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• Determined the optimal location of a computer chip manufacturing plant. Conducted an analysis on machine count and type, as well as the ideal factory¬ layout of the machines. Confirmed selections by forecasting a 5 year demand and production rate using Arena software on a team of 15 fellow industrial engineering students. Declared “Best Senior Team Project” at end of the year competition.
• Determined the optimal location of a computer chip manufacturing plant. Conducted an analysis on machine count and type, as well as the ideal factory¬ layout of the machines. Confirmed selections by forecasting a 5 year demand and production rate using Arena software on a team of 15 fellow industrial engineering students. Declared “Best Senior Team Project” at end of the year competition.
• Determined the optimal location of a computer chip manufacturing plant. Conducted an analysis on machine count and type, as well as the ideal factory¬ layout of the machines. Confirmed selections by forecasting a 5 year demand and production rate using Arena software on a team of 15 fellow industrial engineering students. Declared “Best Senior Team Project” at end of the year competition.
To: Professor Barnes From: Team Qu-Chips Ahoy! RE: Final Report
This document is discussing our teams final report. Our project is focusing on Qu-Chip manufacturing.
Casey Oronzio Max Khalilullah Ross Hochman Alan Sweet Dave Kimmer Ryan Danahy Steve Caiola Johnathon Thomas Joe Renninger Evan Hughes Ben Tidd Greg Swinburn Phil Moore Kevin Icken Garrett Lubniewski Kyle Christoffersen Ben Bulson
INDUSTRIAL AND SYSTEMS ENGINEERING SSIE DEPARTMENT MICROFABRICATION QU-CHIP
Team Qu-Chips Ahoy!
Submitted in fulfillment of the requirement of ISE492 Spring Semester, 2013
Systems Science & Industrial Engineering Department T.J. Watson School of Engineering & Applied Science State University of New York at Binghamton
Table of Contents
Executive Summary.............................................................................................................1 Introduction ..........................................................................................................................2 Critical Assumptions ............................................................................................................2 Location ...............................................................................................................................3 Mexico .....................................................................................................................3 China ........................................................................................................................4 Korea ........................................................................................................................5 United States ............................................................................................................6 Nevada .....................................................................................................................8 Machines ..............................................................................................................................9 Machine Decision Process .....................................................................................10 Packaging ...........................................................................................................................12 Demand ..............................................................................................................................13 Forecasting .........................................................................................................................16 The Forecast ...........................................................................................................16 Forecast Analysis ...................................................................................................17 Forecasting Issues ..................................................................................................19 Aggregate Planning ............................................................................................................20 Decision Variables .................................................................................................20 Objective Function and Decision Variable Costs ..................................................21 Constraints .............................................................................................................22 Discussion of Results and Sensitivity Analysis .....................................................23 Utilization of ILP ...............................................................................................................25 Plant Layout .......................................................................................................................25 Nodal Layout .........................................................................................................27 Grid Layout ............................................................................................................28 Evaluation Chart ....................................................................................................29 Final Facility Layout ..............................................................................................30 Production Layout .................................................................................................31 Work Cell Methodology ........................................................................................31 Work Cell Flow......................................................................................................31 Layout Expansion ..................................................................................................31 Finances .............................................................................................................................32 Initial Investment ........................................................................................................32 Cost to Furnish .......................................................................................................33 Miscellaneous Supplies Cost .................................................................................33 Cost to Test the Machines ......................................................................................33 Startup Raw Material Cost .....................................................................................33 Startup Cost of Utilities .........................................................................................33 Initial Plant Renovations And Redesigns ..............................................................33 Startup Tooling Inventory Cost .............................................................................33 Salary Cost ....................................................................................................................34 Inventory Cost ...............................................................................................................35 Property Cost ................................................................................................................35
Machine Cost ................................................................................................................35 Shipping and Installation Cost ...............................................................................35 Utilities Cost ..........................................................................................................35 Manufacturing Overhead Cost ...............................................................................36 Black Box Cost ......................................................................................................36 MACRS Analysis for Machine Depreciation ................................................................38 Taxes ..............................................................................................................................39 Property Tax...........................................................................................................40 Federal Tax ............................................................................................................40 Health Insurance and Benefits .......................................................................................40 Inflation ..........................................................................................................................41 Qu-Chip Profit ...............................................................................................................41 Rate of Return ................................................................................................................41 Finance conclusion and Sensitivity Analysis .................................................................42 Simulation ..........................................................................................................................45 The Model ..............................................................................................................45 Inspection ...............................................................................................................48 Meeting the Historical Data ...............................................................................................52 Alternate Solution Proposal/Fitting Demand Forecast ..........................................54 Additional Sensitivity Analysis .............................................................................57 Sustainability......................................................................................................................60 Strategy and Management Approach .....................................................................60 Integrated Strategic Approach ...............................................................................62 Economic Impact ...................................................................................................62 Code of Conduct ....................................................................................................63 Climate Change and Energy Efficiency .................................................................63 Water Conservation ...............................................................................................64 Waste: Reduce, Reuse, and Recycle .....................................................................64 Chemical Waste .....................................................................................................65 Landfill Impact From Finished Goods ...................................................................65 Reducing Air Emissions ........................................................................................66 Performance Summary and Goals .........................................................................66 Ethics..................................................................................................................................66 Career Growth and Development ..........................................................................66 Communication and Recognition ..........................................................................66 Diversity .................................................................................................................67 Health, Safety, and Employee Wellness ................................................................67 Performance Summary and Goals .........................................................................67 Supply Chain Responsibility..................................................................................68 Supplier Environmental Impact .............................................................................68 Contributions to Society ........................................................................................68 Education ...............................................................................................................68 Community Engagement and Employee Volunteerism .........................................69 Empowering Women .............................................................................................69 Recommendations ..............................................................................................................69 Conclusion .........................................................................................................................70
The following case study was conducted with the goal of drawing a conclusion of the optimal business and production model to best produce a profit by manufacturing quantum computing chips. The information provided to our team by upper management consisted of the expected demand data along with a list of machines and their specifications that could be purchased for each stage of the production process.
With the majority of the case study reliant upon our machine selection and floor set up, the first step in determining the optimal facility is the number of machines needed. In order to do so we had to calculate the ideal number to be both productive and satisfy demand. After determining the amount of machines needed we then deciphered the optimal location of a plant. We also determined its type and size. Nevada proved to be the optimal choice for reasons that include but are not limited to: lack of corporate income taxes in state, low utility cost, and a capable workforce in the area.
Due to the nature of the product this our company manufactures, it is necessary to have all offices and production in one facility. This information was used to better determine the optimal size of the facility. Research discovered cell based manufacturing is ideal for our product. Each cell would contains one NUR etching machine, six Whitworth laminating machines, and one Rudd mounting machine, along with a Beta insulator. The twelve Alpha insulators were to the located outside the cells as the first step of the process. This works because the product can go from them to any cell to complete the process.
A pull system will be used throughout each individual cell. In order to keep up with forecasted demand it is necessary for the plant to contain eight cells. This setup will allow production of 120,000 to 140,000 chips per four week period.
In order for this plant to operate at capacity, 151 employees are required including both production and office staff. Assuming the state average pay for similarly tasked employees about one million dollars can be expected to be spent per period on wages. Our earnings through the first year are expected to top 43 million dollars. Net profit the following 4 years in millions of dollars are expected to be 53, 59, 62, and 64 respectively. This demonstrates a rate of return eclipsing 28 percent which is well above the 15 percent minimum.
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Introduction
Our team, Qu-Chips Ahoy! was given the opportunity to design a manufacturing plant. We were told that we would be producing a new computer chip called the Qu-Chip. The company we would be designing the plant for is called Microfabrication. We were given general information to start the project, including that this is the first sealable quantum-computing chip. It is made with an ion trap and qu-bit and requires a 6 step process. The first step being the alpha insulator, followed by an etching machine and next a laminating machine. In ensuing step the chip goes through a beta regulator and then a mounting. Finally the chip is inspected and shipped.
The alpha insulator, beta regulator, and mounting machine have only one option for our team to purchase. The etching and laminating machines have 4 and 5 purchase options respectively. The inspection process, which looks into the chips voltage, follows an equation that consists of a Weibull distribution. There was a given range for this voltage test. The packaging process can utilize either automated or skilled manual labor.
There are four countries that may serve as plant locations: China, Korea, Mexico, and the United States. We were also given the revenue per chip and the cost to scrap at each step of the process. This plant will run seven days a week and twenty-four hours a day. There are two twelve hour shifts each day. Maintenance is required once a month and will stop production for four hours. One of the major requirements is that there must be at least a minimum fifteen percent rate of return on this entire investment. Below is the flow of the process:
Critical Assumptions
The simulation required a detailed list of assumptions to be generated by our team in order to develop our model. Once an assumption was made, we added it to a running list of write-offs for Professor Barnes to evaluate and critique. Of these assumptions, the following list stands out as critical for the development and design of our Arena model: maintenance schedule, material handling setup times and conveyor parameters.
As a team, we proposed scheduling our maintenance downtime on a flexible entity release schedule that was dependent on slower demand periods. The proposal met the requirement that maintenance must be done within a four week period, but it did not necessarily have to be done for the exact four hour time slot on the second shift of the first Friday of the month. The proposal was denied, so the model accounts for this given requirement.
Start Receive Qu-Chip Store in Insulator Commence Etching Commence Laminating Store in Regulator Commence Mounting Inspect completed Qu-Chip Package Qu-Chip End 3
When the projects requirements were given to us, setup times were not addressed. After discussing this with Professor Barnes, we were informed that the system was highly automated. With this knowledge, we proposed that accounting for transfer times in our model sufficed as meeting the requirement for setup times. This was accomplished in our sequential route modules. Route times are labeled as a user-defined variable Transfer Time.
There were three assumptions proposed and signed-off under the critical conveyor parameter assumption. The first assumption addressed the height of the conveyor system. The only given requirement pertaining to the conveyor system was that after inspection, the QuChips were to be transported to shipping on a 14 tall conveyor. We proposed, and had written-off, that we could establish our conveyor heights to the specific heights of the machines in our manufacturing process. Next, we had to establish a logical materials handling speed for our Transfer Time user-defined variable. We proposed this could be set to a common manufacturing human factor figure. The same goes for the third proposal conveyor carrying capacity.
Multiple assumptions had to be made for our financial analysis to ensure logical and accurate costs could be calculated in an effort to establish a practical rate of return for this project. The following are the most crucial assumptions that were made:
Investors are present and are the ones funding the project, as a multi-million dollar bank loan would be infeasible. Our investors will have enough money needed as long as there is a 15% rate of return
Due to the fact that 80% of the revenue is lost on a chip that fails inspection at the end of production, 20% of the revenue is therefore the net profit of the chip.
Machines have salvage values at the end of the five-year projections, but a MACRS analysis can be used for tax deductions.
Annual and hourly wage salaries will be based on statewide averages from the US Department of Labor, which takes into account different seniority. The averages are based on 40-hour workweeks.
Marketing, sales, and customer service are all done at a different location within the company. This is simply a manufacturing plant. Therefore, those employees do not need to be included in our cost breakdown.
Location
Mexico
After doing research we were able to decide on the following major advantages and disadvantages of creating our manufacturing facility in Mexico. We had a total of three major advantages for Mexico. Mexico has the largest airport in Latin America. This is the Mexico City International Airport and is also the 44th largest airport in the world. Mexico is also part of the North American Free Trade Agreement. This would allow our team more freedom when trading 4
and transporting goods in North America. According to Mexican labor laws overtime begins after forty eight hours of work each week. This would be an advantage as overtime begins in the United States after forty hours of work each week.
On the opposite note, we also had a total of three disadvantages for Mexico. According to Mexican labor laws employees are given more vacation days for every year they work for the same employer. This could pose a problem over time as our business grows. The labor laws in Mexico regarding vacation time are somewhat complicated and pose a problem. There is also only one main highway in Mexico which is unable to accommodate the needs of the country. This roadway was extended in 2005 but still does not meet the transportation needs of the region. Although there are other transportation options, the highway system would need to be used heavily and this poses a major problem for our team.
