Question 1: Prepare the case for an optimistic sales manager who suggests that you should move ahead with the FMS now.
For an optimistic sales manager, the benefits that would accrue as a result of moving to FMS from the traditional, numerically controlled machines seems quite appealing and attractive. These benefits include a substantial reduction in the number of machines utilized by RMC from 15 to 4 machines; reduction of the number of required personnel from 15 to 3; reduction of utilized floor space from 20,000 sq. ft. to 6,000 square feet; further; the production time, which currently is at approximately about 7 to 10 days, will also rapidly decrease to just 1 to 2 days; and a projected reduction in inventory, which is estimated to be able to yield $750,000 on-time savings. Further, the number of required personnel likely to reduce to 3 from 15 and the annual cost of labour would subsequently result in approximately $300,000 worth of savings.
The optimistic sales manager believes that, moving to FMS will result in faster delivery time, given the expected improvement in throughput. In fact, the quality of the product produced will also improve thus resulting in a higher market share for RMC. This will be great for profitability especially if the company is already above the breakeven. This implies that the Return on Investment, ROI would be higher than have been projected. The task or management work will be easier given the fact that there will be fewer personnel to be supervised and lesser machines to be maintained. More floor space will also be available whenever needed.
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Question 2: Prepare a case by a conservative plant manager for maintaining the status quo until the returns are more obvious.
One core part of any enterprise management is operations management, whose main goals are to ensure high efficiency, reliability, low operating costs and high returns. Currently, Rochester Manufacturing Corporation utilizes numerically controlled, traditional machines instead of FMS, flexible machining system; these traditional machines are operating in a low-volume, high-variety, intermittent manner, with just about 10% machine utilization. Moving to FMS from the traditional, numerically controlled machines would yield a number of benefits including reduction of the number of machines utilized by RMC from 15 to about just 4 machines; reduction of the number of required personnel from 15 to about only 3. The floor space require would also reduce form 20,000 sq. ft. to just 6,000 square feet; further, the production time, which currently is at approximately about 7 to 10 days, will also rapidly decrease to just 1 to 2 days. There is also a projected reduction in inventory, which is estimate to be able to yield $750,000 on-time savings. Given that the number of required personnel would reduce to 3 from as high as 15, the annual cost of labour would consequently result in substantial savings of approximately $300,000.
Given that return on investment may the responsibility of a plant manager who is an individually involved in the decision-making process; it is important that he considers the risks and cost associated with moving from traditional, numerically controlled machines to FMS- flexible machining systems. In this case, the costs associated with this proposed move will result in approximately $3 million expenditure on start-up and machinery transition costs. The expected ROI is only about between 10% and 15% annually over a payback period of more than 5 years. In fact, there are additional hidden costs whose effects have not been projected.
For instance, there are maintenance, training, start-up and transition costs among others whose effects on return on investment are not clear. Clearly it seems like these numbers do not add up. First, the cost of operations for the whole organization is likely to substantially increase; there are more hidden costs that have not been considered, and the long-time payback periods are not attractive or encouraging. These, in addition to the trauma of change in training, workshop layout, and acceptance by personnel are strong grounds for supporting the maintenance of the status quo until the ROI are clearer.
