RMC is considering moving some of its production from traditional numerically co
ID: 461065 • Letter: R
Question
RMC is considering moving some of its production from traditional numerically controlled machines to a flexible manufacturing system (FMS). Its computer numerical control machines have been operating in a high-variety, low volume manner. Machine utilization , as near as it can determine, is hovering around 10%. The machine tool salespeople and a consulting firm want to put the machines together.. You commented in an FMS. They believe that a $3 million expenditure on machinery and the transfer machines will handle about 30% of RMC's work. There will, of course, be transition and startup costs in addition. The firm has not yet entered all its parts into a comprehensive group technology system, but believes that the 30% is a good estimate of products suitable in the FMS.
This 30% should fit very nicely.. You commented into a family A reduction because of higher utilization should take place in the number of pieces of machinery. The firm should be able to go from 15 to about 4 machines, and personnel reduction will go from 15 to perhaps as low as 3. Floor space reduction from 20,000 square feet to about 6,000. Throughput of orders should also improve with processing of this family of parts in 1 to 2 days rather You commented 7 to 10 days. Inventory reduction is estimated a yield one time $750,000 in savings and annual labor savings in a neighborhood of $300,000. Although the projections all look positive, an analysis of the project's return on investment showed it to be between 10% and 15% per year.
The company has traditionally had an expectation that projects should yield well over 15% and have payback periods of You commented less than 5 years. As a production manager for RMC, what do you recommend? Why? Prepare a case by a conservative plant manager for maintaining the status quo until the returns are more obvious. Prepare the case for an optimistic sales manager that you should move ahead with the FMS now.
Explanation / Answer
Yes, why I recommended because this payback method is also known as replacement period method, payback is estimated time for recovering the initial amount for the project then this is used to checking how much fast new project return the investment for its investors. this new equipment reduces lot of expenses for the organization, seeking high value of return and working with efficiency. This project not only involved with high level of return but also involving high level of risk, though it is considered as flexibility and easy to control the operation because machines, inventories and floor were reduced.
Payback method =$300,000 / 5 year
=$60,000 per year + $750,000(One time savings)
=$810,000
Above I have given only for labour saving profit even this profit showed a good earning, when we calculated for whole operating income and expense it will also show high profit.
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