The Background
Advanced Materials Fabrication (AMF) is a manufacturer of components used by a wide variety of companies. For some customers AMF will manufacture entire subassemblies or product modules, such as desk draws or legs for office furniture manufacturers, or agitator modules for washing machine manufacturers. For other customers, especially those that use proprietary technology in their products or processes, AMF will simply perform some generic fabrication steps on basic components and then send these components to the customer for more elaborate processing.
In Oakland, Michigan AMF has a manufacturing complex made up of three connected plants. One of the plants is devoted to assembly operations. A second is devoted primarily to non-metallic parts production. This includes departments that manufacture and fabricate plastic, rubber, wood, and composite materials. The third plant is devoted to metals fabrication. The metals fabrication plant is organized and operated as a job-shop because of the wide variety of products made there and the variety of operations required for each. Each major processing operation, such as metal casting, boring, and grinding, is treated as a separate work center. Some work centers contain only one or two work-stations made up of one or more machines and one or more workers, while other work centers contain as many as six work-stations, with a dozen machines and 10 or more workers. Generally the work-stations (and accompanying machines) are single-purpose stations. For example, the work-station may only perform planing or hole punching operations. A few work-stations, however, do have multi-purpose machines that might, for example, perform both bending and shearing. Over time the company has organized the work centers into four departments to distribute the managerial responsibilities. (See Table 1 for a list of the work centers assigned to each department.) Although one department may contain several work centers, the work centers are staffed and scheduled as separate units because a given product may require processing at only one or two work centers in the department and not at the other ones, and the sequencing of the processing can vary from product to product.
The Problem
Products are processed and routed among departments in order-size batches (i.e., an order of 5000 desk legs for a customer would be processed at each required work center as a 5000 unit batch). This arrangement provides AMF with considerable production flexibility. However, the metal fabrication plant has been a bottleneck for AMF during the past year. Inventories have doubled, average throughput time has increased by 75%, and late deliveries have increased from 4% of orders to over 20%. These last two measures would be even worse, except that AMF has been using extensive overtime work to get orders through the system. The plant normally works a two-shift, Monday through Friday schedule, which runs from 7:00 a.m. to midnight, with half-hour meal breaks for each shift. The midnight to 7:00 a.m. period is used for maintenance and cleaning. So overtime is usually restricted to Saturdays and Sundays, or for one or two hours of the second shift, from midnight to 1 or 2 a.m. (Each work-station has the equivalent of 300-330 hours of regular time and 100-120 hours of overtime capacity per month, under good conditions.) AMF prefers not to use overtime production except when it is truly necessary. With overtime production it must pay higher wages (1.5 times the normal wage for Saturday and late night overtime, and 2 times the normal wage for Sunday work), productivity averages 10% less than during normal work hours, and maintenance costs and machine breakdowns increase, which negates the purpose of working overtime.
John Stark, Metals Plant Manager, has identified the Joining department and the Machining department as the main problem areas in the plant. Stark believes that the problem and the solution are clear: both departments have insufficient capacities and he proposes that AMF expand the capacities of each work center in these departments by 25-100%, by adding one work-station to each work center. To illustrate the extent of the problem, Table 2 lists the scheduled production volume in each of these departments for October and November (which are two of the peak production months), expressed in terms of the standard hours of work required, along with the regular time and overtime capacities of each department. (A standard hour for a work center is the estimated amount of work the work-station should accomplish in one hour of operation. For each job/order the Production Scheduling Department uses engineering standards to estimate how long it should take to set up a work-station and process the number of units ordered. For example, an order for 1000 metal desk legs might require a 2-hr set-up and 12.5 hours of processing at a welding work-station, while an order for 300 metal railings might require a 3-hr set-up and 6 hours of processing. Standard hours, therefore, put the output requirements for different products that pass through a work center in terms of a common unit of measure.) Table 3 is a partial list of the products (orders) scheduled for the work centers in the Joining and Machining department for a typical day, along with the routing (process sequence), and estimated set-up and production times for each work center operation. This illustrates the variety of products made in the plant.
The capacity expansion plans recommended by John Stark are quite expensive, involving new equipment costs of almost $6 million, building expansion costs of almost $2 million (the current building is almost totally full with equipment and inventories), and additional net personnel costs of $200,000 per year (after subtracting the savings from reduced overtime). Because of the costs involved, Stark must present his recommendations to the Company's Board and justify his request.
Table 1
Work centers listed by department
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Overtime
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