Rochester Manufacturing's Process Decision

Rochester Manutacturing Corporation $($RMC$)$ is considering moving some of its production from tracitionat numerically controlled machines to a flexible manufacturing system $($FMS$).$ Its computer numerical controf machines have been operating in a high$-$variety, low$-$volume manner. Machine utilization, as near as it can determine, is hovering around $10\%.$ The machine tool salespeople and a consulting firm want to put the machines together in an FMS$.$ They belleve that a $$3$ million expenditure on machinery and the transfer machines will handle about $30\%$ of RMC$\text{'}$s work. There will, of course, be transition and startup costs in addition to this.

The firm has not yet entered all its parts into a comprehensive group technology system, but believes that the $30\%$ is a good estimate of products suitable for the FMS$.$ This $30\%$ should fit very nicely into a "family." A reduction, because of higher utilization, should take place in the number of pieces of machinery. The firm should be able to go from $15$ to about $4$ machines, and personnel should go from $15$ to perhaps as low as $3.$ Similarty, floor space reduction will go from $20,000$ square feet to about $6,000.$ Throughput of orders should also improve with processing of this family of parts in $1$ to $2$ days rather than $7$ to $10.$ Inventory reduction is estimated to yield a one$-$time $$750,000$ savings, and annual labor savings should be in the neighborhood of $$300,000.$

Although the projections all look very positive, an analysis of the project's retum on investment showed it to be between $10\%$ and $15\%$ per year. The company has traditionally had an expectation that projects should yield well over $15\%$ and have payback periods of substantially less than $5$ years.

Questions

As a production manager for RMC$,$ what do you recommend? Why?

Prepare a case by a conservative plant manager for maintaining the status quo until the returns are more obvious.

Prepare the case for an optimistic sales manager that you should move ahead with the FMS now.