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Widget Production - Evaluating a Company

Evaluate a company that has personal issues that must be resolved. Read the following scenario to evaluate Taylor Inc. operations-management processes to help them maximize labor productivity. Management for Taylor Inc. would also like you to suggest alternative management techniques to improve productivity.

Taylor Inc. manufactures widgets. There is a particular assembly line for Widget X. This assembly line includes the assembly of various raw materials, subassemblies, and packing of the finished widget. Currently, approximately 27% of the total labor time is utilized in walking by assembly line personnel to obtain the needed parts required to accomplish their assigned tasks. The average hourly cost, including all benefits, is $43 per hour. Seventeen people are required on the assembly line. Lifting containers that weigh approximately 42 pounds is required in several of the respective tasks. The current output of finished widgets is 208 per 8-hour shift. The company incurs an average of four worker's compensation claims per year in back injuries due to lifting. An average claim equals $109,000 and the employee is out for an average of 280 hours. The injured worker must be replaced to sustain production. By improving the physical layout, productivity may be improved and worker's comp claims reduced. Two layouts have been proposed.

Alternative One: reduces wasted motion (walking) to 1% of total labor used on the assembly line. Physical lifting is reduced to no more then 12 pounds. Six people will be required on the assembly line. Productivity in finished goods per 8-hour shift will increase to 392. It is anticipated that worker's compensation claims will be reduced to .3 per year; however, a capital investment of $1.3 million is required in robotics and mobile storage carts. Useful life of the equipment is 7 years.

Alternative Two: reduces wasted motion to 7% of total labor time while physical lifting is reduced to no more then 23 pounds. Nine people are required to staff the assembly line. Productivity will be 288 widgets per 8-shift. Worker's compensation claims are estimated at 1.9 per year. Capital investments are $967,000 with a useful life of 5 years for the equipment.

I need an executive summary that provides justification for the particular alternative you select. As part of your justification, provide

- a cost-benefit matrix that compares the alternatives.
- the effects the alternative will have on productivity.
- possible benefits of using a network strategy to streamline operational procedures.

Note: The lowest cost alternative may not be the best alternative.

Solution Preview

I propose that we go with Alternative 1. As you can see in the cost benefit matrix, alternative 1 provides the best option. The savings in wages plus claims cost is the highest for alternative 1 ($1.7M compared to $1.2M for alternative 2). These savings result in a higher cash flow for years 1 through 5 even after deducting the capital expenditure in year 1. In Year 1, cash flows from alternative 1 would be $465K while that from alternative 2 will only be $252K. Year 2 through Year 5 cash flows will be $1.7M compared to ...

$2.19