Reengineering Southhampton Fabricating makes steel storage boxes. The steel storage boxes have a standard design but are made in different sizes to accommodate customer requirements.

The factory is laid out on a functional basis. Sheet steel is stored l!t one end of the factory near the loading dock where it is received. Production is triggered when inventory of a particular product reaches a reorder point. Production is in batches that vary from 40 to 200 boxes and depends on the individual product's demand, carrying costs, and setup costs.

When a production order is issued, workers are directed to withdraw an indicated amount of sheet steel from inventory. The steel is moved to the area of the factory where it is cut into the required pieces. The pieces are then moved to the area of the factory where stamping and shaping machines are kept. The machines are then set up for the particular box being made.

When the stamping and shaping work is completed, the work in process is moved to the assembly area, where the pieces are welded into the finished storage boxes and all the work is inspected. The storage boxes are then moved to a storage area where they are held until they are shipped to customers. Therefore, the existing production process requires one major setup for each batch and four moves.

In response to falling profits, senior management undertook a costing analysis of the various factory activities. This costing analysis revealed that, on average, the cost of moving a batch of production was approximately $300, and the cost of setting up the stamping and shaping machines for each batch was $200. An activity analysis revealed that the company processed about 4000 batches of storage boxes each year.

An engineering study suggested that the factory could be reorganized into a cell format with five cells that would specialize in making boxes of various sizes. This reorganization would cost about $20,000,000 and would reduce the number of moves per batch from five to two, and the average number of setups for every five batches would fall from three to one.

Should this process reengineering be undertaken? Make any assumption you feel is necessary to answer this question, but make your assumptions clear in your solution.