forging Another alternative was to buy a third press, of a smaller and dierent design, that could forge the preforms faster than the current presses T

Transcription

1 Case Study 6: Evaluating a New Technology Alternative Concepts illustrated: Incremental analysis, sensitivity analysis, breakeven analysis, and risk analysis Required readings: Chapters 7, 9, 12, 14, and 15 1 Background Air Technology Corporation manufactures several types of disks that are used in the construction of turbine engines When the company built its Denver, Colorado plant to manufacture the disks, two hydraulic presses were expected to meet all the forging requirements in the original design The forging process required that each type of disk be processed through a preliminary shaping (or preform) die, a nal forge shaping die, and surface machining As demand levels increased, the company's product exibility requirements, and the need to change product mix to meet demand schedules induced down times for tooling (die) changes that were greater than anticipated Increased demand also required an increase in inventory levels, specically work-inprogress pieces in the preform stage, in order to meet all product mix needs Additionally, itwas projected that increasing demand levels could cause the plant's forging capacity to be exceeded One alternative to the capacity problem was to subcontract part of the c2001 by ChanSPark, Department of Industrial & Systems Engineering, Auburn University - This case is developed for classroom discussion purpose only 1

2 forging Another alternative was to buy a third press, of a smaller and dierent design, that could forge the preforms faster than the current presses This press could not make nal forgings, however A comparison needed to be made to determine if it was better to continue current operations with the addition of a subcontractor or to invest in a third forging press that would handle preforms and use the current forging presses for nal forgings 2 Description of the Disk Manufacturing Process The company receives nickel and titanium raw materials in specically dimensioned cylindrical shapes These pieces weigh from 40 to 450 pounds Upon arrival, the materials are tested for quality, and each piece is issued a unique identity code and placed in storage For the rst step in the manufacturing process, raw material is measured for proper size If the cylinder is too tall, it is machined to specications (area a in Figure 61) It is then cleaned with solvent andplacedinanoven to be heated Once the material has attained a prescribed temperature, it is sprayed with a boron nitride lubricant (area b) The lubricant enhances forgeability and prevents material from sticking to the forging dies It then moves to one of the forging presses (area c) 21 The Forging Operation Under the original design, forging is performed by one of two hydraulic, 8000-ton, single-action presses The raw material is placed in a vacuum load lock chamber and preheated to 2000 F It is then moved by an automated manipulator to the forging chamber where it is processed The raw material is now called a preform The preform is removed from the dies by the automatic manipulator and placed in an exit lock chamber where argon or nitrogen is used to cool the part Once cooled, the preform is grit blasted and visually inspected (area d) The shape of the nal product will dictate the thickness of the preform, with a particular thickness being suitable for a series or \family" of nal products All preform thickness are processed from a single at set of dies The preform is then taken to a vertical turning lathe (area a), where a 2

3 centering dimple is machined into the preform This dimple is used in the nal forging process to insure that the preform is centered in the die This allows even material ow during the actual forging process Additionally, any forging excess material, or ash, is removed and any rough edges are blended before the part leaves this station At this point, if the preform's nal forging is not imminent, it will be sent to storage If the preform's nal forging is scheduled soon, it will return to the spray lube station (area b) where it will be heated and lubricated for nal forging These processes are repeats of those given the raw material The preform is then returned to the forge (area c), where a nal shape die is now in place, and the part is processed Upon completion of this nal forging operation, the disk is within 006 inches of nal machined dimensions Once the nal forging is cooled, it is grit blasted (area d) and sent for heat treatment preparation 22 The Heat Treatment Operation The nal forging returns to the vertical turret lathe (area a) where a hole is drilled in the center of each disk The hole relieves stress during the heat treatment process Once drilling is nished, any sharp edges, burrs, or ashing are removed, and an air grinder is used to smooth and blend all edges and surface aws remaining Once prepared, the disk is transferred to heat treatment (area e) For heat treatment, the disks are placed on grids, and support rings are inserted under each part These rings prevent material sag during the heating cycle and are critical in maintaining disk atness The disks are placed in high-temperature furnaces, for part-specic temperature and duration requirement, and, once cycled, removed and cooled in an oil quench The disks then go through low-temperature stabilization and precipitation hardening to set the metallurgical properties of the part The part is then allowed to attain room temperature before being sent to its machining processes 23 The Turning Operation The heat-treated disk is sent back to the vertical turret lathes (area a), where a test piece of material is removed from the center of the disk This piece is marked to identify it with its parent disk, and sent for materials 3

