EIN 4912

Integrated Product and Process Design

A Note on Business Case Analysis
2.1.0 Background and Project Overview
Oil Pipes, Inc. is a leading supplier of drilling equipment to the United tates and other
oil producing countries. !he facility in "hich the pro#ect is located is in Dallas, !e$as.
I% consultants are "or&ing "ith Oil Pipes, Inc. in order to reduce the time of the
changeo'er process in manufacturing their products. Currently, the press changeo'er
process ta&es (et"een si$ and eight hours for a full changeo'er, or (et"een one and three
hours to change only the punches. !his press is used to manufacture multiple products,
so the changeo'er process must occur each time a different product is to (e manufactured
or "hen tooling is "orn due to normal use. !his lengthy changeo'er creates a (ottlenec&
in their production line. !he team)s goal is to reduce the changeo'er process to single
minutes, "hile maintaining and prefera(ly impro'ing on the safety and quality standards.
2.1.1 The Scope of the Project
!he team)s focus has (een to reduce the current press changeo'er time on the
aforementioned Press (y *+,. !he means (y "hich this goal "as accomplished "as (y
ta&ing time studies, con'ersing "ith operators, and thoroughly analy-ing the process.
2.1.2 Major Objectives
!he main o(#ecti'es of the pro#ect as stated (y Oil Pipes, Inc. are.
/inimal in'estment in hard"are, or any other necessary equipment such that
any in'estment is reco'ered in less than t"o years
All necessary people in'ol'ed in the press operation must (e 0sold1 on the
impro'ements. !here must (e a commitment to implement the
recommendations and frequent communication.
afety must not (e compromised
Product quality must remain at current standards or (e impro'ed upon
2.4.1 Business Case Analysis Overvie
!he (usiness case contains an analysis of cost sa'ings, initial costs, net present 'alue,
return on in'estment, and pay(ac& period. !he (usiness case consists of three ta(les.
!he cost sa'ings section sho"s ho" the ne"ly designed process "ill reduce the press
changeo'er time and ho" it "ill impact the annual sa'ings of total la(or hours and total
la(or costs. !he initial in'estment section details the cost of training and the cost of
acquiring ne" equipment, redesigning and manufacturing tools, and costs for using the
equipment. !he team is using a 2+, /inimum Attracti'e 3ate of 3eturn 4/A335 to
calculate the net present 'alue for the ne$t fi'e years. !he team is also using an
O'erhead a'ings Coefficient of 26+, as specified (y Oil Pipes, Inc.
!he first ta(le in the (usiness case is (ro&en do"n into t"o sections. Company)s current
situation for all types of changeo'ers, "ith the respecti'e hourly and yearly costs, and the
proposed information from the team)s 'isits and the corresponding hourly and yearly
costs. !his data is then used to find the total changeo'er sa'ings per year. 789,2:6.;9.
!he team calculated this num(er from the full changeo'er time of * hours. !his time "as
reduced using the team)s recommendations during the moc& changeo'er to +.*9 hours, a
reduction of *9.9, in changeo'er time. !his sa'ings 'alue also included the reduction of
one operator present at the aforementioned Press during normal operations. Please see
!a(le ;.2 for the cost information.
Die Pot
Hydraulic Torque Wrench
Tool Cart
Calibration Device
Table 1.2: Total Changeover Costs and Savings Per Year
Changeo'er Data Oil Pipes, Inc. Current Information <ty
=ourly
Cost for
Changeo'e
r !ype
>early Cost
for
Changeo'er
!ype
Punch !ips Punch tips 4changeo'ers?year5 6+
7@@.++ 7A,A++.++
Punch tips changeo'er time 4hours5 ;
Punch
%$tensions
%$tensions4Btips5 4changeo'ers?year5 A6
7;A2.++ 78,@2+.++
%$tensions4Btips5 changeo'er time 4hours5 2
Cull Changeo'er Cull Changeo'er 4changeo'ers?year5 26
762*.++ 7;A,2++.++
Cull Changeo'er time 4hours5 *
