Case Assignment #4

Solving a Complex Problem

You have spent several days investigating and talking to various people at EMC. These are your notes from the investigation.

There is a high reject rate of plastic inserts coming from MG 251, as found in the Plastic-Brack Assy, MG403 – it seems to be somewhere between 12% to 20% reject rate, depending on which plastic insert.

You also discover that the molding dies are very old and some of the mold cavities are closed off because of previous poor quality, which further reduces the yield rates from the standard expectations. Dies for P90, P120B, and P135 each have one cavity closed off. Swenson thinks that more should be closed off, based on his expertise and the age of these dies.

New plastic injection molding dies cost $25,000 each, or $30,000 each if they are designed for quick changeover. The lead time for manufacturing these dies by an outside tool and die company is 6 weeks each.

One of the four molding machines, M101, has a record of high unscheduled repair and downtime. It seems to need some minor adjustments several times per week, which is causing low uptime for it. Swenson, the molding supervisor, would like to see the machine have a complete overhaul. Dick Wrangle would like to purchase a new 250-ton molding machine. The cost to overhaul is estimated to $100,000, and the cost of a new machine is $250,000.

Mark Monnin, the Purchasing Manager, tells you that there is better grade plastic resin that could be used, but it is more expensive. The better materials are RP515 at $0.28 per pound or RP625 at $0.30 per pound; the current material in use is RP502 at $0.26 per pound; the quality ranking order is RP625 > RP515 > RP502. Monnin believes the best material, RP625, would reduce some of the scrapped parts generated by MG251. He is not sure how RP515 would do.

Robert Weir, the Plant Manager, informs you that a second shift has not been approved at this time, but could be as a last resort. There is a 15% shift premium paid to those who work on the 2nd shift. Overtime could also be used, possibly 2 extra hours per day and up to 10 hours on Saturdays. OT earns employees an additional half-time for hours over 40 per week.

The setup times (die changeover) in both blanking and molding are in the three and half to four and a half hour range. You asked Tom Tucker what it would take to modify these dies with quick clamps and other mechanisms so that you could reduce the setup times. Tucker said that to modify existing dies would cost about $10,000 each. Your research in this area confirms this number is in the ballpark and that setup times can be reduced to about 0.5 to 1.0 hours.

Harvey Lund indicates that there is a capital budget for MLD250, of which $325,000 is available for MLD251. You can purchase machines, tools, overhauls and tool upgrades with this budget. He also says that you don’t need to spend all of it.

Mike Finch, the Marketing Analyst, says that the demand rate of customer orders has not increased substantially in the last quarter, nor does he think that it is going to rise much soon. He still stands by his long term forecast over the next five years.

Overall, the current capacity utilization at EMC is 92%. Looking at all of the production areas, Utilization ranges from about 81% in the blanking machine groups to about 93% in the plastic molding groups. Assembly, packaging and packing are near 92%, while the finishing processes are around 88%.

In the Plasti-Brack processes, Utilization is this:

Currently, all departments are running just one 40 hour shift. Occasionally, some departments will add some overtime on a weekly basis as needed to stay up with orders. Robert Weir, the Plant Manager, prefers to run with one shift. His opinion is that adding a second shift is not as efficient since it adds more fixed costs in energy consumption, just to have the lights on. Additional shifts require additional employees. It costs money to hire and train them. Plus employees earn a 15% shift premium. Weir would rather pay the time & a half for the additional hours over 40. And Weir would prefer that his capacity utilization be around 85%. He is a little nervous with the 92% level. However, G. Garcia is in favor using a 2nd shift if necessary.

Mike Finch does the forecasting for EMC, both short-term and long-term. His short-term forecast is broken down by product line. His short-term forecast for Plasti-Brack products indicates that there will be a small increase this year of 7% to 10%.

Finch's long term forecast is across the board for all of EMC and its various products. His results indicate that there will be a 12.5% annual compound growth over the next five years. This equates to an 80% increase over the current demand in the fifth year.