Cost Savings

Calculate the financial benefits (cost savings) for the following project (assume 0% capacity buffer for simplicity): A farm grows Christmas trees on its 50 acres of land. Every year, about 15,000 trees are cut and replaced with new saplings. During November and December (over a 6-week period), the farm hires 10 temporary tree cutters, paid $80 per day (6 days per week, 8 hours per day) with overhead estimated to cost the farm $8 per day per worker. Each tree costs the owner $7.50 and sells five years later for $60, with a growing cost (not including cutting) of $2.50 per tree per year. While observing the workers, a professor noticed that significant time was wasted by the tree cutters. They were seen cutting trees found in random locations, then moving the cut trees to staging areas that were often far away from where the tree was cut. The professor approached the owner with a proposal to have a group of students do a LSS project at no charge, and the owner agreed. A data analysis showed that each tree cutter spent 60% of their time moving to the next tree or moving cut trees to staging areas. The professor estimated that the travel time could be reduced to 45% of the tree cutters time.

What do the cutting workers cost the farm per year?

What is the capacity of trees/hour?

What is the actual tree-cutting time in minutes/tree?

What is the total time reduced in minutes/tree?

What is the new capacity per worker in trees/hours?

What is the demand in trees/hours?

What is the new number of required workers?

What is the cost savings per year?