Expert answer:Business Case Analysis: Manufacturing Floor Improv

Expert answer:I wrote a recommendation letter to production company’s CEO, So I need help on editing and I need help on things like grammar, replacing words, phrases and sentences to make argument more stronger.
business_case_analysis_maz.docx

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Business Case Analysis:
To: CEO
From:
Date:
Subject: A proposal to revise re-working system while decreasing obsolete products,
decreasing costs and improving productivity
Purpose
I write this letter to propose a solution to a recurring problem at re-work stations at MAZ
Inc. Employees and team leads are continually become frustrated because of not having
Kanban unlike legacy and Gen-2. It is difficult to improve employee performances and
productivity while there are no parts they needed. An employee often needs to walk back
and fourth to legacy and gen-2 to re-work to obtain the parts they need resulting in rework station down. It is not as efficient as having a separate Kanban for re-work and
having a separate or even a small Kanban that takes a space up to one working station for
re-work is crucial for effective working decreasing downtime while improving employee
productivity which ultimately will reduce the inventory holding costs to keep failed
antennas on the production floor and will diminish the overall annual re-work costs
immensely.
Commentary On the Purpose: Because the audience is the re-work employees, employees are not
worried about the downtime of their stations because they need parts to get the antennas done. On the flip
side, from the management perspective, every single minutes of work stations down will simply hike up the
costs, which employees might not know how it could negatively impact the financial health of the
company. Hence, I believe the problem is stated undeniably at the beginning in the purpose section of the
proposal.
Current Problem and the Costs Analysis:
Since re-wok does have a Kanban, employee often needs to go back and fourth to legacy
and Gen-2 to obtain the parts. Based on my experience working at re-work station, an
employee go back to legacy or Gen-2 to obtain parts at least three to four times in an
hours leaving the station down.
Costs Analysis:
•
Assumptions:
1. Number of employees at re-work 15 employees per shifts totaling 45 employees in three
different shifts
2. Employees are making minimum/standard wage rate of $11.5/ hour
3. Standard working hours 40 hours a week
4. Number of Working weeks 52
Implication based on the above assumption:
1. Total number of hours worked by re-work employee in a week (45*40) 1,800
hours excluding overtime because many re-work employees work seven days a
week
2. MAZ Cash outflow to re-work per week (1,800 hours * $ 11.5) $ 20,700 excluding
employees raise. In other words, many re-work employees make far more than
just $ 11.50, but I have used minimum wage rate in this case. In fact, re-work
costs are much higher.
3. Cash outflow to re-work annually (52 weeks * $ 20,700) $ 1.08 Million
4. This calculation excludes Inventory holding costs to keep failed antennas, Technician
salary, supervisor salary, depreciation of testing equipment and few other hidden
costs.
Based the problem and assumptions stated above, I believe it is reasonable to believe
waking back and fourth two to three times to legacy and Gen-2 requires at least 10
minutes for an employee per hour. If one employee take 10 minutes to walk back and
fourth, 45 employees takes 450 minutes in an hour which is equal to 7.5 hours. In other
words, 7.5 hours out of every 45 hours is simply unproductive or 17% of employees
working time are unproductive.
Graphical Representation:
17%
83%
Unproductive
Hours
Productive
Hours
Total number of hours worked by re-work employees is 1,800 hours of which 300 hours
are simply costs and there are few different ways to improve the employee performance
and reduce these costs without investing further.
According to supply chain theory, there are only few different ways to cut costs in a
manufacturing industry and the problem stated above is a clear example of cutting
departmental costs.
300 hours per week is a massive downtime and needs a little more consideration. If we
look annually, it is 15,600 hours of downtime, which in terms dollar value is equal to $
179,400. Within the time span of five-year horizon, this costs accumulates to about $
900,000 not considering time value of money and not factoring inflation. It will be a little
bit over 1.5 Million if we consider time value of money and inflation.
Financial Impact to the company in the span of five-year horizon:
Since this writer is making the case of five-year horizon, I believe it is reasonable from
the financial perspective to consider this $ 179,400 as an ordinary annuity. I explicitly
only consider five-year because we have to add the future value of each payment, so if
we have to take an ordinary annuity with many cash flow, perhaps it would take a long
time to calculate all the future values and then add them together. However, in this case, I
believe formula of future value of ordinary annuity serves as a short cut for finding the
accumulated value.
FV of Ordinary Annuity = C * [(1 + i)^n – 1)]
i
C = Cash flow per period, in this case annually
i = Interest rate
n = Number of payments, in this case 5
Note: For this particular case, I have used interest rate as 2.15% per annum.
Currently, the US government bond pays 2.15% of interest on their bond, which is
considered one of the safest investments. In other words, investment in the US
government bond is risk free investment, which guarantees to pay 2.15% interest
annually. Hence, I believe it is reasonable rate in this calculation.
(Source: US Department of Treasury as of Monday Dec. 4 2017)
https://www.treasury.gov/resource-center/data-chart-center/interestrates/Pages/TextView.aspx?data=yield
Mathematically:
C = $ 179,400
I = 2.15%
N=5
If we substitute these numbers into the above equation of future value of ordinary
annuity, it gives us a figure of about $ 1.4 Million. To sum up, in the worse case scenario,
MAZ will save a sum of $ 1.4 million dollars in the span of five-year horizon. In the bestcase scenario, I believe MAZ would be able to save somewhere between $ 2 to 5 million
dollars depending on MAZ’s ROI. Since, I do not have an access to the company’s
financial statement; therefore, I am unable to predict the exact or close number. To sum
up, MAZ gross income will go up by $ 1.4 million dollars by the end of fifth year and net
profit by $ 840,000 deducting standard corporate tax rate.
Bottleneck Analysis:
No Kanban
–
–
Benefits:
–
Employee
Walking back
and fourth
– Line Down
No Immediate Parts
Available
Set Up a Kanban
Employee Walk eliminates
Improves productivity
– Costs goes down
Improves management and
operation (Helps team
leaders and supervisors to
follow up)
– Better Performance
–
–
Costs Increases
Unproductive
employees
–
Cost effective including holding costs
Better performance or increase productivity
Improves management and operation
Improves gross income and net income
Eliminates overtime costs (Management perspective)
Requires less employees
Drawbacks:
– Eliminates overtime (Employees perspective like myself)
Outcomes:
Upon successful implementation of the idea, the re-work employees should able to
complete 200-300 additional antennas with same costs, time or with no additional costs
and with less people. In other words, employee will be more productive by utilizing that
downtime and should able to perform far better
In the worse case scenario, MAZ will be able to save $ 1.4M dollars in the span of five
year horizon and in the best case scenario MAZ will be able to save somewhere between
$2 to $5M dollars in the span of five year horizon. In other words, MAZ’s gross profit
goes up by $1.4 million dollars and net income by $840,000 dollars by the fifth year.
Additionally, employees will be more productive by utilizing their potential to the fullest
and it is easier for management team on follow up and staffing. With no addition costs to
the company and with the same amount of time and less employees, MAZ will be able to
manufacture more products/antennas by reducing downtime, obsolete parts by efficiently
utilizing resources available.
…
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