The largest disadvantage is that Mexico has a large amount of drug related crime. Therefore the team decided not to choose to build the facility in Mexico. Approximately fifteen percent of Mexicans have reported being victims of crime in 2012. The only other country in the world with a higher figure was South Africa. The Mexican drug war has resulted in over sixty thousand deaths and twenty thousand missing persons. There are approximately one hundred thousand members of major drug cartels in Mexico. The following is a list of the major drug cartels operating in Mexico: La Familia Cartel, Gulf Cartel, Juarez Cartel, Los Negros, Los Zetas, Sinaloa Cartel, South Pacific Cartel, Tijuana Cartel, Los Caballeros Templarios. The drug related crime and transportation issues are too much of a risk. Thus the team ultimately decided to pursue different countries to build the facility.
China
Originally our teams first thought was that China would have the cheapest employees, thus making it a better option than other countries. After some research it became apparent that this was not the case. Chinas environmental, and ethical negatives outweighed their educational and economical positives. Even though China has some of the cheapest labor, it does not mean that this is the labor to entrust with the new Qu-Chip product.
Chinas positive aspects include their minimum wage which is roughly 165 United States dollars a month for full time employees within the Shanghai district. Another reason that China was considered was due to their impressive education system. Education (primary and middle school) in China is mandatory, as well as inexpensive, for citizens between the ages of 6 and 15. The only costs include paying small fees for textbooks and uniforms. However, in the rural areas of China there are many students who stop their education at the age of 15.
Looking at Chinas work ethics, they receive many more days off for holidays then the United States. Each employee receives eleven days off for national holidays yearly. They also receive seven day holidays for Spring Festival and National Day. More than 150 million workers leave their jobs to spend time with family and friends during these week breaks. With nearly all businesses closing for these holidays, our team took this as a considerable issue. There is also a risk for counterfeit money and corruption that is becoming an even bigger issue in China. Over one-third of the managers stated that corruption is a major problem that hinders incoming 5
business from seeking real estate in China.
China also has big complications with their current pollution regulations. Hundreds of thousands of premature deaths and respiratory illnesses have been caused by the exposure to air pollution. Chinas water is also unfit for consumption due to industrial waste. China has tried to implement laws that would punish those companies with poor environmental standards. The "Measures on Environmental Information Disclosure" law is extremely similar to the Toxics Release Inventory in the United States, which has been accredited with being one of the most successful tools for reducing industrial pollution in the United States.
Another area of concern is Chinas safety in the workplace. Over 83,000 workers died in work accidents back in 2009, according to the State Administration of Work Safety. The State Councils Work Safety Commission enforces health and safety regulations. Yet the State Council has been rather ineffective at enforcing these regulations.
Korea
The research we conducted on South Korea made the country look like a better area to manufacture than one might initially assume. At first glance the country seems like a small country under political pressure from its militant northern neighbor North Korea. It is also a small country with little land to support a large manufacturing plant. However as we delved into the labor laws and standards of the country we were pleasantly surprised.
As recently as 2007, South Korea amended The Labor Standard Act of 1997, to adopt more Western employment ideals. This alteration dissolved the traditional ideal of lifetime employment arrangements. Furthermore they utilize labor unions which are also common in the United States. Yet they do lean on some rather strict weekly hour requirements. For example the absolute maximum work week an employee is allowed is 56 hours per week. Furthermore that amount of hours is also only allowed to be worked if their average weekly hours are below 44 hours a week for an entire year.
In addition to some of these complex labor laws, the minimum age in South Korea is also higher than it is in the United States. Compared to the minimum wage in the United States South Koreas minimum wage is roughly ten United States dollars. Although this may prove a moot point in a few years because the United States may raise their minimum wage to nine dollars an hour. Despite this possibility the higher minimum wage in South Korea will still most likely drive up cost of the skilled labor that we will require from the workers on the floor. This is due to the advanced technology and automation on the machines required to manufacture quantum chips. The South Korean population is very well educated which may also drive up the costs of employees and might make manufacturing operators somewhat difficult to find.
Another area of concern with starting a business in any country is the crime rate. Despite the high level of political tension being maintained by those in North Korea, South Korea has a very low crime rate. Their crime rate is actually lower than the United States crime rate.
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Although the crime rate is low, the bellicose and unpredictable nature of the situation in North Korea has ultimately steered us away from placing our company there. In recent headlines the volatility and violent nature of North Korea has flared up and become the most threating it has been since the death of their last leader Kim Jong Il. As recently as early April of 2013, North Koreas new leader Kim Jong Un has made nuclear threats towards both South Korea and the United States. As violent rhetoric has increased it has pushed our interests to countries with more secure political climates as a place to start our business.
One final concern that has caused us to consider other countries to construct the quantum facility is the environmental issues that have been a concern in Asia recently. There have been many clean air issues in South Korea much like in China. Quantum technology is a very new technology and we do not want the manufacture of the chips to come under political environmental pressure. Therefore overall due to the volatility in multiple facets of the political climate in South Korea and the higher cost of labor, we have decided to build the quantum manufacturing facility in another country.
United States
The United States was one of the highly considered countries proposed where we could locate our Qu-Chip manufacturing facility. Being one of the wealthiest countries in the world, our team knew this would be a viable option. We did research on many key aspects of the United States that would provide evidence as to how successful our manufacturing system could be. Our main focuses were on labor laws, including laws on working hours and wages, pollution, crime, education, and taxes throughout the United States. From this research we then needed to narrow down our search to a specific location within the U.S. which could best station our facility.
The body of labor law within the United States is an important factor to consider when determining the United States location viability. It is this body of law which mediates and regulates the rights of workers, employers and labor unions.
The United States Federal laws set standards for workers rights and override most state laws. These rights are generally limited. Federal law establishes minimum wages and overtime rights for most workers in the private and public sectors. In addition, Federal laws set minimum workplace safety regulations. State laws are a more detailed outline of workers rights and vary from state to state. State laws are able to expand both required wages and workplace safety regulations. Both Federal and State laws protect workers from employment discrimination, making your marital status, race, gender, religion, national origin and age independent from the hiring decision.
The United States allows employees to be hired at will if they do not possess a collective bargaining agreement or individual employment agreement. The United States have unions, which positively influence the labor force, but negatively affect money-making corporations. Unions are allowed in all states that are not right-to-work states. Right-to-work states allow businesses to be more profitable and include the states: Alabama, Arizona, Arkansas, Florida, Georgia, Idaho, Indiana, Iowa, Kansas, Louisiana, Michigan, Mississippi, Nebraska, Nevada, 7
North Carolina, North Dakota, Oklahoma, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia and Wyoming.
Working hours within the United States seem high compared to other countries around the world, but could be useful from a corporate standpoint. To date, the United States considers full time 40 hours a week, 8 hours a day. Workers must be paid minimum wage and overtime, 1.5 times regular pay, if 40 hours a week is exceeded. However the United States allows workers to work 2 full shifts a day, making the maximum workable workweek 80 hours a week, at 16 hours a day. Children under the age of 18 cannot work dangerous jobs, such as manufacturing, and children under the age of 16 cannot work in general. Although child labor can reduce costs, it is not allowed in the United States.
The United States minimum wage is $7.25 an hour, defined by Federal law. This is a national standard, meaning that the entire United States population abides by these standards. States laws have the ability to expand minimum wages given to workers. The ability to expand varies from state to state. Washington has the highest minimum wage of $9.25 an hour, while Georgia and Wyoming have the lowest minimum wage of $5.15 an hour. Each state's minimum wage rate is different and falls within the aforementioned range. From a business standpoint, it makes sense to pick a location within the United States that allow for the cheapest wage to boost revenue.
Pollution is another factor that needs to be considered when choosing an ideal location for a Qu- Chip manufacturing plant. Pollution can hinder the manufacturing process and have many indirect costs that may hurt future revenue. Types of pollution that need to be considered are air, land, and radioactivity.
Air quality has always been an issue in the United States. In general, the west coast has far greater issues with air pollution than the east coast, making the east coast a more attractive location for manufacturing. States like California, Texas, Ohio, Alabama, Pennsylvania, Michigan and Utah have issues with pollution and should be avoided. In addition ozone depletion is an issue in the United States. The United States has the second highest carbon dioxide emissions in the world, next to China.
Water pollution may have unforeseen effects on our manufacturing process. Money may have to be spent to purify water needed for machinery, cooling and other relevant purposes. California, Illinois, Washington, Hawaii, New Jersey, Ohio and Pennsylvania all have some polluted bodies of water, which is undesirable for our manufacturing process.
The United States has some radioactive areas which are extremely undesirable. Three Mile Island in Pennsylvania contains radioactive materials, meaning that we should stay away from that state.
Overall the total crime rate of the United States is similar to that of other highly developed countries. Crime rates vary in the U.S. depending on the type of community. Within metropolitan statistical areas both violent and property crime rates are higher than the national average. In cities located outside metropolitan areas, violent crime was lower than the national average, 8
while property crime was higher. For rural areas, both property and violent crime rates were lower than the national average. Overall, New England had the lowest crime rates, for both violent and property crimes, as well as the lowest homicide rates. Southern states had the highest overall crime rates. Almost all of the nations wealthiest twenty states, which include northern, mid-western, and western states such as Minnesota and California, had crime rates below the national average. New England states also had the countrys highest median household income, while southern states have the lowest.
We want to locate our facility in a place with minimal crime in order to reduce any risk to the property, our building, our product, and most importantly the workers. Placing our facility in an area with low property and violent crime rates will alleviate a certain degree of stress from the manufacturing workforce and will look more appealing to our upper management. We will be operating with an expensive and high quantity of inventory so it is vital that we take this precaution.
The United States has fallen to average in international education rankings, placing 17th in the developed world for education, according to a global report by education firm, Pearson. The United States spends a huge amount per student on public schools. However, the US is ranked 37th in the world in education spending as a percentage of GDP. (Most of the leading countries are third world, ranked high because of low GDP.)
A 2009 study found that U.S. students ranked 25th among 34 countries in math and science, behind nations like China, Singapore, South Korea, Hong Kong and Finland. While an average education system may not be ideal for the U.S., this could provide an adequate manufacturing labor force for those who are less educated. Additionally it will provide the opportunity to find a select group of highly educated research and development professionals.
In order to maximize profit, we need to have an inexpensive and easily accessible way of transporting and selling our Qu-chips. Accordingly, the cross-border shipping from the U.S. to both of its neighboring countries is robust. The North American Free Trade Agreement has reduced barriers and tariffs, facilitating cross-border trade. Additionally, the U.S. International Trade Commision institutes a free tariff on processors and controllers, whether or not combined with memories, converters, logic circuits, amplifiers, or other circuits.
Nevada
Our group decided the United States would be the ideal location for our Qu-Chip manufacturing facility from the aforementioned factors including labor laws, wages, pollution, crime, education, and taxes. The United States offers many advantages over China, Mexico, and South Korea. Specifically, the United States treats ethnic workers well, has little discrimination, can fire unproductive workers at will and has very few tariffs while exporting. Although the United States have strong unions in a few states, have average education, and some polluted areas; we feel the United States will allow our business to thrive.
Our group felt Nevada was the ideal state to create a manufacturing facility because of its superior geographic location, taxes, utility costs and shipping costs. Firstly, Nevada is close to 9
the Pacific Ocean, allowing our facility to easily transport processors overseas to neighboring countries. In addition, Nevada has 2,000 railroads, allowing our processors to be shipped throughout the continental United States. Nevadas economy has been growing over the years and has very low taxes. Property taxes are very low in Nevada and corporate taxes do not exist. Coupled with business tax incentives, Nevada allows businesses to thrive.
Machines
We were given a variety of machines to choose from to use in our manufacturing plant. The first machine given was the Alpha Insulator. This machine is used to insulate the chip and can only hold one at a time. The initial insulator costs $114,000 and an additional $7,900 per machine. The next step in the process is the Etching. Four machines were given with different service rates and distributions. They are also from multiple places in the world and therefore must be purchased with different currencies. The different currency rates and trends can be found in the appendix. A table of the Etching Machines costs, US dollar Equivalents, service rates, and distributions can be seen below.
