Reference no: EM132611406

The Houston Port Authority has engaged you as a consultant to advise it on possible changes in the handling of wheat exports. At present a crew of dock workers using conventional belt conveyors is assigned the task of unloading hopper cars containing wheat onto cargo ships bound for overseas destinations. The crew is known to take an average of l/2 hour to unload a car. The crew is paid a total wage of $10 per hour. Hopper car arrivals have averaged 12 per 8-hour shift. The railroad assesses a demurrage charge from time of arrival to release at a rate of $4 per hour on rolling stock not in service. Partially unloaded cars from one shift are first in line for the following shift.

A chi-square "goodness-of-fit" analysis of the arrival rates for the past months indicates a Poisson distribution. Data on unloading times for this period may be assumed to follow an exponential distribution.

Because of excessive demurrage charges, a proposal has been made to add another work crew. A visit to the work area indicates that both crews will be unable to work together on the same car because of congestion; however, two cars may be unloaded simultaneously with one crew per car.

During your deliberations, the industrial engineering staff reports that a pneumatic handling system has become available. This system can transfer wheat from cars to cargo ships at a constant rate of 3 cars per hour, 24 hours per day, with the assistance of a skilled operator earning $8 per hour. Such a system would cost $400,000 installed. The Port Authority uses a 10 percent discount rate for capital improvement projects. The port is in operation 24 hours a day, 365 days a year. For purposes of analysis, assume that there is a 10-year planning horizon.

Question 1: Prepare a recommendation for the Port Authority.