4 analysis The outside diameter and datum surfaces are then machined The datum surface is used as a reference on the automated turning system, (area f) The outside diameter machining establishes the disk concentricity The automated turning system is a computer-controlled machining process that produces the part's nal \sonic shape," the name given the disk when it is prepared for ultrasonic nishing This nishing is then performed, and the part is checked for dimensional accuracy, atness, and concentricity It is then sent to nal testing (area g) 24 The Final Testing and Inspection In non-destructive testing, each disk is given a high-frequency sound inspection that checks the internal consistency of the material The disk is then chemically cleaned, removing any residue from the ultrasonic machining, and given an acid solution wash to remove a specied amount of material from the entire surface of the disk The disk is next sprayed with a uorescent penetrant The disk is then washed, dried, and given an extensive black light illumination inspection to identify any remaining aws After non-destructive testing, the part is prepared for shipment (The steps beyond nal forging are identical for each alternative) 3 Description of Investment Alternatives Last year, the demand schedule did not require the forging process cell to operate at full capacity Projected demands could exceed current plant forging capacity, however The following two courses of action were proposed to handle the projected demands: 1 Subcontract the forging requirements overow to a local vendor: This subcontractor can produce the same type of forgings, but preforms will cost 10% more than the preforms produced in-house, and nal forgings are 75% more Therefore, it is only feasible to use this subcontractor for preforms, not for nal forgings 2 Purchase a third forging press to handle the increasing requirements: A newly developed forging press is available for purchase The new 4

5 press has an automatic manipulator arm that is faster than those on the current presses As a result of its design dierences, the new press can forge faster with lower operating and maintenance costs These advantages pertain only to the preform process, however At the increased specications required by nal forgings, the new press cannot perform as well as the current presses Thus, under this alternative, the new press would handle preform requirements only, and the current presses would handle nal forgings The proposed layout is shown in Figure Expected Disk Demand During the previous year, the plant produced about 8,000 disks Recently, a foreign producer has announced that it is entering this manufacturing eld and will be competing for future contracts within the next 3 to 5 years With this new information, the home oce has projected that demand will peak in the third year after increasing as follows: 9,400 in year 1, 10,500 in year 2, and 13,000 in year 3 Beyond year 3, demand is most likely to remain at the 13,000 level These estimates represent the most likely estimates with the actual demand varying in either direction 32 Current Press Production Capabilities The forging presses are scheduled for either production or maintenance, 24 hours a day and 335 days a year The other 30 days per year are devoted to research and development use In the past, the forging presses required 15 days of tooling set-up time for each dierent forging run Final forging runs were made in batches of 50 to 200 parts, depending on the scheduled demand for the part No policy changes are currently planned for batch sizing in scheduling, even with increasing demand Last year, preform forging runs were made 8 times, with an average of 1,000 preforms per run Therefore, with just production time, maintenance time, set-up time, and current scheduling policies, the current presses produced preforms at an average rate of minutes per preform and nal forgings at an average rate of minutes per nal forging With the two current presses, the total annual 5

6 press minutes available are calculated to be 2 presses x 335 days x 24 hrs/day x 60 mins/hr = 964,800 mins/yr: Giving priority to nal forgings over preforms, the remaining preform capacity for the rst year is as follows: Annual demand = 9,400 units Total nal forging minutes = 9, = 634,256 minutes Total available forging press minutes = 964,800 minutes Remaining press minutes available to preform operation = 964, ,256 = 330,544 minutes Preform capacity = 330,544/27384 = 12,071 units With the preform requirement of only 9,400, the plant is not operating at full capacity in year 1 Precisely, there are 2,671 units of preform capacity remaining Although the plant is not at full capacity in year 1, it will be in subsequent years Using these rates and the projected demand schedule at the most likely level, the current presses have the following capacities: Final Remaining Additional Forging Preform Preform Year Requirement Capacity Capacity 1 9,400 12,071 N/A 2 10,500 9,360 1, ,000 3,200 9, ,000 3,200 9, Economic Considerations 331 Subcontractor Alternative For the projected demand at the most likely level, the subcontractor is needed to handle 1,140 preforms in year 2, and 9,800 in each year thereafter Under this alternative, the costs for preform forgings are: 6