Etching Machine Cost Currency USD Equivalent Service Rate Distribution NUR 101,473,057 Yen $1,084,809.25 31 Exponential Epsilon 60 829,977.64 Pounds $1,276,888.68 60 Erlang 3 Laufenback 1,136,844.15 CHF - Swiss Franks $1,235,700.16 30 Exponential Smooth 1,829,407.48 Euro $2,439,209.97 31 Erlang 5
The laminating machine is the next step. At this step there was also four machines to choose from also consisting of different costs from various currencies. The laminating machines also contained statistics on service rate for each run through the machine, the amount of times the chip must be processed through a machine, the service rate of one pass through the machine and a time that the chip must get to the Beta regulator before it becomes waste. The times for a chip to be completely processed were the same for each machine (with the same distribution), but had different times to waste. These numbers can be seen in the table below.
Laminating Machine Cost Currency USD Equivalents Service Rate Ts < Tw Distrib ution # time processed NUR 29,845,016 Yen $319,062.50 .05 .2 .035532 i.i.d. Exp. 4 Whitworth 154,189.86 Pounds $238,169.02 .05 .2 .04583 i.i.d. Exp. 4 10
The chip must then pass through the Beta Regulator. This machine can only hold one chip at a time, but it is very important to transport the chip between the laminating machine and Beta Regulator very quickly because the chip can become scrap if too much time passes. The regulator costs $250,000 each. The next step in the process is the Mounting machine. There was only one option for the machine and it is called the Rudd. It is listed at $1,520,000 for the machine. It contains two paths that the chip can follow. The two probabilities of the path are as follows: 99.6 % of the time 365 chips can be processed in an hour; 0.4% of the time the machine can process 14 chips per hour.
A few guidelines were presented to us with the information of the machines. They are as follows:
We were given the option to purchase the machines by March 8 th or May 1 st . Through analysis of the currency equivalent trends, we decided that it was safe to wait until May 1 st to make our purchases. This would also allow us extra time to do more research on the optimal amount of machines to purchase.
There were two machines (one etching machine and one laminating machine) that were titled NUR. If these two machines were purchased by us then there would be a 5% reduction in costs for each NUR machine purchased. This discount was taken into account while the machines were being analyzed for optimal costs and efficiencies. We decided that this discount was not enough to cause us to purchase the NUR in both the etching and laminating processes. We were given the cost of scrap at different processes in the manufacturing system. The later the chips are scrapped in the process, the larger the cost will be to do so, because of all of the time and resources used to bring the chip to that point. If the chip has to be scrapped at the beginning of the process it will cost 5% of the revenue of the chip. If the chip is scrapped at the Laminating machines it will cost 20%, at the Beta Regulator it will be 60% and 80% at the inspection.
Machine Decision Process
This particular assignment presented a few choices when it came to selecting machines for the plant; so when the time came to choose the best machines available for purchase several factors had to be taken into consideration. Size, overall cost, and production rate were among the important characteristics. Our team determined that given the high profitability of the finished chips, production rate was the most important factor; and that comparatively, the size and cost of the machines were the least important characteristics. Once it was decided that size and cost would be looked at after production rate was evaluated, it was time to begin the analysis.
The only two processes where a choice of machine was present were the laminating and etching processes. There was a choice of 4 different machines for each of the processes. 11
When it came to the laminating machine, the service rates for all four choices were practically identical. Therefore, a simple numerical comparison of cost and chip scrapping potential resulted in the Whitworth machine being the superior choice. While it must be noted that the Bonfort machine did have a somewhat lower scrap potential, it was far more expensive and this extra cost outweighed its small benefit especially given the large amount of machines that would be needed. We also saw that the Kropf machine and Whitworth were very close in cost, but the Whitworth seemed to have a scrap time that nearly doubled the Kropfs. In the end we decided that the Whitworth was the best decision for the laminating process. Below is a graph of the costs for each machine that would be associated with the amount of demand that we may see in the future. Kropf and Whitworth clearly stand out as the cheapest alternatives. This graph was made by using a weekly demand from 0 to 80,000 chips per week. The costs for the laminating machines came from the amount of machines needed to reach the weekly demand. This was determined by the average production per week calculated by the given service rate.
The selection of the etching machines was not as simple because it did require a comparison of the production rates. These production rates, or service rates, were given in terms of a probability distribution. The distribution type and relevant parameters were provided and allowed our team to evaluate the production rate using Arena. By creating a simple Arena model, which can be seen below, the production outputs of all four machines could be compared side by side while they are all given the same input demand. As you can see, the NUR and Laufenback machines both produced the highest results; so the NUR machine, being cheaper, became the optimal choice. Below is also a graph of the comparison of costs for the machines depending on the weekly demand based on strictly the averages of the machine production times. The Epsilon 60 is much cheaper than the rest of the machines, but when run through Arena, it was obvious that its probability distribution caused its overall production to run much slower than anticipated by using strictly the production averages.
Packaging is an essential part of the manufacturing process that our group needs to be concerned with. It doesnt matter how many Qu-Chips our plant can produce if none of our products get to the customer without being destroyed. Because of the delicacy of these processors, padding and effective packing dimensions are a must. In addition, packaging dimensions must be compatible with standard pallet dimensions to ensure that a each pallet is fully utilized and profits are maximized.
An essential part of the manufacturing process is pallet dimensions. We could have the perfect padding and packaging dimensions, but without considering pallet dimensions, we may lose revenue to wasted space. To ensure maximum profits, a 100% utilization of pallet volume is ideal. The standard pallet dimension in North America is 48 inches wide x 40 inches long. These dimensions account for 30% of all wooden pallets in the world and is a good reference for our manufacturing process. These pallets can easily hold a ton (~2,000lbs). Because each package is very light, weight should not be a factor to consider when packaging.
Now that our pallet dimensions have been determined, we must calculate the size of the package containing the Qu-Chip. A typical processor is 42.5mm x 45.0mm in size. The box encompassing this processor is 3.5 x 3.5 x 2.5 inches. This allows the package to be amply padded with protective materials in order to protect our Qu-Chip. Because we are selling to individual customers, Qu-Chips will be packaged in individual boxes.
Our average daily demand of Qu-Chips is approximately 4,200 processors. Because a pallet is 48 inches x 40 inches, 209 boxes of Qu-Chips can be fit onto 1 layer of the pallet. Assuming we allow 15 layers per pallet, we can fit 3,135 Qu-Chips onto 1 standard pallet.
Our group has chosen to purchase a packaging machine because of the large expected daily demand of processors. Over the course of time, a packaging machine is an economical advantage over hiring multiple workers at minimum wage. Because of the monotony of packaging processors, our group would need to worry about supervising unskilled workers in order to ensure high utilizations rates. A machine would be able to work faster than hiring unskilled laborers and we would be able to accurately forecast output.
Our group found a machine called a Multifunction Automatic Boxing Machine which costs $35,000 and can box 50-90 Qu-Chips per minute. This machine can automatically do jobs such as manual folding, padding, paper box opening and box sealing. Over an 8 hour workday this machine can box up to 43,200 Qu-Chips a day, which easily meets our daily demand.
Demand On February 12, 2013 the demand data was released to our team. The data was given to us on blackboard in the form of a .txt document. In order to transfer the data from blackboard to a text document, we decided to simply copy and paste all of the data. We used Notepad as the template for the text document. We then saved the file and imported it into Microsoft Excel. We quickly 14
found out that the way that the data was presented in the text file caused the data to be too large to fit into Excel. The problem was that the data took up too many columns for Excel to handle. We then researched many methods on line which included different data extraction methods and VBA scripts that were unsuccessful. We finally ended up going into the text document and manually splitting up the columns so that they could fit in Excel. This was done by going through the data and carefully placing separations in the text by pressing enter. To put into perspective of how large this data is, we also put the demand data into word. The demand data filled up 4,400 pages at size 11 font and therefore will not be included in our appendix. After splitting the data into a reasonable amount of columns and rows in the text document, we were able to move the data to Excel. The data was then simplified and arranged by weekly data. There are 105 weeks of data (two years). After a discussion with Professor Barnes, we concluded that the data given to us in the .txt document was inter-arrival times. Unfortunately, the data was still too large to be added to our report, but we were able to summarize the data in the form of a chart. This made the data more visual and we were able to see the seasonality of our demand and its trends over the past two years. We summed up the amount of demand arrivals of each week to receive a total count of the demand in week intervals. This can be shown in the figure below.
A few problems we found with the data were that there were a few missing data points. These empty data points were disregarded due to the fact that there were very few compared to the total amount of data that we received for each week. In the figure above it can be seen that there is a large drop in week 42 at which there was zero demand data. This demand was disregarded and we skipped over this week during the forecasting process. The forecasting process used the summed up weekly demand data as its initial data source. 0 5000 10000 15000 20000 25000 30000 35000 w e e k 1 w e e k 6 w e e k 1 1 w e e k 1 6 w e e k 2 1 w e e k 2 6 w e e k 3 1 w e e k 3 6 w e e k 4 1 w e e k 4 6 w e e k 5 1 w e e k 5 6 w e e k 6 1 w e e k 6 6 w e e k 7 1 w e e k 7 6 w e e k 8 1 w e e k 8 6 w e e k 9 1 w e e k 9 6 w e e k 1 0 1 Demand Count Demand Count 15
We also used this demand data to calculate average inter-arrival times that could be used in our model. In order to simulate when the chips will be arriving at our station we decided that we would need to use the inter-arrival times given. The average inter-arrival times for each week are shown in the graph below. Week 44 was disregarded once again when analyzed due to lack of data.
By looking at the data we were able to pick weeks with the fastest, medium, and slowest, slowest and average inter-arrival times. The data for these weeks was then run through ExpertFit individually in order to fit a distribution to the weeks demand. These distributions were then used in our simulation in order to model different scenarios. We found that week 105 had the fastest average inter-arrival rate of 0.00514 hours. Using both a KS test and Chi Square test we found that a good distribution fit for this weeks inter-arrival times would be a Pearson Type VI(E). In Arena this distribution would be represented by the equation 0.476927 * GAMM(1, 1.000538)/GAMM(1, 93.786243). An Arena simulation was run just to test this arrival rate to ensure that it was accurate. The simulation was run for 24 hours a day, 7 days a week and replicated 100 times. The results showed that on average there were 32,877 chips entering the system with the use of this distribution while the original demand showed 32,380 chips. The medium average inter-arrival time is represented by week 91. The average inter-arrival time found in this week is .00944 hours. Using the same methods as above we were able to see that the weeks inter-arrival distribution had a good fit with a Weibull distribution. In arena the distribution found is shown as GAMM(0.009466, 0.996866). The slowest average inter-arrival time is represented by week 85. The slowest inter-arrival time found in this week is 0.01829 hours. Again we used the KS and Chi-Squared test in order to find a good fit for the weeks inter-arrival distribution. We concluded that a good fit was a Gamma distribution which is written as GAMM(0.018431, 0.992540). 0 0.002 0.004 0.006 0.008 0.01 0.012 0.014 0.016 0.018 0.02 w e e k 1 w e e k 6 w e e k 1 1 w e e k 1 6 w e e k 2 1 w e e k 2 6 w e e k 3 1 w e e k 3 6 w e e k 4 1 w e e k 4 6 w e e k 5 1 w e e k 5 6 w e e k 6 1 w e e k 6 6 w e e k 7 1 w e e k 7 6 w e e k 8 1 w e e k 8 6 w e e k 9 1 w e e k 9 6 w e e k 1 0 1 Average Interarrival Times Average Interarrival 16
Forecast Part of the scope of this project was to plan the production of Qu-chips for five years. In order to do this we needed to develop a forecast of expected demand for the Qu-chips over the aforementioned five year period. The data we were given was experienced demand over a two year period. Ideally, forecasts should be made for much smaller time periods than five years because demand can change in so many ways over a time frame of that length. This is especially true when the forecast is made with only two years of data. However, a forecast needed to be made and we had to do the best we could with that data we were given.
The Forecast
Forecasts can be made using several different methods. One of which is when a static model is developed. The most basic form of a static model includes a level, trend, and a seasonal factor. These three make up the forecasts systematic component and can either be added, multiplied, or added and multiplied together depending on the nature of the demand. For example, a multiplicative systematic component is the product of all three components. In contrast, an additive systematic component is found by adding all three. The level is synonymous with the y- intercept of a linear regression equation. The trend is the same as the slope, and a seasonal factor is used when demand shows cyclical increases and decreases demand over a certain period of time. The second component of the forecast is the error component. The error should not try to be forecasted because trying to do so is impossible. We, the forecasters, just needed to be aware that this component would be present in our forecast no matter which method we decided to use. Another method for forecasting is to use an adaptive forecast. Like the name suggests, these forecasts change as more demand data is collected over time. These can end up being more accurate because they take advantage of the latest trends or shifts in demand. Examples of adaptive forecasts include the moving average method, simple exponential smoothing, Holts model, and Winters model (Choppa & Meindl, 2010).
