Flock of Water

Capital Investment Summary

ME 225
6/1/15

Boeckel, Bunker, Hernandez, Lim

Table of Contents
Table of Contents.........................................................................................................................................1
Executive Summary.....................................................................................................................................1
The FlOW Sprinkler....................................................................................................................................2
Nested BOM................................................................................................................................................4
Costed BOM with Manufacturing Costs......................................................................................................5
Wired Assembly......................................................................................................................................5
Solar Powered Assembly.........................................................................................................................5
Manufacturing Plans....................................................................................................................................6
Assembly Line Layout...............................................................................................................................10
TLA Software............................................................................................................................................10
Capital Investment Requirement................................................................................................................11

Executive Summary
Flock of Water, is a newly established smart irrigation system company, introducing the worlds
first ever smart sprinkler head system, FlOW. Flow is an innovative and new benchmark standard for
smart and water conscience irrigation for both commercial and home landscape use. The Flow irrigation
system connects all sprinkler heads by utilizing a mesh network, in which each sprinkler head can act
independently of each other. Each sprinkler head acts as a node in the total network of sprinkler heads.
The mesh network allows for each sprinkler head to be controlled from a central source, such as a tablet
or mobile device, all without having to connect the sprinkler heads to a central brain (control box). Flock
of Waters patented and innovative flocking algorithm allows each sprinkler to be controlled
independently. This algorithm will revolutionize the landscape irrigation industry, setting a new irrigation
standard.
The Flow system will debut at the 2016 iLandscape conference, where two models of the
sprinkler system will be showcased, our wired and solar powered models. The wired model will be
introduced into the market Quarter 1 of 2016 with the solar powered model to closely follow at the
beginning of Quarter 3. Financial planning and outlook for the upcoming fiscal year estimates that Flock
of Water will need an initial inventory amount of 1000 wired sprinkler heads. Post trade show the Flow
irrigation line is expected to sell at a rate of 1000 units per month during Quarter 1. This prediction also
forecasts an increase in sales to 15,000 units per month in Quarters 2 and 3. At that point it is predicted
that sales will decrease to 1,000 units per month from October to the end of the year for the Fall season in
the United States. Sales for the Flow system will be handled through our online retail store and through an
exclusive partnership with the Lowe's Home Improvement Company, where they will stock our sprinkler
head system in stores across the country.
This executive document will detail a break-down for an initial capital investment in order to start
production of the Flow Irrigation system. This document will outline the costs for manufacturing, part
materials, labor, inventory management software, and supply chain analysis both in the United States and
for overseas production. The Flow system will initially be manufactured in the United States, with a
potential to move production overseas to China.

The FlOW Sprinkler

FlOW has created a revolutionary product for the landscaping market. With our custom circuitry and
flocking algorithm, each sprinkler head can be controlled independently from the users device, such as a
tablet or smartphone. The wireless communication is made with Bluetooth technology, specifically with a
Bluetooth chip within the sprinklers circuitry that connects directly to the Bluetooth chip already
embedded in the users device.
The signal sent with this Bluetooth connection triggers the attached solenoid valve at the bottom of the
sprinkler assembly. This solenoid valve opens as current is supplied to the valve by creating a magnetic
field that pulls an internal piston to the open position to let water flow through. The input side of the valve
is connected to the main sprinkler water supply line so water is always ready to be supplied.
Though we will initially be releasing a sprinkler that is hard-wired to a central power supply, the final
design implements a 3.5 x 3.5 solar panel on each sprinkler head to provide the voltage and current
needed to power the system. At 6 Watts, the panel can provide enough power for the solenoid valve as
well as the Bluetooth chip and related circuitry. The design also includes a rechargeable AA battery
embedded inside of the system. This power source lets the user use the sprinkler system at night, or
anytime when there is not daylight. The only differences in the hard-wired design is the absence of the
solar panel and rechargeable battery.
As the valve opens, water flows through into the pop-up mechanism. The pop-up mechanism is purely
pushed open by the pressure of the water and water is sprayed out of the slot opening in the mechanism
head. The spring is compressed so that when the water pressure is released, the mechanism slides back
down so it is not visible.

