6. Don Knotts, the new assistant manager of manufacturing, has sent a proposal f

Question

6. Don Knotts, the new assistant manager of manufacturing, has sent a proposal for a setup reduction project on the DMK-020 press to his boss, Wilie Fox. The DMK press is not currently a bottleneck, but it is used on a large number of products and typically is run at near-capacity levels. Fox says, "Before you start anything like this, I want to see some cost figures." Knotts estimates that the setup time could be reduced 50% by analyzing procedures, separating internal and external procedures, and simplifying internal procedures so the operator can do them himself. With the reduced setup time, the press would be able to produce in batches of 75 units (average size) instead of the current 450 units. The combination of reduced setup time and the operator performing the setup would reduce the labor cost of each setup by about $40. Knotts also estimates it will take a team of three workers-a machinist, the operator, and himself-about a day for the project. Knotts gives his cost analysis to Wilie, whose responds, "You propose to spend a day on a project that will save only $40! Compared to the cost of your team, the savings is insignificant. Besides, the person who does the setup now wil still be on the payroll, so you're not going to save anything, really." If you were Knotts, what would your response to Wilie be?

Explanation / Answer

For the first day it may not give profit. If the project is successful , then in long run it will give profits. Because the project reduces the Setup time by 50% and increases the production rate.

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