We ultimately decided to use a static model because we felt it was the most practical for our needs. This was because we will not be able to adjust our forecast using updated demand data. More specifically, we used a mixed systematic component which is expressed as:
Systematic component = (level + trend) x seasonal factor
There is more than one way to compute a forecast of this type. We followed a video made by Dr. Jim Grayson, a professor of Management Science and Operations Management at Augusta State University. Dr. Graysons video explained how to make a static forecast using Microsoft Excel. Following the steps Dr. Grayson presented in his video, we developed our own Qu-chip forecast model. The demand data we were given and used to develop our forecast is shown in the next figure. 17
0 5000 10000 15000 20000 25000 30000 35000 w e e k 1 w e e k 7 w e e k 1 3 w e e k 1 9 w e e k 2 5 w e e k 3 1 w e e k 3 7 w e e k 4 3 w e e k 4 9 w e e k 5 5 w e e k 6 1 w e e k 6 7 w e e k 7 3 w e e k 7 9 w e e k 8 5 w e e k 9 1 w e e k 9 7 w e e k 1 0 3 Demand Count Demand Count
Forecast Analysis
The original forecast we created using Dr. Graysons procedure was developed by forecasting all 52 weeks in the upcoming five years. This gave us a total of 260 forecasted data points. As some of our team members have learned through taking Prof. Nagens Supply Chain Management class is that an aggregate forecast is usually more accurate than a disaggregate one. For example, if we were assigned the task of forecasting the number of cars that will be sold by G.M. next year it would be much easier to forecast the total number of cars sold instead of forecasting how many would be sold by their color. Not only would it be easier, but the forecast itself would be more accurate. A possible explanation for this would be that the error component for the aggregate forecast would be smaller compared to the sum of the individual error components of the forecasts based on color. The individual forecasts would either overestimate or underestimate the number of cars of that color that would be sold. If an aggregate forecast was made some of those error components would have canceled each other out. This same concept was applied to our data. Although we didnt have to forecast different colored Qu-chips, we could still make an aggregate forecast by grouping the weeks into periods. To simplify the forecast, we decided to group every four weeks together for a total of 13 periods per year (as opposed to creating 12 months of unequal lengths). We remade the forecast using 26 periods and created a new forecast that contained a total of 65 periods which is much smaller than 260 weeks. To verify our decision, we calculated the Mean Absolute Deviations (M.A.D.) of the two forecasts. The M.A.D. is calculated by summing the absolute values of the difference between the demand in period i and the forecast for period i. That total is then divided by the total number of observed/forecasted periods. Since the M.A.D. for our second forecast, the one using the periods of four weeks, had four times as much data per observation as the original forecast we divided its M.A.D. by four. This resulted in the second forecast having a lower and thus more desirable M.A.D. of 1466.678 versus the 1655.253 of the original. The figures below are the two forecasts graphed versus the original demand data, followed by the complete final forecast. 18
0 5000 10000 15000 20000 25000 30000 35000 40000 17 1 3 1 9 2 5 3 1 3 7 4 3 4 9 5 5 6 1 6 7 7 3 7 9 8 5 9 1 9 7 1 0 3 Q u - C h i p
D e m a n d
Week Forecast #1 vs Disaggregate Demand Demand Data Forecast 1 0 20000 40000 60000 80000 100000 120000 140000 1 3 5 7 9 11 13 15 17 19 21 23 25 Q u - C h i p
D e m a n d
Period Forecast #2 vs Aggregate Demand Aggregate Demand Forecast 2
Period Aggregate Forecast Aggregate Forecast Forecasting Issues
In creating our forecast, we experienced several issues in terms of validity. The first issue dealt with testing the accuracy of the forecast. As mentioned in the previous section, we calculated the Mean Absolute Deviation of the two forecasts to determine their accuracies. However, the M.A.D. should be used to test data that was not used to develop the forecast model. For example, if we were given two extra years of data for a total of four, we could have used the first two years to create the forecast model and then extrapolated it over two years. By extrapolating it over two extra years we could have then compared the forecast versus the two extra years of recorded demand data. Our M.A.D.s were calculated using demand data that was used to make the forecast, therefore it is safe to say the values are biased. If we had only one more years worth of data we could have properly tested the accuracy of our forecast. Since we were given only two years of data we had to use both to make the forecast, otherwise the forecast for year two would have been identical to the demand experienced in year one.
A second issue we had to deal with also involved the amount of data we were given. Forecasts are usually made with several years worth of data, or a large amount of whatever the time period may be. In our case, we had two years and needed to forecast for five. A more appropriate projection would have been for six months, or even less. This follows a basic principle of statistics; a small sample size tends to lead to inaccuracies. There is no reason to below our forecast should be any different. Two years of data is not nearly enough to make an accurate forecast for five years, especially for such an immature product like Qu-chips. However, this is what we were given and we had to make due.
The third and final major issue we encountered had to do with the demand data. This issue also ties in with the fact that we only had two years worth. As previously mentioned, our demand data seems to be trending with seasonality. Due to that observation, we forecasted our expected 20
demand by including a level, trend, and a seasonality factor in the model. But if one were to take a closer look at the last 12 data points of the demand data, it looks like the data is beginning to spike up and down. This hints at the possibility that the demand may begin to stabilize or develop a new trend/seasonality. However, we were faced again with the sample size issue. We were given 104 weeks of data (105 if the week whose demand was zero that we omitted was included) and to change the forecast based off of 12 of those weeks would not make sense. We ultimately left the forecast alone but felt this issue needed to be addressed.
Aggregate Planning Aggregate planning can be used to determine capacity changes, production and inventory levels, whether to subcontract or not, the number of times backlogging/stocking out is necessary, and the hiring and firing of workers over a specific time period. For our model, we looked only at changing capacities, hiring workers, and production and inventory levels. We assumed backlogging orders and stock outs would not be acceptable to our customers. Another reason we did not include them in our model was because we had no knowledge of the cost that would be associated with not meeting our demand. We also did not have confirmed demand data so we would be forecasting stock outs and that did not seem sensible. Subcontracting was not an option because our task was to have total control of the production of the Qu-chips, nor did we have any means of assigning a price to do so. Firing workers not only meant that our workforce would be reduced, but our capacity would be as well. This was because in our model the number of workers was directly tied to the number of machines we purchased. We would not sell our machines due to low levels of demand, only to buy more once demand appeared to be increasing again. This would be too costly and not a proper allocation of resources.
The mathematical model we used to plan our Qu-chip production was an integer linear program (ILP). This is similar to a linear program (LP), except all of the decision variables can only have values that are integers. Using an ILP was necessary because we could not produce half a chip or hire three tenths of a worker. LPs and ILPs have three primary components, an objective function, decision variables, and constraints. The objective function and constraints all consist of linear expressions, hence the term linear program. The objective function can be maximized, minimized, or set to equal a value. The decision variables are assigned costs and are found in both the objective function and the constraints. The constraints limit the values of decision variables either individually, or according to some linear relationship of two or more. The value of each decision variable multiplied by its respective cost determines the value of the objective function. The following subsections go into further detail about the objective function, decision variables and constraints used in our ILP.
Decision Variables
Our ILP contained 11 different types of decision variables. Two were related to our workforce, H t represented the number of workers hired in period t, and W t represented the total number of workers in period t, which were those hired plus how many there were in period t-1. The next two constraints were inventory related. P t was the number of Qu-chips produced in period t, and I t was the number of Qu-chips in inventory at the end of period t. D t was not changed in the ILP, but was used to represent the forecasted demand for period t. This was used to help determine 21
the production and inventory levels. The final six constraints were related to the three different kinds of machines we needed to purchase, etching, laminating, and mounting. E t represented the number of etching machines used in period t, and NE t represented the number of new etching machines purchased at the beginning of period t. Similar notations were used to represent the number of laminating and mounting machines, using L t and NL t , and Mt and NM t respectively.
Objective Function and Decision Variable Costs
The objective function did not use all of our decision variables, as only H t , I t , NE t , NL t , and NM t
were included. Each decision variable was multiplied by its respective cost to give the following equation:
z =
where C H = 3,336.48 C It = [76.91(P/F,1.76/13%,t)](A/P,1.76/13%,65) C Et = [1084809.25(P/F,3/13%,t)](A/P,3/13%,65) C Lt =[238169.02(P/F,3/13%,t)](A/P,3/13%,65) C Mt =[1520000(P/F,3/13%,t)](A/P,3/13%,65) *The terms (P/F,3/13%,t) and (P/F,1.76/13%,t) and were omitted from period 1 when calculating C It, C Et , C Lt , and C Mt
We decided to use annual worth values to represent the costs because it seemed to fit the nature of the analysis best. The production forecast was already distributed throughout the five year time frame, so it made sense to calculate the machines costs so they could be assigned to the specific period when they needed to be purchased. The same logic was used to account for hiring new workers. By using the decision variables representing the purchase of a new machine, we ensured that only one value for each machine would be used in the calculation of z. These values are not representative of the actual price we will pay for each machine over the five year planning horizon, as annual worth values are used to compare alternatives and not to show how much is actually paid per period. A more accurate financial analysis will be covered in the finance section of this report.
The final two costs used were the cost per worker, and the cost of chips in inventory. We assumed the workers pay to already be annualized for our time periods, and C H was determined by researching the average machine operator wage in Nevada. The average hourly rate, $19.86 was then multiplied by the number of hours each worker would work per period, 168 (it is not 160 because of the 12 hour shift schedule we will implement). For the ILP only, we used the profit margin to represent the holding cost per period per chip, I T . Since there is no inventory tax in Nevada, we needed a value to see if inventory costs would affect the ILPs output. Originally, we only included production costs and not inventory costs. Both solutions were similar, but the model accounting for an inventory cost suggested we add two cells in period 63 instead of one in period 60.
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Constraints
There were nine primary types of constraints used in our model, but in total we included 589. Below are the general equations of the nine different types. Each constraint type was altered for the first one or two periods because the initial manufacturing conditions had to be determined and this required slight adjustments to the constraints.
Constraint General Equation, **for t = 3 to 65, ***for t = 2 to 65 Workforce** W t = W t-1 + H t
Capacity*** P t = 20040 * E t
Inventory*** D t = I t-1 + P t - I t
Etching Machines** E t = E t-1 + NE t Laminating Machines** L t = L t-1 + NL t
Mounting Machines** M t = M t-1 + NM t
Worker to Cell Ratio*** W t = 12 * E t
Etching to Laminating Ratio*** L t = 6 * E t Etching to Mounting Ratio*** M t = E t
The following table shows the constraints used in periods one and two, if applicable.
Constraint Period 1 Period 2 Workforce W 1 = 0 and H 1 = 12 * NE 1 W 2 = H 1 + H 2
Capacity P 1 = 20040 * NE 1
Inventory D 1 = P 1 I 1
Etching Machines E 1 = 0 and NE 1 => 1 E 2 = NE 1 +NE 2
Laminating Machines L 1 = 0 and NL 1 => 6 L 2 = NL 1 +NL 2
Mounting Machines M 1 = 0 and NM 1 => 1 M 2 = NM 1 +NM 2
Worker to Cell Ratio H 1 = 12 * NE 1
Etching to Laminating Ratio 6 * NE 1 = NL 1
Etching to Mounting Ratio NE 1 = NM 1
All of the decision variables were also assigned a lower bound of zero (i.e. a non-negativity constraint), and they could only take on integer values (1, 2, 3). For the capacity constraints, the value of 20040 was calculated using three numbers. The first was the mean service rate per laminating machine, which was five per hour. The second number was six, for the number of laminating machines per cell. The final value was the total number of hours per week. Throughout the duration of a period, the only scheduled down time for the machines is four hours on the first Friday of every month. This left us with 24 x 7 x 4 4 = 668 hours of production time per machine per period. 668 multiplied by 30 (six machines producing an average of five Qu-chips an hour) gave us an estimated 20040 Qu-chips per cell per period. Although there will only be 12 periods of down time per year, we gave all 13 periods one for the sake of simplicity.
