3. Prepare the case for an optimistic sales manager, should you move ahead with the FMS or not?

Hindustan Manufacturing Company (HMC) is considering shifting some of its traditional production system of Numerically Controlled (NC) machines to a flexible machining system (FMS). Its traditional numerical control machines have been operating in a high-variety, low-volume, intermittent manner. Machine utiliza- tion has been determined around 10% only. The machine tool sales force and a consulting firm want to put the machines together in an FMS. They believe that Rs. 30 lac expenditure on machinery and the transfer of machines will handle about 30% of HMC work. The firm has not yet entered all its parts into a compre- hensive group technology system, but believes that the 30% is a good estimate. This 30% can be fitted very comfortably into a group. A reduction in requirement of resources and in the number of components of machinery should take place due to higher utilization. The firm should be able to go from fifteen to about four machines and manpower should be reduced from fifteen to as low as three. Similarly, floor space re- duction will go from 20,000 feet to about 6,000. The output of orders should also improve with this group of components being processed in 1 to 2 days rather than 7 to 10 days. Inventory reduction is estimated to yield one-time Rs.7,50,000 savings and annual labour savings should be to the tune of Rs.3,00,000. Although the projections look very positive, an analysis of the project's return on the investment showed it to be between 10% and 15% per year. The company has an expectation that the project should yield over 15% and have payback periods of substantially less than 5 years.