Share
Explore BrainMass

Production Management

Read the attached Case Study "ROCHESTER MANUFACTURING CORPORATION."

Prepare a case by a conservative plant manager for maintaining the status quo until the returns are more obvious.

----------------------

ROCHESTER MANUFACTURING CORPORATION

Rochester Manufacturing Corporation (RMC) was considering moving some of its production from traditional, numerically controlled machines to a flexible machining system (FMS). Its traditional numerical control machines have been operating in a high-variety, low-volume, intermittent 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 in an FMS. They believe that a $3,000,000 expenditure on machinery and the transfer machines will handle about 30% of RMC's work. The firm has not yet entered all its parts into a comprehensive group technology system, but believes that the 30% is a good estimate. This 30% fits very nicely 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 fifteen to about four machines and personnel should go from fifteen to perhaps as low as three. Similarly, floor space reduction will go from 20,000 feet to about 6,000. Output of orders should also improve with this family of parts being processed in 1 to 2 days rather than 7 to 10. Inventory reduction is estimated to yield a one-time $750,000 savings, and annual labor savings should be in the neighborhood of $300,000. Although the projections all look very positive, an analysis of the project's return on the 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 substantially less than 5 years.

-----------

The response addresses the queries posted in 851 words with references.

Attachments

Solution Preview

The response addresses the queries posted in 851 words with references.

//Selection of a project in an efficiency manner is very crucial for the success of the project. In this paper, there is a discussion on the criterion, which must be considered for the selection of the best alternative from the available ones. There is a description of the capital budgeting techniques, which should be taken in order to make a decision for the project selection and comparison between two projects in terms of overall return.//

Rochester Manufacturing Corporation is intended to change its traditional production system of numerically controlled machines to the new production system of flexible machining. For investment in the new flexible machining system, there is a requirement to analyze the net return form this investment so that a comparison can be made between return from the old system and the new one. If there are more returns from the new system than the old one, the new system must be undertaken as it will be more beneficial for the company. From the old system, there is around 10% return. Hence, this rate of return should be used to discount the future savings to arrive at the total present value of the savings in order to arrive at the right decision.

The ...

Solution Summary

The response addresses the queries posted in 851 words with references.

$2.19