Wilson Electronics - Supply Chain Management

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ANALYTICAL PAPER

For WILSONPRO Company

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Introduction (Trent)

Expectative summary.  (Over view of the company)

Introduction of Issue

Wilson Electronics is a manufacturing company trying to reduce operational costs throughout their plant. One of the issues at hand is having too many manual processes in place that make producing and packaging their product more time consuming and costlier. One process that currently needs improvement is the packaging of one of their accessories. They sell around 60,000 of these accessories annually. Currently, they have 3 employees bagging and labeling these accessories by hand. They can bag and label 500 accessories per hour with 3 employees. That is 120 hours of labor between three employees annually. The cost per employee is $12 per hour, which equates to $4,320 annual labor cost to produce these 60,000 pieces. Wilson Electronics is looking to automate its packaging of these accessories using a bagging machine. The bagging machine can bag and label 3000 accessories per hour using only 1 employee. That is only 20 production hours per year at an employee wage of $12 per hour, would only be $240 in production labor cost per year. However, a brand-new bagging machine would cost the company $20,000 and has a lifecycle of 10 years. They also have the option of purchasing a used machine at $10,000 but would only have a 5-year life span.  Given the current demand, Wilson Electronics would like to know what option would provide the most cost savings by implementing different factors into the equation.

Description of Modeling Tools

         Collection of data for the manual packaging method and the automotive methods were looked at to decide which method would be better choice. In order to demonstrate the most optimum results we used three modeling techniques, net present value, and forecasting and constraint optimization of a product mix.

Net Present Value (NPV) is a method that allows one to calculate future cash flows to the present value of today. First the value of the employee salary growth and the growth of the packaging costs were calculated for the next fifteen years. Using the NPV, the costs are able to be brought back to today’s dollars. This values the cost benefit of using a machine over continuing to package the products manually.

Forecasting model is used to develop a growth rate for the increase in salary wages and the increase of the amount needing to be packaged. This method allowed for a more accurate production amount and salary costs over the fifteen years of the machine life.

Constraint optimization to product mix was a used to get two decision variable to minimize our costs. The decision variables were the number of machines needed for the automated method and the number of employees needed. There were two constraints, the production capacity automated or manual had to be greater than the packaging demand. There were ran though the solver and the optimum for machines was to purchase three and for the employees was to hire six employees.