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Discussion of Results and Sensitivity Analysis
The final optimal solution of the ILP revealed to us our hiring and production schedule for the five year time frame. In period one we will hire 72 full time workers to operate the machine cells. Each cell consists of three workers or 12 over a total of four different shifts, an etching machine, a mounting machine, and six laminating machines. Thus, we will purchase six cells at the start of production (six etching machines, 36 laminating machines, and six mounting machines). We will not purchase or hire more workers until period 63. At that time we will hire 24 more workers and purchase two more machine cells. We will end period 65 with 96 full time machine operators, eight etching machines, 48 laminating machines, and eight mounting machines. For periods one through 62, we will aim to produce 120240 Qu-chips, or an average of 30060 per week. In periods 63-65 production levels will increase production to 160320 Qu- chips per period.
Despite the seasonality trend in our forecast, we plan on producing a constant number of Qu- chips per period. This is because we have chosen to follow a level production strategy. A level strategy means inventory is built up during periods of low demand in anticipation of future periods of demand that exceed production capacity for that period. This will allow us to not have to purchase more machines than are actually needed. As shown below, we plan on having large amounts of inventory that will fluctuate over time. Since the Qu-chips are so small and can be packaged together very easily, we will be able to store them without dedicating too much space aside to store them. Our inventory policy will be first-in-first-out, meaning the chips that have been in queue for the longest will be sold first, and the chips produced that period will be used if our inventory levels dont satisfy the periods demand. During the period with the highest projected inventory level will have about five periods, or 20 weeks of inventory. Although this is a large amount of inventory, it will be built up in anticipation of future demand. The level strategy will lead to much better employee morale than laying off workers when demand is low, which is known as a chase strategy. A chase strategy would not be feasible because our inventory costs are much lower than the cost of constantly buying and selling machines, as well as hiring and firing workers. Finally we want to address the possibility that our demand forecast is not accurate. As mentioned earlier in our forecasting section, we noted how the demand data we were given appeared to possibly be stabilizing. If our actual demand does begin to stabilize we would still be able to meet demand for about a year and a half before we would have to purchase more machines. We used the last 12 weeks of demand data to make three periods of four weeks. A linear regression formula was calculated from the three periods and is shown below:
If our demand does indeed follow that formula, we would not need to purchase another cell until at least period 20 or 21 (approximately a year and a half). The graph below shows the relationship between our forecast, our production schedule, and the linear regression equation.
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0 50000 100000 150000 200000 250000 1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 61 64 N u m b e r
o f
Q u - C h i p s
Period Production vs Forecast vs Sensitivity Analysis Linear Regression Demand Forecast Production Schedule 0 100000 200000 300000 400000 500000 600000 700000 1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 61 64 N u m b e r
o f
Q u - C h i p s
Period Projected Inventory Levels By Period Qu-Chips
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Utilization of ILP
The results of the ILP were not directly used in our model of the system. Instead the results were used as a base to start off our simulation. A problem that arose with the creation of the ILP is that the calculation is missing two main factors. The first factor is that scrap is not considered. When the process is run about 5% of the chips are scrapped in our simulation and they are not accounted for in the ILP. This is not a large number, but it does cause the ILP to become less accurate than originally expected. The second factor is that machine time averages were used, but the distributions were disregarded. This was done to produce an estimate on how many chips could be produced. We took into consideration the Mean Value Theorem (MVT) which states that the more data is collected, the higher chance that the data points will converge to the mean. In this case we thought the MVT would suffice, but of course it is still an addition to the inaccuracy of the calculation. We also realized that we were not in control of how many chips we are receiving to produce each week, but we decided that we would like to use this to propose an alternative to the current state. With these problems kept in mind, we decided to start our model with the found solution and then adjust the numbers to the best of our ability with our Arena model in order to find the most accurate optimal solution.
Plant Layout
This section of the report covers every aspect of the facilitys layout. The sizes of the separate departments are analyzed, as well as the concepts behind the layout of the production area. Overall the layout of our plant was designed to minimize the amount of space utilized while including all of the necessary components of a functioning plant.
The team began the process of physically laying out the plant by brainstorming a list of departments. The departments we listed are as follows: Office, Engineering/IT, production, warehouse, shipping/receiving, maintenance/tool, and lunch room. Then each department was assigned a percentage of total plant space, which was reviewed and approved by Professor Barnes. The table below lists all the percentages
Once the size of each cell and the number of cells necessary were determined, the team was able to derive the square footage of the departments. Each cell is 4,843 square feet large, and our ARENA model determined that eight cells were necessary at start up. Utilizing this information Department Percentage Office 10% Engineering/IT 5% Production 41% Warehouse 22% Shipping/receiving 14% Maintenance/Tool 4% Lunch Room 4% Total 100% 26
and some estimates for travel lanes within the process space, we were able to determine a production area estimate for the plant. The combination of square footage estimate and percentage of floor space was used to determine an accurate estimate for overall plant size. The size estimates for each department are listed below
The team then determined the importance of department location within the plant, by using a simple relationship chart and general plant layout rules. The relationship chart has a six number priority code assignment to determine the priority of each department in relationship to another. This technique is based off of the Manufacturing Facilities by D.R. Sule. The relationship chart is displayed below.
Each of the values in the chart represents the importance of the relationship between the two departments. The higher the value the more important the respective departments are adjacent to one another. The key for the relationship chart is listed below with specific values and their corresponding meanings.
From this relationship chart a nodal representation was determined, in which each department is represented by a simple box, known as a node. The lines between each node represent a departments importance in regards to one another. The numbers of lines between the nodes are equal to the priority code that has been assigned by the relationship chart. This representation allowed the team to visualize the importance of certain departments in relation to another, and subsequently arrange the nodes so the highest priority departments adjacent to each other. The nodal representation is displayed below.
Value Priority 4 Absolutely Necessary 3 Especially Important 2 Important 1 Ordinary 0 Unimportant -1 Undesirable 28
Grid Layout
Once the facility size estimates, relationship chart, and nodal representation were complete the team was then able to construct a grid representation. The grid consists of twenty five squares in a five by five pattern. Each square in the grid represents 5100 square feet of floor space. The floor space for each department was divided by the space of one grid to determine the number necessary number of blocks for the grid representation. The department assigned to each block is denoted by the initials shown in both the table and the grid representation.
O O LR P E/IT P P P S/R P P P S/R P P P S/R W W P W W W M/T 29
Evaluation Chart
To evaluate the efficiency of the layout, the relationship chart is combined with the distance from one department to the next. The higher the total number the less effective the layout. The number on the right in each cell represents the importance of interdepartmental relationship, while the number on the left signifies the distance on the grid. The relationship value is multiplied by the distance value in each cell. All of the cells are summed up to determine the final score of the layout. A zero associated with distance notes that the departments are directly adjacent in the grid and therefore not charged to the final sum. The final sum for the teams grid layout was twenty five which is considered to be an effective design. This design achieved the best score on the evaluation matrix by comparison other designs and their respective matrices. This particular design achieved a twenty, where others scored twenty five and above. A copy of the old design evaluation chart can be found in the appendix of this report.
Nodes Production Shipping/Receiving Storage Warehouse Cafeteria Office Maint Engineering/IT Totals Production (P) - 4 X 0 4 X 0 1 X 0 2 X 0 3 X 0 3 X 0 0 Shipping/Receiving (S/R) - - 3 X 0 1 X 3 2 X 1 2 X 0 2 X 0 5 Storage Warehouse (W) - - - 0 X 3 1 X 3 0 X 0 0 X 3 3 Cafeteria (LR) - - - - 1 X 0 0 X 6 0 X 2 0 Office (O) - - - - - 1 X 6 3 X 0 6 Maint. & Tool (M/T) - - - - - - 1 X 6 6 Engineering/IT (E/IT) - - - - - - - 20 30
Final Facility Layout
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Production Layout
The production floor of our plant is comprised of eight cells and an Alpha Insulator staging area. Each cell is identical to each other. The Alpha Insulator staging area is composed of twelve Alpha Insulators directly to the left of the cells. On the right hand side of the production floor are the manufacturing cells. Each cell structure begins with a NUR machine house in the center, surrounded by six Whitworth machines, with 3 machines on either side. One Rudd mounting machine is placed opposite the NUR at the other end of the cell. The eight cells are separated into two rows of four, and arranged so that both rows line up next to each other horizontally. When developing this layout, we chose to make the two rows exact mirror images of each other, by flipping one entire row, with one 5-meter wide lane in between the two rows. The purpose of the aisle is to allow hand carts to move through and drop off/pick up material from the Alpha insulator at the end of each row to the closest NUR in each cell. The aisle continues to the end of the row, and then wraps around both rows and returns to the shipping and receiving area to the left of the production floor. On the opposite end of the plant, to the right of the production floor is the warehouse where materials and products will be stored. Above the production floor on the opposite side of the aisle is the space for the offices and employee cafeteria. Finally, below the production floor and opposite the transportation aisle are the last two departments, maintenance and engineering/information technology. Work Cell Methodology
The main reason why we decided to use the work cell approach is because it allows us to pace the rate of work in each cell based on the bottleneck of the process. The bottleneck of the process is the etching process, which we placed at the center of the work cell. That way it can feed the other machines in the cell, and essentially only allow a queue to develop before the bottleneck.
We also went with the cellular model due to the large amount of automation in the process. Each different type of machine in the cell is automated; therefore the role of the operators in the cell will be moving the part from machine to machine. They will also have to make sure the machines are functioning properly. In cell layout we decided that we only need three operators per cell to perform these duties, because each is operator responsible for multiple machines in different parts of the cell. There is one operator on the right, left, and bottom (or top depending on where the cell is located in the plant) to ensure that production runs smoothly.
Work Cell Flow
There are essentially only three different steps of the process: etching, laminating, mounting. The machines utilized in the facility correspond to these different process steps. As I mentioned before, the NUR etching machines are the center of the facility work cells. In each work cell there is one NUR machine that is surrounded by six Whitworth laminating machines. The chip passes through one of the Alpha insulators, to the left of the manufacturing cells, and then 32
proceeds into the NUR. After passing through the NUR the chip goes to one of the Whitworth machines. Next the chip goes through one of the Beta Regulators, and then finally to the Rudd mounting machine.
Once the chip has been mounted it is then placed in a protective container. It is then transported via a hand carts to the shipping and receiving area. There it is inspected, properly packaged, and prepared to ship.
Finances
Initial Investment
There are many costs that need to be accounted for when starting a business. The initial investment that we will be asking for will cover all of these costs so that our business can begin to run and start making a profit. The initial costs that will be covered with the investment is the cost of the property and building, the cost of the machines, the cost to furnish the building and property, miscellaneous supplies cost, the cost to test the machines, startup raw materials, startup cost of utilities, initial plant renovations and redesigns, and start up tooling inventory. The initial costs of the property and machines will be discussed later in the report and they total to 33
$7,035,700 and $45,938,649.04, respectively. Rather than creating inaccurate estimates for the rest of the startup costs, $30,000,000 has been allocated to cover them. Below is a description of what each of these costs would entail.
Cost to Furnish
This cost is very hard to determine. There is an endless list of items needed to furnish the plant to make it a comfortable place for people to work. These items include computers, televisions, lunchroom services, desks, chairs, goggles, rugs in office spaces, etc. This cost also takes into account initial fencing and security costs, as well as any needed landscaping.
Miscellaneous Supplies Cost
There are many supplies needed for the business to run smoothly. These supplies mainly allow workers to effectively do their jobs. There are many little costs, such as pencils, paper, mops, goggles, and gloves, but collectively they can equate to a fairly large initial cost.
Cost to Test the Machines
This cost is simply the cost of some extra initial raw materials and tools costs. It also takes into account the wages of the workers who will be doing the testing.
Startup Raw Material Cost
In order to start producing, we will need money to purchase raw materials. In this case, we need to purchase the pre-fabricated chips. This is likely a very large cost. The company will need investors to supply us with enough money to enable us to continuously buy raw materials until we are able to purchase raw materials ourselves.
Startup Cost of Utilities
As soon as the building needs to be used, utilities will be needed. Just like raw materials, the company cant begin to produce without the funds to purchase utilities. We will need enough money to pay for utility costs until we are able to fund that ourselves.
