Jim Wells, vice-president for manufacturing of the Northern Airplane Company, is exasperated. His walk through the company’s most important plant this morning has left him in a foul mood. However, he now can vent his temper at Jerry Carstairs, the plant’s production manager, who has just been summoned to Jim’s office.
“Jerry, I just got back from walking through the plant, and I am very upset.” “What is the problem, Jim?” “Well, you know how much I have been emphasizing the need to cut down on our in-process inventory.” “Yes, we’ve been working hard on that,” responds Jerry. “Well, not hard enough!” Jim raises his voice even higher. “Do you know what I found by the presses?” “No.” “Five metal sheets still waiting to be formed into wing sections. And then, right next door at the inspection station, 13 wing sections! The inspector was inspecting one of them, but the other 12 were just sitting there. You know we have a couple hundred thousand dollars tied up in each of those wing sections. So between the presses and the inspection station, we have a few million bucks worth of terribly expensive metal just sitting there. We can’t have that!”
(a) To provide a basis of comparison, begin by evaluating the status quo. Determine the expected amount of in-process inventory at the presses and at the inspection station. Then calculate the expected total cost per hour when considering all of the following: the cost of the in-process inventory, the cost of the power for runnng the presses, and the cost of the inspector.
(b) What would be the effect of proposal 1? Why? Make specific comparisons to the results from part (a). Explain this outcome to Jerry Carstairs.
(c) Determine the effect of proposal 2. Make specific comparisons to the results from part (a). Explain this outcome to Jerry Carstairs.
(d) Make your recommendations for reducing the average level of in-process inventory at the inspection station and at the group of machines. Be specific in your recommendations, and support them with quantitative analysis like that done in part (a). Make specific comparisons to the results from part (a), and cite the improvements that your recommendations would yield.