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What are libraries in DFMA software?

They are databases that are user editable, and are separate files, with their own filenames and extensions. Each opens in its own window in DFA and DFM Concurrent Costing. The default location is the Library folder created during DFMA installation. You can have more than one library file of the same type, with each having a different filename. You can set the one to be used by the DFMA application in the Librarian dialog (Tools menu->Librarian.)

Here are the libraries by application and purpose:

Application Default filename & extension Purpose
Design for Assembly dfaitem.dfi For adding entries to an analysis; stores part and subassembly data for repeat use
  dfaoperation.dfo For adding entries to an analysis; stores formulas and default values for operations
DFM Concurrent Costing dfmcostmaterial.mtl Stores material data needed for process time and cost calculations
  dfmcostmachine.mcl Stores machine setup data for process time and cost calculations
  dfmcostoperation.opr For adding entries to an analysis; for adding machining steps to a setup; stores formulas and default values for operations
Design for Environment dfeeco95.mpl dfemet94.mpl Two different databases; used in calculating environmental effects from part manufacture
  dfeeco95.mml dfemet94.mml Two different databases; used in calculating environmental effects from to material extraction, treatment, use and disposal
  dfa.opr For adding entries to an analysis; the library is the DFA version 8 operation library; it can only be opened and edited in the DFA version 8 application; DFE can add disassembly and other operations from it
Design for Service dfs.opr For adding entries to an analysis; stores formulas and default values for operations
  dfs.itm For adding entries to an analysis; stores part data for repeat use