Nested BOM
Wired Assembly

Solar Powered Assembly

The above Nested BOMs show the component break down of the sprinkler assembly for both the solar
powered and wired models. The total assembly will only require one of every component listed in the
BOM.

Costed BOM with Manufacturing Costs

Wired Assembly
Solar Powered Assembly

The estimates for labor were calculated from average labor costs for both the United
States (California) and China. In the United States, the California average assembly worker wage
is approximately $15.00 per hour with the company also paying an additional $5.00 per worker
for benefits cost. While in China the average assembly worker wage is approximately $2.25 per
hour without an additional cost for benefits. Using these hourly wage values and an approximate
assembly time of 1 minute per sprinkler assembly we were able to extrapolate a total labor cost
per part and total cost per assembly for both countries.
USA (California)

China

Labor Cost/Part: ~$0.33

Labor Cost/Part: ~$0.04

Total Cost/Part: ~$12.80

Total Cost/Part: ~$12.51

*Full Page BOM in Appendix

Manufacturing Plans
Manufacturing for the Flow system will take place in California. Flock of Water specializes in
software and engineering currently, so manufacturing is not our field of expertise. For this reason we have
decided to outsource all of the manufacturing. Our central office is in Palo Alto, so manufacturing close to
home will ensure we can get a high quality product and keep in close communications with our
manufacturers and suppliers. As discussed above, the cost of manufacturing in the US will be higher due
to a higher labor rate; this equates to a $0.19 difference per part. However, when we consider the cost of
shipping parts, sending engineers to China, and ease of communication and local relationships, the
difference is negligible. Shipping from China to the United States breaks down to be about $0.10 per part
(See Table 1). Additionally, shipping from China causes an increase in inventory due to the long shipping
times which is approximated at 40 days to go from China to California including customs.
Table 1: Total cost and Time to Ship a 24 shipping container from China to California.
Export Cost

$864

Transit Cost

$2000

Import Cost

$1289

Total Cost

$4153

Total Days

40

Cost/Part

$0.10

Sending an engineer to China monthly to check in with the quality control and supplier every
month would cost about $5,000/month or $60,000/ year just for airfare. An alternative would be to hire an
engineer to relocate to China, but this too will cost about $100,000/year and may be difficult to find.
Figure 1 shows what a supply chain in China might look like. Raw materials, electronics, and plastic parts
would be made and assembled in a central space, and then product would be shipped overseas by boat and
air. Overall for a small company like Flock of Water, and because our productions volumes are small, we
believe it is of utmost importance to have a good line of communication between our engineering team,
suppliers, and manufacturers, and we have decided to keep manufacturing permanently in the United
States.

Figure 1: Foreseeing a Supply Chain for FLOW in China

Figure 2 below shows FLOWs supply chain in the U.S. All components including packaging are
sourced from the Bay Area. Since Flow is a relatively small company, it will be essential to create strong
relationships to our suppliers. In addition, because we value creating high quality products, we want to be
able to check in on our manufacturers and make changes to improve our product within days. Proximity
to vendors will give us more time to plan, make improvements, connect to the right people, and create a
strong foundation for our company.

Figure 2: Supply Chain for FLOW in the U.S.

We will be working with Sonic Manufacturing to assemble our smart sprinklers. PCB, plastic,
and packing will be shipped to Sonic, and we will oversee the product assembly flow from the Fremont,
CA location. We also plan to partner with Lowes so that they can help us on our sales front. We will have
our own headquarters building, however headquarters will only provide inventory storage, and offices for
a business front. We will use this location for inventory storage as we prepare for in-season demands.
Products stored here will be sold to customers through the FlOW website.
To meet the required 1000 units for debut at iLandscape in January 2016, manufacturing will
begin with 1000 units in December 2016. We expect demand to stay constant during Quarter 1 of 2016
before ramping up for the spring and summer season in Quarters 2 and 3, so manufacturing will slowly
ramp up to 15,750 units/month by April 2016. This level of production will continue until the end of
Quarter 3 then drop down to 5,250 starting in September 2016, for the remainder of the year. Settling into
a constant demand and manufacturing plan in 2017, the factory will run at capacity between the months
of September and February (5,250 units/month) and full capacity from March to August
(15,750units/month). This increase and decrease will occur with two changes. First there will be two lines
running during full production and one will be run on two shifts during the day. During the slow months
one line will be run one shift during the day.