Initial Plant Renovations And Redesigns
This cost is based on our plans of purchasing a used building. Upon purchasing a used building, it will need to be renovated and remodeled to fit our proposed plant layout and other needs. This cost is almost impossible to predict, as it is solely based on our unknown future purchased property.
Startup Tooling Inventory Costs
This cost is much like the utility and raw material cost, in that we need initial startup money to be able to begin production. It is important to have enough money to have an ample tooling 34
inventory so that machines can be ran and maintenanced properly. We need enough money to last until we can fund this cost ourselves.
These costs all are associated with the amount of money needed to initially start production, and provide enough money to get to the point of the company making enough profit to support these costs. For our evaluation, we will provide a very rough estimate of an overall initial start up cost to account for these unknown costs. Because of the uncertainty, we will provide a sensitivity analysis to provide a top end value of dollars that can be spent on these costs in order to maintain the investors 15% rate of return. Salary Cost For every employee that the plant requires, the hourly wage as well as annual wage was generated through the United States Department of Labor. We accessed the Bureau of Labor Statistics to find each wage. Each number is also specific to the state of Nevada where our plant location will be. The numbers from this website are averages over the entire state so each wage also includes wages based on seniority and skill for each job title. For example, our Upper management executive will make $90.48 an hour, which results in making $188,210 a year. From top to bottom, the plant will have 28 different job titles that will cover every aspect of manufacturing the chip. Each job that is offered in our proposal has a specific duty which is why we have delegated numerous positions for each job title. The proposed plant is split into eight different cells. Because of this, many job titles needed more workers. Each cell has its own computer, mechanical, industrial, electrical and quality engineer. Also, each cell has its own supervisor and inspector. Also, the schedule for the workers inside each cell is split into four shifts. Since there are eight cells with four machinists in each cell, 24 machinists are needed during any given shift. Since we have four shifts, a total of 96 machinists will need to be employed. During each shift, security will also be needed. There will be one security guard at the gate, two inside the security room, and one at the entrance/exit each shift. With four needed during any given shift, 16 will need to be employed. Also during each shift, the plant will need four material handlers will be needed, one forklift operator, and two warehouse inventory operators. The plant will also need professional staff and maintenance staff that will work regular 8 hour days, 7 days a week. During the regular work day times, six maintenance and eight repairmen, eight janitors, and a few executives will be needed. One thing to note is that in our evaluation of total salary costs, we have not included sales representatives, marketing and sales managers, or customer service representatives. We decided not to include those positions because we made an assumption that those positions would be better suited at one of the companys other, more corporate oriented, locations. We do acknowledge that these positions still do exist and have include these employees in our estimation of yearly overhead costs. After employing every available position being offered, the plant will need a total of 249 employees to run properly which results in an annual cost of $996,465.60. All workers while being employed will receive free health care, benefits, and workmens compensation.
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Inventory Cost In the state of Nevada, there is no inventory cost. So, the rest of the cost for inventory would come in overhead costs, including the cost to upkeep the warehouse they are held in. So, for our financial analysis, we will not include inventory cost since overhead an upkeep costs will already be included elsewhere. Property Cost To find the property cost needed for our evaluation, we decided to purchase a used facility. We did research on current properties on the market and came up with average costs for properties that meet our needs. We found three properties currently for sale in Nevada and their average building size was 177920.667 square feet, which gives enough room for our proposed layout with room left over for expansion. The properties sit on an average of 8.83 acres of land which also allows for additional expansion later on if needed. The price of these properties largely were based on the age and size of the facility and the size of the plot of land. The average price we found on facilities that met our needs was $6616666.67. So, for our evaluation, we used $7 million for our initial price of the property. From there we were able to calculate an initial real property transfer tax. The tax resulted in an additional $35700 added on to the initial price. Another property cost we took into account was the yearly property tax. The property is taxed at 3.2% of the property value. We used the asking price as the property value for calculations. The property tax results in a yearly payment of $224000. Machine Cost As discussed in the arena simulation section, a total of 85 machines will be ordered. we propose to order 8 NUR, 48 whitworth, 8 rudd, 12 alpha insulators, 8 beta insulators, and one packaging machine. The machines will be paid for completely in the first period with a total price of $37,310,052.30. This cost also includes Nevada sales tax. Shipping and Installation Cost
On top of purchasing the machines, all 85 of the machines need to be shipped and installed. This will bring the total cost of the machines once installed to $45,938,649.04. Unfortunately, many trucks, drivers, and permits will be needed just to get the equipment safely to the facility. These costs alone will be quite substantial. On top of that all of the machines must be unloaded, moved into the plant, potentially reassembled, and then must undergo rigorous testing to make sure that all functions are working properly before manufacturing can even begin. Because of the elaborate nature of this process, a percentage of the total machine cost before tax was used to reasonably calculate the shipping and install costs. For the cost estimation we have estimated that the shipping cost would be 10% and the installation cost would be 15% of the total machine cost before tax.
Utilities Cost Every commercial building will have extensive utility costs, and this manufacturing plant is not any different. The building will need to be equipped with a full HVAC system and require an endless supply of energy. According to the United States Energy Information Administration, on 36
average most commercial buildings cost $1.51 per square foot per month for energy. The proposed plant will be 143,514 square feet. This will give a total cost of $216,706.14 per month for utilities. When converting to cost per period, it will be a total of $200,06.44 each period for the entire building. $1.51 per square foot is an average cost for commercial buildings and it is a fair price given our plant. Manufacturing Overhead Cost Overhead costs are some of the most expensive costs any company incurs and are often the hardest to calculate. Theyre so difficult due to the vast costs that fall into this category. Overhead costs are essentially all costs that are not a direct result of the product being manufactured. Examples of these overhead costs would be: utilities, rent, communication systems, taxes and insurance, environmental costs, and even machine depreciation. Some of these costs are easily calculated with the information we have been given regarding the project, while others are much more complicated to determine. Most companies in this situation would most likely model a majority of their overhead costs that they cannot calculate off of similar existing companies or from previous experience or historical data. Unfortunately we do not have the luxury of being able to accurately do any of these. Since many of these costs will not be known until the plant is up and running, we therefore have grouped and black boxed a majority of these expenses to make it easier to estimate the total overhead cost. This black box method allows us to allocate a set budget to a group of items without having to calculate the cost down to every mop and bolt. Essentially, this method acts as a top-down approach to calculating overhead. As a result, these estimates have the potential to be inaccurate but we have done as much research as possible to ensure that they are as realistic as possible. We have also done a sensitivity analysis to show how the overhead cost could affect the final rate of return if it has been estimated incorrectly. Below are the black box categories that we have come up with and have allocated 200 million dollars towards, annually. Black Box Cost The facility that we have proposed to be build is strictly a manufacturing facility for qu-chips. This means that all employees that arent directly related to the manufacturing and operation of the plant work at a separate headquarters office that we are assuming has already been established by the company. Essentially, the proposed plant does not have marketing, sales, technical and customer service, and other supervisors on site. These positions are employed at a different location and therefore are not added into our salary costs. Though we do not have the quantity and salaries of these support roles, their paychecks still must come from the profits of the qu-chips. Therefore, the period cost of these external workers will be represented in the estimated overhead cost. To ensure that our facility is kept clean at all times that it is open; we suggest hiring 8 janitors full time. They will be entitled to clean all the bathrooms, offices, entrance/exits, as well as the shop floor path in between all of the cells. All of the cells will be cleaned by the machinists that work within them to avoid confusion. Given that the proposed building is 143,514 square feet, there will be a lot of area to cover. With over 200 employees working at the plant, it will need to be cleaned daily, which is why eight janitors will be needed. The total price per year with 8 janitors is $217,040. 37
All of the supplies needed for cleaning will be ordered at the end of every period. There will also be an account for the janitors that can be accessed for any other cleaning supplies needed throughout the year. The cost of these supplies will be covered under the predetermined overhead cost of $20,000,000. If more funds are needed, the proposed plan has more funds that can be allocated towards the overhead cost. To ensure that our facility and surrounding areas are maintained continually, we suggest having an on-site facilities department. Their responsibilities will include all indoor/outdoor facility maintenance, inspection of the facility, and facility improvement projects. They will not be responsible for any issues pertaining to the machines. Some projects that they would be involved in would be replacing lights, installing televisions, building repairs, etc. They will handle any job that requires maintenance whether it is a large job or a small job. It is difficult to allot an amount of money for facility maintenance since it will change day to day. Some jobs will cost a lot of money as well as take a lot of time to complete, while other days only light bulbs will need to be replaced. Since facility upkeep is an unknown number, the overhead cost will cover the upkeep. This will insure that we will always have enough money on hand to perform any sort of maintenance, repair, or improvement needed on the entire building at any given time. Since we will be dealing with a multi-million dollar facility with very confidential information, we believe it will be essential to have an on-site security department. This department will include an office with highly versatile cameras, gated entrance with security booth, I.D. badges with scanners, automated door locks, metal detectors upon entrance, etc. Each employee will have to go through all security measures upon entering and exiting the building and facility. We suggest using an in-house staff of trained security guards. By doing this, we will be able to train the guards according to our standards and procedures. We suggest hiring a security guard for the front gate, two in the security room to monitor the cameras, and one at the entrance/exit for the building. This will be a total of four people, each making roughly $22,000 a year. All other necessary items that the security guards will personally need (walkie-talkies,flashlight, etc.) as well as items inside the security offices will be taken from the overhead cost. To ensure that the facility is being environmentally friendly, certain steps need to be carried out. A trash service will be needed to empty the dumpsters that are on-site. We suggest having dumpsters for recyclables, paper, and general trash. The dumpsters will be filled up by the hired cleaning service. The company will ensure that all hazardous materials will be controlled and cared for in the correct manner. All chemical waste will be disposed of properly; all facilities using water will practice the appropriate conservation techniques (efficient toilets, capturing waste water, etc.), managing electronic waste, and reducing air emissions. We suggest having three garbage dumpsters on site; one for general trash, one for recyclables, and one for hazardous wastes. The dumpsters will be emptied twice a month. Each dumpster will cost roughly $300 per month, which will be $1000 total for all three, taken from the predetermined overhead cost. All other costs will be covered under the predetermined overhead cost as well. 38
To ensure that all employees will be properly protected, certain measures have to be taken. We suggest supplying protection equipment such as gloves, eye protection, ear protection, skin protection, footwear, hard hats, etc. The cost will also include other facility safety equipment such as fire extinguishers, gas detectors, first aid supplies, signage, employee wash stations, etc. The price for all these items will not be very expensive to upkeep. Each month, new items will need to be ordered but it will not be a substantial amount of money. The predetermined overhead cost will have enough to cover this cost as well. To ensure that the facility is technologically sound, we suggest the company is continually up to date with their computer systems. This will include up to date software, hardware, server communication, etc. Each cell will be given its own computer as well as each office will have a computer. The security room will have multiple computer screens with cameras all over the entire property to always be monitoring. There will also be all necessary attachments including printers, scanners, fax machines, etc available whenever. We also suggest supplying most managerial employees with a company cell phone. Under the software program that the company will be run off of, all transferred information will be confidential. The facility will need to continually be supplied with typical office supplies and any other supplies needed to operate a business on a daily basis. The office areas will need to be equipped with desks, chairs, cubicles, etc. All of these necessities will also be covered under the business insurance plan. The facility will need multiple insurance plans. The plant will need general liability insurance in case of lawsuits. Each worker will need to have workmens compensation insurance in case of injuries. Each worker will also need health care coverage; however, we recommend not covering their entire family under the health insurance. Only top executives and managers should have full health insurance as well as their families. MACRS Analysis for Machine Depreciation During the 1980s, the United States introduced the Modified Accelerated Cost Recovery System (MACRS) for depreciable assets. Since the proposed business will include roughly $37,000,000 in machines, this is very important to the company. The main goal of MACRS is to encourage economic growth by offering tax incentives for depreciable assets, which our machines fall under. Essentially, this system enables corporations to write off a percentage of the machines value at the end of the tax year as a deductible. Since most life duration of manufacturing machines last three to five years, we suggest using a three year MACRS recovery period. By using a three year recovery period, the total purchase price of the machine will be deducted over four years from the companys total taxes. However, the deductions can be spread out over five year periods or seven year periods as well which can be found in the appendix section. The amount of money that can be deducted each year for each machine are calculated as well in the same document for reference. MACRS is a simple system that uses a predetermined depreciation rate each year. For the three year recovery period plan, the first years rate is 33.33%. For example, the NUR machine costs $1084809.25, after one year an amount of $216,961.85 can be deducted from the total taxes for that given year. By the fourth year, the last amount of $62,485.01 will be deducted from the 39
taxes and the entire cost of the machine will be accounted for. We then added the sales tax to the machine prices and multiplied that number by the total number of the given machine. This gave us the total amount of money that would be tax deductible each year for each machine. Taxes
When starting a new business in the United States, the new business is subject to both federal and state taxes. Federal and state taxes differ in many ways, but they both need to be payed in order for the business to legally exist. Our proposed new location is in the state of Nevada in the United States of America. So, therefore, the business is subject to taxes from the Nevada State Department of Taxation as well as the United States Internal Revenue Service.
