Spills of Ingredients

Primary Customers:Primary Customers: Age Group: 30 to 60 Year-Olds (Male and Female)Age Group: 30 to 60 Year-Olds (Male and Female) Homeowners Homeowners Newborn ParentsNewborn Parents

Total Market Share:Total Market Share: 2.8 million People by Year 5 (1% of U.S. Population, 20% of market)2.8 million People by Year 5 (1% of U.S. Population, 20% of market)

Competitor AnalysisCompetitor Analysis

Main Competitors:Main Competitors: KitchenArtKitchenArt®®

Appliance/Kitchen Goods CatalogsAppliance/Kitchen Goods Catalogs

Feature & Attribute ComparisonsFeature & Attribute Comparisons Ability to Store IngredientsAbility to Store Ingredients Accurate Measuring CapabilityAccurate Measuring Capability User FriendlinessUser Friendliness Aesthetic AppealAesthetic Appeal

Price/Performance to CompetitorsPrice/Performance to Competitors Competitor Product Prices: Range $20 to Competitor Product Prices: Range $20 to

$75$75 Our Target Price: $20 to $30Our Target Price: $20 to $30

KitchenArt®

Sunpentown

Competitor AnalysisCompetitor Analysis FeaturesFeatures

Detachable compartmentsDetachable compartments Adjustable measuring spoon (1/8 to full Adjustable measuring spoon (1/8 to full

teaspoon)teaspoon) Shaker port for light seasoningShaker port for light seasoning Pour feature for heavy seasoningPour feature for heavy seasoning

ProsPros Centralized location for materialCentralized location for material Detachable compartmentsDetachable compartments Adjustable measuring spoonAdjustable measuring spoon Different exit ports for different amounts Different exit ports for different amounts

of seasoningof seasoning ConsCons

Difficult to refill compartmentsDifficult to refill compartments Limited measuring capabilitiesLimited measuring capabilities Measuring spoon must be cleaned after Measuring spoon must be cleaned after

each useeach use

Product Name: Adjust-A-Spoon Spice Carousel

Manufacturer: KitchenArt®

Sample Product Assessment

Price of ProductPrice of Product

Price Basis Range Price

1. Cost plus Profit $20 to $30 $30

2. Competition Price Adjusted for Features

$30 - $80 $50

3. Value to Customer $20 - $30 $22

Logic: Price Chosen Based on Value to Customer

Cost to CommercializeCost to Commercialize

Total Cost of Alpha Test = $21,000Total Cost of Alpha Test = $21,000 Total Cost of Beta Test = $81,000Total Cost of Beta Test = $81,000

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

$90,000

Alpha Beta

$

Finances-Income StatementFinances-Income Statement

YearYear 00 11 22 33 44 55

Operating Revenue (K)Operating Revenue (K) $0$0 $12,320$12,320 $19,219 $19,219 $16,657$16,657 $10,394 $10,394 $7,206$7,206

Cash Expenses (K)Cash Expenses (K) $0$0 $2,982$2,982 $12,049$12,049 $11,110$11,110 $8,619$8,619 $7,410$7,410

Depreciation (K)Depreciation (K) $0$0 $125$125 $200$200 $120$120 $72$72 $72$72

Pretax Net Income (K) Pretax Net Income (K) $0$0 $2,587$2,587 $6,627$6,627 $5,256$5,256 $1,585$1,585 ($336)($336)

Income taxes (K)Income taxes (K) $0$0 $776$776 $1,988$1,988 $1,577$1,577 $475$475 ($101)($101)

Net Income (After Tax) Net Income (After Tax) (K)(K) $0$0 $1,811$1,811 $4,639$4,639 $3,679$3,679 $1,109$1,109 ($235)($235)

Total Cash Flow (K)Total Cash Flow (K) ($3,061)($3,061) $1,137$1,137 $3,992$3,992 $2,902$2,902 $231$231 ($1,171)($1,171)

Finances-Capital-One TimeFinances-Capital-One Time

YearYear 00 11 22 33 44 55 66

Principal Principal RepaymentRepayment $0 $0 ($798,284)($798,284) ($846,181)($846,181) ($896,952)($896,952) ($950,769)($950,769) ($1,007,815)($1,007,815) $0$0

Equity CapitalEquity Capital $3,625,175$3,625,175 $0 $0 $0 $0 $0 $0 $0 $0 $0$0 $17,995 $17,995

Loan ProceedsLoan Proceeds $4,500,000 $4,500,000               

Capital Capital Gains/LossesGains/Losses $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0$0 $80,004 $80,004

Working CapitalWorking Capital ($6,686,364)($6,686,364) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $6,686,364$6,686,364