Operator Data Num(er of Operators 3equired per setup 8
=ourly Dage for Operators 7;@.6+
O'erhead Data O'erhead a'ings Coefficient 26+ ,
!otal Current >early Ea(or Cost 72;,;2+.++
!otal Current >early O'erhead Cost 762,*++.++
Total Current Changeover Cost Per Year $73,920.00
Changeo'er Data Proposed Information <ty
=ourly
Cost for
Changeo'e
r !ype
>early Cost
for
Changeo'er
!ype
Punch !ips Punch tips 4changeo'ers?year5 6+
789.6+ 72,8:6.++
Punch tips changeo'er time 4hours5 ;
Punch
%$tensions
%$tensions4Btips5 4changeo'ers?year5 A6
799.++ 7A,8@6.++
%$tensions4Btips5 changeo'er time 4hours5 2
Cull Changeo'er Cull Changeo'er 4changeo'ers?year5 26
788.+@ 7;,;+;.A*
Cull Changeo'er time 4hours5 +.*9
Operator Data Num(er of Operators 3equired per setup A
=ourly Dage for Operators 7;@.6+
O'erhead Data O'erhead a'ings Coefficient 26+ ,
!otal Proposed >early Ea(or Cost 7:,+8;.A*
!otal Proposed >early O'erhead Cost 7;:,@+A.88
Total Proposed Changeover Cost Per Year $24,644.81
Total Changeover av!ngs Per Year $49,27".19
!a(le ;.A depicts the initial in'estment that the team and the company ha'e estimated
together to affect the proposed changeo'er process. !hese in'estments account for
purchasing t"o hydraulic torque "renches and reaction mem(ers for the punch remo'al
process, "hich "ill not only increase the speed of remo'al, (ut also greatly increase the
safety of the remo'al process. An additional impact "rench "ill (e acquired to speed the
operators during the un(olting of the die pot. A staging cart ne$t to the Press "ill ser'e
as a (ase for the necessary tooling and equipment for the operators, minimi-ing search
and tool retrie'al time. !he e$isting die pots "ill (e reFmachined according to our
mechanical engineering designs so as to increase the safety of the die pot during
transportation. !he team has also recommended the purchase of additional forge tooling
to facilitate an 0assem(led1 state of parts that can (e quic&ly shuttled in and out during
changeo'er. Cinally, a section on estimated training costs is pro'ided for the operators
and instructor.
Table 1.: !nitial !nvest"ent
Part <ty Unit Price !otal Price
=ydraulic !orque Drench B 3eaction /em(er 2 7;9,*+2.++ 7A9,@+8.++
Impact Drench 4Atlas Copco /odel5 ; 7;,A9:.++ 7;,A9:.++
taging Cart ; 76++.++ 76++.++
/odifications to e$isting Die Pots 8 76++.++ 72,+++.++
2nd Eocator Plate ; 76A@.++ 76A@.++
2nd Dear Plate ; 7;;+.++ 7;;+.++
2nd tripper Plate Assem(ly ; 76,+++.++ 76,+++.++
et of Die Pot Bolts?Nuts ; 726.++ 726.++
/odifications to Punches B %$tensions A+ 7;++.++ 7;++.++
!otal !ooling Costs 762,;:2.++
Num(er of !raining =ours Per Operator *
Num(er of Operators 3equired Per etup A
=ourly Dage for Operators 7;@.6+
!otal Operator !raining =ours 28
!otal Operator !raining Cost 7A9@.++
Num(er of !raining =ours Per Instructor *
Num(er of Instructors 3equired Per etup ;
=ourly Dage for Instructors 728.6+
!otal Instructor !raining =ours *
!otal Instructor !raining Cost 7;9@.++
!otal !raining Costs 7692.++
Total #n!t!al #nvest$ent $"2,764.00
Cinally, !a(le ;.8 sho"s the o'erall sa'ings, in'estment, and net cash flo" situation for
the pro#ect o'er a fi'e year analysis period. Gi'en all the data from the pre'ious t"o
ta(les, the Net Present Halue for this pro#ect "as calculated to (e 798,69*.9:. O'er a fi'e
year period, this equates to an Internal 3ate of 3eturn of *9.6:,, and a Pay(ac& Period
of ;.+: years, "hich falls "ithin the initial company requirement of ha'ing a pay(ac&
period less than 2 years.
Table 1.#: $et Present %alue& '(!& !''& and Paybac) Period
/A33 I 2+, >ear + >ear ; >ear 2 >ear A >ear 8 >ear 6
!otal
Changeo'er
a'ings?>ear 7+.++ 789,2:6.;9 789,2:6.;9 789,2:6.;9 789,2:6.;9 789,2:6.;9
!otal Initial
In'estment 762,:@8.++ 7+.++ 7+.++ 7+.++ 7+.++ 7+.++
Net Cash Clo"s 4762,:@8.++5 789,2:6.;9 789,2:6.;9 789,2:6.;9 789,2:6.;9 789,2:6.;9
%P& $94,"98.97
#'' 89."7(
Pa)*a+, Per!od
-!n )ears.
1.07