7 Most-Likely Projection Year Preform Demand 9,400 10,500 13,000 In-House Preform Capacity 9,400 9,360 3,200 No of Subcontract Units 0 1,140 9,800 In-house cost (@ $205/part) $1,927,000 $1,918,800 $656,000 Subcontractor Cost (@ $225/part) 0 256,500 2,205,000 Total Preform Cost $ $ $ Purchase New Press Alternative The new press, in addition to being faster than the current presses, will incur minimal set-up costs, as it will always be congured for preforms (no tooling time) The new press will produce preforms at an average rate of 20 minutes per preform and will handle all preform processing requirements The associated annual costs and resultant savings when compared with the subcontractor option are: Most-Likely Projection Year Subcontractor Cost $1,927,000 $2,175,300 $2,861,000 New Press Cost (@ $175/part) 1,645,000 1,837,500 2,275,000 Comparative savings $282,000 $337,800 $586,000 The dierence in the current in-house cost of $205 per part and the new press cost of $175 per part is due to reduced power consumption and an elimination of set-up and tear-down times, prorated on a per part basis The new press will cost $3,000,000 It has a 10-year service life and is considered a 7-year MACRS property Its salvage value at the end of service life is expected to be 10% of the original cost The dies from the current presses will t the new forge, so this alternative will not have additional tooling costs 7

8 333 Operating and Maintenance Cost Indirect costs are charged on a per-nished-part basis, so there will be no dierence in overhead charges for the two alternatives Because the forging process is automated, there are no projections for increased operator or maintenance personnel, as the current sta should be able to easily monitor one more machine Note that the operating and maintenance (O&M) cost does not include power expenses as they are reected in the variable cost above Although the two alternatives require dierent mixes of spare parts, the budget allocation for the two alternatives is the same The remaining costs for maintenance supplies and equipment insurance are rated on an hourly basis and are charged as $20 per operating hour When the new press handles all preforming, it causes the forging cell's totals of machine operating hours to be reduced in years 1 and 2, therefore, reducing the O&M costs to a level below the current two-press conguration In year 3 and beyond all preformings are to be done on the new press This causes the operating hours to exceed those available using the subcontractor option, creating an increase in O&M costs These comparative costs are: Required Operating Time (hours) Incremental Year Subcontractor Option New Press Option Savings Preforms Final Preforms Final ($) 1 3,815 8,190 3,135 8,190 $13, ,800 9,150 3,500 9,150 6, ,300 11,325 4,335 11,325-60, ,300 11,325 4,335 11,325-60, Inventory Costs Inventory level is considered to be dependent upon forging cell organization but independent of demand The average raw material cost is $3,552 per disk The plant currently, and under the subcontractor option, projects a need for 2,500 disks for work in progress (WIP) Preforms are held as WIP to facilitate nal forging scheduling (precluding inadvertent interruptions due to insucient preform quantities to meet nal forging requirements), and this volume was primarily established because of the limited number of preform 8

9 forging runs Under the new press option, since it is a more responsive setup, lead-time for nal forging can be reduced, and the inventory level can be reduced by a most likely estimate of 10% (250 units), to 2,250 parts This indicates that the new press option expects to release working capital of $888,026 (a one-time inventory reduction, $3,522 x 250) The current inventory carrying cost rate is known to be about 15% of the unit cost Therefore, the new press purchase results in an annual savings of $133,204 in inventory holding costs 335 Tax Rates and Cost of Capital The company hasacombined income tax rate of 386% and must pay property taxes at a rate of 12% on the beginning book value to the local township The cash required for the purchase of the new press could either be obtained from funds that are available for investment in equipment, or it could be borrowed Since sucient internal funds are available, the borrowing option is not considered at this time The current rm's investment policy does not go into detail on how to deal with a possible project risk, but the rm's Capital Expenditure Review Committee (CERC) has used the following criteria for any project to be considered for implementation No investment project will be considered if it is not likely to produce at least an 18% rate of return on the after-tax cash ows The NPW of the cash ows, using the worst case, must be no less than 15%of the project outlay This last criterion is considered to be a method by which the CERC hopes to measure risk in a less formal fashion That is, when cash ows are computed assuming the least favorable events, likely resulting in a negative net cash ow, this net cash ow should not more than 15% of the cost of the project Issues for Consideration 1 With the nancial data described in the case, and the assumptions that demand projections are accurate, what should you recommend? 2 Recall that the major factor that initiated this equipment acquisition was a projected demand increase Because the demand projections are 9

10 speculative in nature, the risks involved in these alternatives need to be assessed To account for the extreme variations in disk demand, three estimates of the annual demand level are specied: a most likely demand, which is the same as before, an optimistic (high) demand and a pessimistic (low) demand Year Demand (No of Disks) Low Most-Likely High 1 8,500 9,400 9, ,800 10,500 11, ,000 13,000 13, ,000 13,000 13,500 Recall that the O&M cost varies directly with the press hours allocated and the press hours are, in turn, dependent on the level of disk demand How would you consider the variability in demand? 3 What appears to be the most dicult task in evaluating an advanced manufacturing system in general? 4 What are the advantages and disadvantages of making an investment decision based on the simulation results? 10