TotalTotal $1,438,811$1,438,811 ($798,284)($798,284) ($846,181)($846,181) ($896,952)($896,952) ($950,769)($950,769) ($1,007,815)($1,007,815) $6,784,663 $6,784,663

Finances-Summary FoMsFinances-Summary FoMs

FOMFOM VALUESVALUES

MARRMARR 12%12%

IRRIRR 64.97%64.97%

NPVNPV$5,878,339$5,878,339

Payback in YearsPayback in Years 1.75 yrs1.75 yrs

Financial LeverageFinancial Leverage

Equity CapitalEquity Capital LoanLoanIRR IRR

(6% APR)(6% APR)

IRRIRR

(3% APR)(3% APR)

100%100% 00 39.39%39.39% 39.39%39.39%

80%80% 20%20% 39.27%39.27% 39.61%39.61%

60%60% 40%40% 48.51%48.51% 49.36%49.36%

Conclusion:

GOOD NEWS! As the loans increase, the IRR increases as well

Breakeven/Payback AnalysisBreakeven/Payback Analysis

At 40.41% Equity ($4,500,000 Loan)At 40.41% Equity ($4,500,000 Loan) Breakeven Occurs At:Breakeven Occurs At:

1.75 Years1.75 Years Sales Level of $7,432,690Sales Level of $7,432,690 Sales Volume of 126,865 UnitsSales Volume of 126,865 Units

At 100% Equity ($0 Loan)At 100% Equity ($0 Loan) Breakeven Occurs At:Breakeven Occurs At:

2.6 Years2.6 Years Sales Level of $7,432,690Sales Level of $7,432,690 Sales Volume of 126,865 UnitsSales Volume of 126,865 Units

Breakeven/Payback AnalysisBreakeven/Payback Analysis

Sensitivity AnalysisSensitivity Analysis

Key (at 10%)Key (at 10%) RatioRatio RankRank

PricePrice 5.8205.820 11

VolumeVolume 4.0264.026 22

Total Operating Total Operating ExpensesExpenses

-4.285-4.285 33

MARRMARR 0.5550.555 44

Interest RateInterest Rate 0.6930.693 55

Borrowed Capital Borrowed Capital 0.14350.1435 66

Conclusion: Unit Price is the most sensitive element with Sensitivity Ratio of 5.820

Patent AnalysisPatent Analysis

Existing Patents Existing Patents Dispenser for Granulated and Powered Dispenser for Granulated and Powered Dry Material Dry Material Dispenser Dry Material Dry Material Dispenser Dry Product DispenserDry Product Dispenser

Patent PotentialPatent Potential The Combination of Dispensing MechanismsThe Combination of Dispensing Mechanisms

Overall Assessment of Product’s Intellectual PropertyOverall Assessment of Product’s Intellectual PropertyGOOD! GOOD!

Possible Alteration or Improvement to Patented IdeasPossible Alteration or Improvement to Patented Ideas Project Encourages of Innovative Thinking Project Encourages of Innovative Thinking Patents! Patents!

Patent AnalysisPatent Analysis

Patent Num: 4,856,681 Patent Num: 3,344,958

Risk Analysis of VentureRisk Analysis of Venture

Low to MediumLow to Medium HighHigh

LowLow Medium to HighMedium to High

Markets

NewExisting

Exi

stin

gN

ewT

ech

nol

ogy

Year 0

Year 5

Venture CapitalistVenture Capitalist

Attractiveness of Project to VC:Attractiveness of Project to VC: New Innovative ConceptNew Innovative Concept Large Target MarketLarge Target Market Low Risk & High ReturnLow Risk & High Return Few CompetitorsFew Competitors

No defined competitionNo defined competition Existing products need improvementsExisting products need improvements

Decision: Decision: Will Not Seek VC FundingWill Not Seek VC Funding Would Lose Control of BusinessWould Lose Control of Business Positive Cash Flows Will Kick in Quickly AnywayPositive Cash Flows Will Kick in Quickly Anyway

Lesson Learned-TechnogenesisLesson Learned-Technogenesis®®Lesson Learned-TechnogenesisLesson Learned-Technogenesis®®

Economics of EngineeringEconomics of Engineering Business FeasibilitiesBusiness Feasibilities Technical Feasibilities Technical Feasibilities Risk vs. RewardRisk vs. Reward

Lesson Learned-E421Lesson Learned-E421

Combination of Economics and EngineeringCombination of Economics and Engineering Impact of Economics on Engineering DesignImpact of Economics on Engineering Design Importance of Patent and Existing Product Importance of Patent and Existing Product

ResearchResearch Value of Team WorkValue of Team Work Project Management/LeadershipProject Management/Leadership

Thank You! Thank You!