This increase and decrease in production will decrease the inventory required to meet the seasonal
demand, as compared to steady level manufacturing which would require a maximum inventory of
approximately 7,000 units. Given the change in manufacturing during season months the maximum
inventory required is approximately 3,000 units just before the increase in April. Additionally there will
be raw material and WIP inventory during that time frame to meet the 15,750 units to be manufactured in

April. In total this equates to about $1 million in inventory and will require about 50 sq. ft. of warehouse
space.

Assembly Line Layout

The main components of FLOWs smart sprinklers are electronics and plastic pieces. The plastic
and electronic tables will be restocked throughout the day with more raw components so that workers can
continue to work at a steady pace without too much extra movement. To assemble the sprinkler we have
broken up assembly flow into plastic electronic assembly, plastic assembly, and final assembly with
quality testing. Through testing, electronics assembly and plastic assembly will take both take about 1
minute per piece. From here, the plastic pieces and electronic pieces will move into final assembly and
testing which we also estimated to take the same amount of time. Quality tests include fixtures that assure
that sprinkler valves are functioning properly and software tests to assure that the sprinkler connects to
the mesh network.

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Figure 3: FLOW Assembly Layout and Flow Factory Layout

Since FlOW has a couple months to ramp up production, with one workstation, FlOW would be
able to produce 434 sprinklers during one shift of a normal work shift. Because the first months only
require 1000 pieces from demand, during early months, FlOW will be able to collect and store inventory
that will drive in-season demands. As the season approaches, FlOW will also vary the number worker
shifts in order to make sure that FLOW is collecting enough inventory for high demands during the
second quarter.

TLA Software
Implementing a TLA software to manage inventory, supply chain, and inventory is key to the
success of Flock of Water. Currently Flock of Water is a small company, but we have the potential to grow
if the Flow System truly takes off, so we want to use an ERP system that offers solutions for both small
and midsize companies. Due to the seasonal demand expected for the FlOW System, it will be especially
important to keep track of inventory and supply chain to ensure that we are ready for the large upswing in
April. Because Flock of Water is small, cost is still a large obstacle, eliminating many ERP systems. Table

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2 lists the ERP software systems we have explored as options for Flock of Water with respect to our
company needs.
Table 2: Summary of ERP Softwares features compared to Flock of Water needs.

We have decided to go with Epicor ERP System because it meets the most of our companies
needs, especially the important ones like Inventory Management, Quality Control, and cost. Epicor costs
$2,500 for initial startup cost of the software. For one user it is $399/month and $199/month for every
user after that. We think having two computers registered with the Epicor is sufficient for our needs,
leading to a total cost of $600/month for ERP Software. For the first six months of manufacturing we will
be working to transition our current Excel financial system into the Epicor system so that we are fully
converted by the middle of peak demand.

Capital Investment Requirement

In total we asking for a $1.8 million investment. A summary of the breakdown of this funding
request can be found in Table 3.
Table 3: Summary of capital investment ask breakdown.
Factory Workers Salary (1 year)

340,000

Factory Manager Salary (1 year)

60,000

Tech Team Salary (1 year)

340,000

Epicor ERP (1 year)

10,000

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Material Costs (1 year)

660,000

Tooling

100,000

FlOW Headquarter Office Space

(1 year)

90,000

Total Ask

1,600,000

Factory workers salary is based off a $20/hour wage, 8 hours a day with factory manager at
$25/hour. The tech team salary includes the salary for the four of the original founders at $85,000/year.
The HR salary is to hire two new employees to cover office tasks. Epicor ERP costs $2,500 initial start up
cost and $600/month for two users. Marketing consulting for 6 months costs at $500/day. Material costs
will cover all materials to manufacturing one years worth of inventory. Office space is based off a 2,500
sq. ft. at $1/sq.ft/month plus utilities and furniture. These costs will cover all of the company costs for
one year at which point will be in the positive revenues and can sustain our manufacturing and business
on our own.

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