Medical Design Briefs - August 2022 - 9

F
orensic cost analysis methods have already
gained traction in the automotive industry,
which has long recognized the value of determining
an accurate cost of components and
assemblies based on realistic labor and materials
costs, as well as the physics of manufacturing processes.
What you might not know is that the lessons
learned from automotive costing easily transfer to
medical products, devices, and equipment.
Unlike traditional cost analysis methods, which rely
on historical cost data and estimates about manufacturing
inputs, the forensic cost analysis approach is
based primarily on the physics of all the manufacturing
and assembly processes needed to produce a finished
device. For example, we would derive the cost of
molding a plastic housing component given its polymer,
projected area, wall thickness, and other attributes.
Due to its high level of detail, we can base our
analysis on specific molding machines that produce
the parts at a specific cycle time.
The mechanical and electrical components in a pulse oximeter. (Credit: Intellicosting)
Forensic costing repeats this process for every single
mechanical and electronic component in a device's bill of materials.
The models also add in the full range of traditional
fixed and variable cost factors including capital equipment
amortization, maintenance, taxes, insurance, research and development
(R&D), and sales costs. To illustrate what forensic
cost analysis looks like for high-volume, mass-produced medical
devices, this article presents two teardowns: a pulse oximeter
and a TCL5007 electrocardiogram (ECG).
Pulse Oximeter Cost Analysis
Widely used through the COVID-19 pandemic,
pulse oximeters employ light beams to estimate
blood oxygen saturation and pulse rate
without the need to draw blood samples. The
following cost study focuses on an off-theshelf,
consumer-grade device from Walgreens.
We performed a detailed cost analysis of every
single component that makes up the device
- right down to the labels. For the pulse oximeter,
the analysis broadly fell into two
device categories: the mechanical
components and the electronics.
Mechanical components. For
our mechanical analysis, we
started by removing, weighing,
and photographing
each component that
makes up the device,
capturing
information
on material type, dimensions, country of manufacture,
and quantity using proprietary costing software. This software
allows our estimators to apply forensic costing models that
identify the manufacturing and assembly operations for each
component in the device. These models also provide us with a
detailed understanding of the costs associated with a wide variety
of manufacturing processes including machining, stamping,
injection molding, heat treatment, and plating.
Next, we accounted for the capital expenses, number of operators,
scrap rates, raw material usage, raw material price, indirect
labor, number out at each operation, burden, selling,
general and administrative (SG&A) expenses, and profit associated
with the various mechanical components. In general, we
can optionally adjust our models for labor rates, country of
manufacture by operation, capital, SG&A, and profit.
Electronic components. The analysis of the pulse oximeter's
electronic components also began with device disassembly,
during which we noted manufacturing processes and design
for manufacturability (DFM) concerns. We also took many
photographs to document the teardown process. From there,
we categorized all the electronic components by individual
boards and circuits and applied cost models to each component
by function - passive, discrete, active, application- specific
integrated circuits (ASIC) and custom components.
Our electronics analysis often includes advanced methods to
understand costs and, in many cases, we will apply forensic delayering,
x-rays, and microscopic photography to discover die area
and manufacturer information. We also examine circuit board
substrate materials to determine manufacturing process and material
costs - including coatings, potting, and flex material -
and we assess design requirements like software, hardware design,
mechanical design, test, validation, and systems. For the
pulse oximeter's electronics, we accounted for manufacturing
factors such as capital requirements, labor, burden, SG&A, and
profit using machine cost models that analyze cycle times
and line layout.
After compiling the mechanical and electronics
findings into our final report,
we found that the
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Medical Design Briefs - August 2022

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