According to the Nevada Department of Taxation, the total list of taxes taken in the state include sales and use tax, modified business tax, cigarette tax, other tobacco products tax, liquor tax, real property transfer tax, bank branch excise tax, lodging tax, insurance premium tax, tire tax, and short term lessor (passenger car), live entertainment, and exhibition facilities fees (Nevada Department of Taxation, 2013). In this case, the business is subject to sales and use tax, modified business tax, and real property transfer tax. A main reason for our selection of Nevada for our location is because of the lack of business income taxes, franchise taxes, estate taxes, inventory taxes, and taxes on corporate shares. Also, there are fees that are required when starting a new business. The only fee that we will be subject to is the Sales Tax Permit which is a one-time $15 fee. Additionally, all businesses must pay unemployment insurance to the Nevada Department of Employment, Training, and Rehabilitation and a property tax must be paid as well.
The sales tax is a tax on all tangible personal property that is transferred (Nevada Department of Taxation, 2013). Also, the business is allowed to include the tax in the price of an item that is to be sold. We recommend doing this in the sale of the qu-chips, as it is a normal practice in American industry. If the company decides to do this, they must state that the state sales tax is included on the bill of their product.
As described by the Nevada State Department of Taxation, the use tax is imposed upon the storage, use or other consumption of tangible personal property(Nevada Department of Taxation, 2013). This tax will apply to the business on any materials we purchase outside the state of Nevada. Basically, if the state of Nevada didnt collect a sales tax on the purchased item, then it is subject to use tax. However, most companies are registered to pay Nevada sales tax, and Nevada recognizes sales tax that is paid in another state. If the tax in that state is less than the Nevada state tax, then the rest of it has to be made up in use tax.
The sales and use tax rates are equal in Nevada. Statewide, they are both 6.85%, however local counties can add on up to 1.25% to the tax. For the purposes of our evaluation, we will assume that we will have to pay included sales tax on our materials to make these chips. This will cover the need for a sales tax, and take care of the use tax as well. We will use the maximum rate of 8.10% sales tax to make sure that sales tax is well covered.
The modified business tax is a tax on a companys paid employee wages. The tax is also on wages with health insurance benefits deducted. It is a tiered tax, and the cutoff is $62,500. With a company that has more than $62,500 in wages, the tax includes a $312.50 tax plus 1.17% of the 40
wages over $62,500. So, to figure out the tax, we will deduct $62,500 from our total wages, tax 1.17% of what is left, and add $312.50. The tax is due quarterly.
The tax rate for Unemployment Insurance in Nevada is 2.95% of wages, up to the wage limit. In 2013, that limit is $26,900. The wage limit has changed every year, and there doesnt appear to be any trend.
Property Tax
The property taxes in Nevada are different from county to county. The tax rates are anywhere from 1.7767% to 3.66%, but most are around 3.2%. So, for the purposes of our project, we will use a 3.2% property tax. The property tax includes real property as well as personal property. The building will be our real property which costs a total of $7,035,700. Our personal property will be everything inside the proposed manufacturing plant. This will cost a total of $37,310,052.30. After adding both property costs together, that gave us our taxable property for the first year. However, using the Modified Accelerated Cost Recovery System, the tax will be decreased each year by the depreciated amount from the cost of the machines. Essentially in year 0, our total property cost was $44,310,052.30 and after our machine depreciation, we deducted a total of $12,435,440.43 so after year 1 our property tax was $31,874,611.87. Since a three year machine depreciation factor was used, after year 4 the plant was only paying property taxes on the value of the building, which is $7,035,000.
Federal Taxes
The federal taxes that will apply to the business are employment taxes and excise taxes. Employment taxes include the federal income tax, social security and Medicare tax, and the Federal Unemployment tax. These taxes, with the exception of the Federal Unemployment tax and the business federal income tax, will be withheld from the employees wages. The Federal Unemployment tax will be paid by the business. Also, the Federal Unemployment tax, along with the state unemployment taxes are used to pay unemployment compensation. The Federal Unemployment tax is 6% on the first $7,000 paid to each employee. This tax can be credited again up to 5.4% based on state unemployment taxes. The federal income tax is 34% of the yearly income on all businesses with over $18 million in taxable income per year. Our proposed business will make over $18 million in taxable income each year, so we will use the 34% tax rate.
Health Insurance and Benefits
Most companies offer benefits to their full time employees. For our evaluation, we will recommend giving health insurance and short and long term disability. According to the Bureau of Labor Statistics, manufacturing companies pay, on average, $3.04 per hour on health insurance and $.15 per hour on disability for their employees receiving benefits (United States Department of Labor, 2009). We will use these average rates for our evaluation.
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Inflation
Inflation is the rate at which the cost of goods and services increases over time. Every year inflation is present and in our multiple-year cost analysis inflation must be accounted for. Essentially, inflation causes every cost the company incurs over every period to increase; from utility costs to salary costs. Even profits on the qu-chips themselves are subject to inflation because we made the assumption that the net profit is a fixed number. Therefore, since the production cost will inflate and the profit must stay the same, the total revenue of the chip must increase at the rate of inflation. The inflation rate we used for all cost calculations was 1.76% annually. We determined this by taking the average of the recent inflation rates between June 2012 to April 2013. This inflation rate was then modified to ~.14% to account for inflation every period, rather than just yearly.
Qu-Chip Profit
The only positive cash flow this plant will receive will be directly from the profit made on selling qu-chips. We have determined that the profit per qu-chip will be 20% of the $384.56 revenue, or $76.91. To calculate the total profit each period we created an excel file with all of the qu-chip data.
To calculate how many chips will be on hand each period, the total failures per period (seen below) must be first removed from the amount made per period (121033/period) to get an amount on hand. The demand is then taken from this amount on hand and all additional chips will go into inventory.
In months that do not have enough on hand to fulfill demand, chips will be taken out of inventory. Additionally, when there is not enough chips made in a particular period and there are not enough in inventory either, the demand for that period will be fulfilled as best as it can and the inventory will go negative. This negative inventory will allow for later periods to fulfill the missed demand of prior periods. An example of this negative inventory can be seen in period 64. Also, we will not use any deductions when demand was not met for a particular week.
Scrap costs are calculated by taking the number of failed chips at the alpha insulator, laminating machine, beta insulator, and inspection and multiplying them by the amount lost at each station (5%, 20%, 60%, and 80%, respectively). This cost is $218,295.48 per period before inflation. The final net profit of the qu-chips per period is the difference between the profit received from the sale of the chip and the scrap cost per period. The net profit over a five year period, before inflation, will be $516,269,369.48.
Rate Of Return
A few different methods were used in calculating the rate of return. An inflated internal rate of return, an actual internal rate of return, and a modified rate of return. All rate of return calculations can be found in the appendices and the attached excel document under the Rate of 42
Return tab. The inflated internal rate of return was our basis to see where exactly we would be at in regards to the minimum acceptable rate of return, or MARR. This was calculated simply by using an internal rate of return function in excel and all inflated yearly losses and gains. Since the inflated rate of return is, by definition, an inflated number, the actual internal rate of return removes inflation. It uses the following equation in order to do this:
Actual ROR=((1+Inflated ROR)/(1+Inflation Rate))-1
Though useful, the issues with both of these rates are that they have the potential to have multiple outputs for the ROR and that they do not properly calculate reinvestment rates. Due to this, the calculated ROR is a very optimistic number and not too accurate. To take all of this into account a modified rate of return was used to calculate a more realistic external rate of return. This modified rate of return, or MIRR, uses both the rate at which extra funds will be reinvested and the rate at which funds are borrowed when there is negative cash flow. These rates are called the investment rate and the borrowing rate, respectively. According to economists, it is safe to set the investment rate to the MARR and the borrowing rate to the weighted average cost of capital, or WACC. When calculating the MIRR using the excel function, we used 15% for the investment rate and found out that, due to limited periods where cash flow was negative, the borrowing rate could be any reasonable percentage and not change the MIRR output. Therefore, we used a borrowing rate of 10% because the MARR is commonly greater than the WACC. Below is the actual excel function used to calculate the MIRR.
In order to give a rate of return, much of the calculations depend on the unknown initial startup costs and additional yearly overhead costs. It is our best estimate that we havent accounted for about $30 million in startup costs, as well as $20 million annually in unpredictable overhead costs. We used these costs in our final evaluation to find that our proposal will result in a 28.07% rate of return for its investors. To be very precise, the total investment that we would ask for from the investors is $82,974,349.04. Our final ROR (MIRR) calculation can be seen below:
Since so much of our costs come from unknown or unpredictable start up and overhead costs, we decided to offer a sensitivity analysis on our final conclusion. Our sensitivity analysis shows that, 43
keeping the initial additional unknown startup cost of $30 million, we could afford to spend $36.9 million annually in additional unknown or unpredictable overhead. The analysis can be seen below.
Likewise, if we keep our initial estimate of $20 million in unknown or unpredictable annual overhead, then we can afford to spend up to $89 million in additional unknown start up costs. Both of these sensitivity analyses result in a 15% rate of return for our investors. So, even if we are considerably off on our estimate of the unknown costs, there is a large probability that the investors will still get their 15% rate of return. The analysis can be seen below.
A third sensitivity analysis that we decided to run was to decrease our profits. Decreasing our profits takes into account possible errors on almost anything in our calculations. For example, it takes into account errors on taxes, forecast, and utility costs, and more. For the analysis, we examined what percentage our profits could be incorrect, and still meet our investors desired 15% rate of return. So, through trial and error, we found that a decrease of 40% in our profits results in a ROR (MIRR) of about 15%. So, our profits could be 40% lower, and we can still meet our MARR.
