Reference no: EM131600224

Rochester Manufacturing Corporation (RMC) is considering moving some of its production from traditionally numerically control machines to a flexible machining system (FMS). Its numerical control machines have been operating in a high variety, low volume intermittent manner. Machine utilization, as near as it can be determine, is about 10%. The machine tool sales persons and a consulting firm want to put the machines together in a FMS. They believe that a $3,000,000.00 expenditure on machinery and the transfer machines will handle about 30% of RMC's work. There will, of course, be a transition and start up cost in addition to this.

The firm has not yet entered all its parts into a comprehensive group technology system, but believes that the 30% is a good estimate of products suitable for the FMS. This 30% should fit very nicely a "family". A reduction, because of higher utilization, should take place in the number of pieces of machinery. The firm should be able to go from 15 to about 4 machines, and personnel should go from 15 to perhaps as low as 3. Similarly, floor space reduction will go from 20,000 square feet to about 6,000. Throughput of order should also improve with this family of parts being processed in 1 to 2 days rather than 7 to 10 days. Inventory reduction is estimated to yield a one-time $750,000 savings and annual labour savings should be in the neighborhood of $300,000.00.

Although the projections all look very positive, an analysis of the project's return on investment showed it to be between 10% and 15% per year. The company has traditionally had an expectation that projects should yield well over 15% and have payback periods of substantially less than 5 years.

Prepare a case by a conservative plant manager for maintaining the status quo until the returns are more obvious

Prepare the case for an optimistic sales manager that you should move ahead with the FMS now.