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Simulation The Model
The framework of the model utilizes Arenas sequence data module included in the project bars advanced transfer options. Station and route modules are defined at the beginning and end of entity transfers between cells. Each route module follows the user-defined sequential order of steps. Arena automatically defines the attributes: Entity.Station (M), Entity.Sequence (NS) and Entity.JobStep (IS). These attributes record statistics of the Qu-Chip entitys current station location, the sequence order and position within the sequence, respectfully. Transfer times are included in the route modules by the user-defined Transfer Times. The model serves two purposes: meet the observed demand data requirements given and provide analysis for our proposed alternative solution. The following text will discuss the models design for meeting the observed demand data and the following section will go through changes made for the approved proposal. To initiate the sequence, Qu- Chip entities are assigned a part index upon arrival that increases as it moves downstream from its current route module to its next station module. The index matches the step number of its current position in the sequence 46
data module via attribute Part Sequence (Part Index) in this assign module. Qu-Chip entities now enter the Order Release Station and are transferred from the Qu-Chip Arrival Cell to the Alpha Insulation Cell by the Route to Holding Cell route module. Entities immediately enter a decision module to determine if an Alpha Insulator is available, else they are scrapped and labeled in the Accumulated Scrap set that is defined at each scrap record module to keep track of where each entity, if scrapped, is disposed. Entities that seize an Alpha Insulator are routed, while seized, to the etching station. This allows our model to accurately represent the requirement for chips to instantaneously enter etching without leaving insulation. The etching cell is the most complex concept of our model and will be a main focus point of this discussion. Upon arrival to the etching cell, the entities remain seized in a hold module under the Wait for Signal condition to be satisfied from the Release Signal module downstream. Arenas signal module requires an entity present to broadcast a value to hold modules waiting for its signal. At this point, the question arises; how can an entity pass through a condition that requires a signal from a downstream module? I would not mind hearing the answer to this question from Rockwell themselves. Nonetheless, this riddle was cracked by implementing a second create module releasing an entity at time 0.0 labeled Create Release Signal Entity, arriving with the same distribution as the Qu-Chip entities. It immediately enters a hold module to scan for the condition NQ (Alpha Insulation Capacity) >= 1 && NQ (Etching Process.Queue) == 0 to prevent two errors: a cease of flow from alpha insulation due to missing a signal release because another entity would not be able to reach the signal module and a premature release of an entity causing a forbidden queue to form at the etching process. Upon meeting this condition, the new entity is assigned the attribute (MR (Etching Machines) - NR (Etching Machines)) to be used as the optimal limit value of release from alpha insulation. The signal module then emits a value of 1 which matches that of the Hold in Alpha Insulation module and the etching machines are then immediately seized. While this is happening, the new entities are being disposed of as they fail the decision module condition if Entity Type named QuChip. Qu-Chip entities are now 47
specified a TNOW attribute to initialize the time interval from etching machine release to the laminating station for yet another scrap condition. Once routed to the Laminating Cell, Qu-Chips seize a laminating machine and enter the decision module for Tw calculation. Under the condition TNOW Initiate Tw <= 0.04583 entities over this time requirement are recorded in the Accumulated Scrap set and release their seized resource for upstream entities. Entities under the time requirement are delayed by the laminating process service time and then transfer to the Beta Regulation Cell. The entities must be able to immediately seize a beta regulator. If the entity can seize a resource, it holds, with its seized resourced, for an available mounting machine. When beta regulator resources are at capacity, the Qu-Chip is recorded in the Accumulated Scrap set and is disposed. This requirement is very similar to the entities trip through the Alpha Insulators; a service time is required at neither the alpha insulators nor beta regulators but they must seize these resources prior to moving along their sequential order.
When the chips enter the Mounting Cell, 99.6% enter the primary mounting process. The remaining Qu-Chips are serviced by the secondary process which takes substantially longer than the primary option. At this point, the Qu-Chip entity is processed and transferred to the Inspection Cell. The sequential steps followed by the majority of Qu- Chips are almost complete as they now route from the manufacturing cells to inspection.
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Inspection
The penultimate step of the Qu-Chip manufacturing process is inspection. Each Qu-Chip must pass this final test, before being packaged and shipped out. Inspection consists of an ion-trap test, which validates that each Qu-Chip can tolerate voltage within a specified range. The given voltage range is:
In order to calculate the voltage of each Qu-Chip, we will use a modified version of Ohms Law:
The variable represents current, and is defined in amps. In this case, it is a discrete value, fixed at 0.01 amps. The variable represents resistance, which is measured in ohms. As opposed to current, resistance is a continuous value, and based on a normal distribution with two parameters. The mean, , is 4 ohms while the standard deviation, , is 0.10 ohms. Below is a graph of the probability density function (pdf) corresponding to :
Finally, the variable is defined by a three parameter Weibull distribution. Typically, the Weibull distribution consists of a shape parameter, , and scale parameter, . However, with a three parameter Weibull, a shift parameter, , is also considered. The shift parameter, also referred to as location, slides the distribution across 0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 3 . 7 3 . 7 3 3 . 7 6 3 . 7 9 3 . 8 2 3 . 8 5 3 . 8 8 3 . 9 1 3 . 9 4 3 . 9 74 4 . 0 3 4 . 0 6 4 . 0 9 4 . 1 2 4 . 1 5 4 . 1 8 4 . 2 1 4 . 2 4 4 . 2 7 4 . 3 Normal PDF (=4,=.1) 0 5 10 15 20 25 30 35 2 . 9 8 2 . 9 9 1 3 . 0 0 2 3 . 0 1 3 3 . 0 2 4 3 . 0 3 5 3 . 0 4 6 3 . 0 5 7 3 . 0 6 8 3 . 0 7 9 3 . 0 9 3 . 1 0 1 3 . 1 1 2 3 . 1 2 3 3 . 1 3 4 3 . 1 4 5 3 . 1 5 6 3 . 1 6 7 3 . 1 7 8 Weibull PDF (=271,=3.141,Nu=0) 49
the x-axis. Shape was set at 271, and scale was given as 3.141. The shift parameter is vital to the inspection process. When meeting with the client, a value for this particular parameter was not given, and as a team we were required to calculate it in order to minimize failure. In order to calculate this value, we began by graphing the probability density function of the two parameter Weibull distribution, which can be seen in this graph.
After examining the pdf, the mean of the distribution was found to be 3.13435. When plugging in this value as , ohms law outputs a voltage value of , which is clearly outside the range of the voltage tolerance. This initial calculation illustrated the necessity of using a three parameter Weibull distribution. In order to calculate a proper shift value, we needed to find the mean of the voltage range, which came out to be 28.84495 volts. With this information, we calculated a corresponding value to give us the mean voltage, when the normal distribution gave its mean value of 4. This value was discovered to be -0.429. Therefore, since the two parameter Wiebull produced a mean of 3.13435, then the shift parameter, Nu, needs to be set at -3.56335.
In order to test this value, we turned to Arena to simulate a rudimentary inspection process. The validation was not successful, however. We determined that because of the different shape of the Weibull distribution, and the fact that the final voltage formula also depends on variable defined by a normal distribution, the most desirable value is actually not the mean. When testing the Nu value at -3.56335, it provided a very good starting point to find the optimal value we needed. So, we proceeded to test for the optimal Nu value by trial and error. The final setup that we had in Arena is showed in the picture below: The Qu-Chips start in the Create module (Create 1), which was originally set to run 1000 chips through our process. From there, the chips were assigned a voltage. This was especially difficult because Arena does not allow the user to input an expression that raises a value to the power of a distribution. However, it does allow raising e to the power of a distribution. So, we had to change our equation from to . As shown in the picture above, the Assign Voltage module assigns a voltage variable with the new equation. So, once a voltage is assigned, 50
the Qu-Chip goes through a Decide module (Pass Inspection?) which separates the Qu-Chips into 3 different Dispose modules; Failed High, Failed Low, and Passed. As their name suggests, the Qu-Chip goes to the Failed High module if their assigned voltage is higher than the 34.8317 volt spec limit, to the Failed Low module if their assigned voltage is lower than the 22.8582 volt spec limit, and to the Passed module if their assigned voltage is within the spec range.
Our trial and error session was originally set up to run 1000 Qu-Chips through the process, starting with the mean Nu value of -3.56335. Using 1000 chips, we were able to get a rough estimate of what the optimal value would be. Our first run resulted in 22 failures in the Arena model, all in the Failed High module. To check to see if our model was set up correctly, we ran the same test using functions and equations in Excel. Part of our Excel worksheet can be seen below:
The worksheet confirmed that our Arena model was set up correctly because it resulted in anywhere from 15 to 25 failures, all in the Failed High column. These results were similar to the Arena results. So we went ahead and did trial and error tests for some values to narrow down our search. We came up with an optimal value of -3.548, but we knew that the true optimal value could be more precise. From there, we were able to get more precise values using trials with 10000 Qu- chips. After completing the trials for 10000 chips, we determined that we needed to have even more precise data. So, our final tests were run using 30000 chip trials. The specific data from our trial and error tests can be seen in the excel chart below.
As you can see from the Excel charts, our final optimal value was Nu= -3.54875. It resulted in the same amount of failures (150) per 30000 as two other Nu values, but outperformed them both when comparing values for 10000 trials. Our optimal Nu value resulted in 41 failures per 10000 chips, which is a success rate of 99.59%.
We found our optimal Nu value to be - 3.54875 using the Arena results below:
The screenshot to the right of the page shows the inspection cell as it is in our model. Unlike other decision modules in our simulation design, entities that fail here meet the N-way condition by exceeding either the low or high voltage tolerance requirement. Instead of simply recorded these failures alike in the Accumulated Scrap set, entities are kept apart for practical purpose. It is designed in this manner for our record of cumulative failures on both ends of the tolerances in the case one failure heavily outweighs its counterpart, such a trend can be recognized and addressed accordingly. QuChips within the acceptable voltage range are now routed to the final stage of their production cycle.
These entities enter our highly-automated packaging cell and make a quick transfer to shipping. This concludes the model discussion Nu Failed High Failed Low Total -3.5492 133 22 155 -3.549 131 22 153 -3.5491 132 22 154 -3.5489 131 22 153 -3.5488 127 23 150 -3.5487 124 26 150 -3.5486 124 27 151 -3.5485 121 31 152 -3.54875 127 23 150 30000 Chips Arena Trial and Error 52
specific to the given demand data. Following this review is a look at our simulations results shadowed with sensitivity analysis carried out in Arenas OptQuest and Process Analyzer.
Meeting the Historical Data
Prior to addressing our forecasted demand, we focused on meeting the 2 year historical data as accurately as possible. After choosing the proper resources as well as their quantities, the next step was to execute an Arena simulation to illustrate production, and ensure that the demand can be met. In order to show this, we chose to simulate a week of low demand, average demand, and high demand. This allowed us to examine how closely we could meet these demand levels, adhering to their corresponding inter-arrival rates. The inter-arrival rates are defined by probabilistic expressions, discovered through using the aforementioned ExpertFit tool. Each demand was simulated with an 8 cell setup, which includes 8 etching machines, 48 laminating machines, and 8 mounting machines. Also included are 8 Alpha Insulators, and 8 Beta Regulators. Analysis related to the forecasted demand, which will be discussed later, will advise the use of 10 Alpha Insulators. However the periods of production based on the historical data met the demand better with 8 Alpha Insulators. This conclusion was reached by comparing the simulation outputs of each demand level, with first 8, and then 10 Alpha Insulators. The conclusion to go with 8 was obvious given the results
It is also important to note, that we found it impossible to exactly meet the demand via simulation. Since pre-fabricated Qu-Chips arrive simultaneously as orders pour in, we are constrained by the demand count. And due to inspection, which has a failure rate of approximately 0.5%, we cannot ship an amount of Qu-Chips equivalent to our demand count. So for example, if 200 orders are placed, and 200 Qu-Chips are pushed to our manufacturing process, the most we would be able to ship is roughly 199 Qu-Chips. This concept will become more evident as we examine each level of demand.
We identified week 85 as the lowest demand week. The demand in this week is 9180, and the inter-arrival rate was defined by a Gamma distribution. The simulation concluded in 166.056 hrs, slightly shorter than a full week (168 hours). This is simply due to the probabilistic nature of the inter-arrival times, and the terminating condition which was previously discussed. Out of the 9180 Qu-Chips ordered and process, 9139 were shipped. There were no fails at any point outside of the inspection process, where 41 failed. Due to the constraints placed on the historical data, and the inability to simply run more chips through the process, it is impossible to perfectly match supply with demand. Nonetheless we can successfully ship 99.55% of the demanded Qu-Chips.
Category Units Demand 9180 Fail to seize Alpha 0 Fail to seize Beta 0 Fail at Tw 0 Fail - High Tolerance 29 Fail - Low Tolerance 12 Total Fails 41 Qu-Chip Cycle Time .2474 hrs Shipment Count 9139 Time Elapsed 166.0056 hrs Low Demand 53
Week 91 was rated an average demand week. During this week, the demand count stood at 17801 Qu-Chips. A Gamma distribution was used to define the inter-arrival rate in this particular week. The simulation took 167.8316 hours to complete. Of the 17801 Qu-Chips ordered, the manufacturing process was able to ship out 17699 units. Hence we were able to meet 99.43% of the demand. The discrepancy is again most attributable to the inspection step, where 88 failed due to exceeding the high tolerance and 12 failed low due to falling under the low limit. Unlike the low demand week, the average demand period resulted in 2 failures caused by a lack of Alpha Insulators available upon their arrival. Qu-Chip cycle time for an average demand week came in at .2473 hours, almost identical to that of the low demand week.
The demand peaked in week 105. The demand count in this period spiked to 32877 Qu-Chips, thus presenting the biggest challenge in terms of matching the supply with demand. This also meant that week 105 experienced the quickest inter-arrival rate. Again, the rate was modeled with the probabilistic expression Gamma distribution. With the 8 cell setup, the manufacturing system was able to ship 32234 Qu- Chips. In this scenario, 434 Qu-Chips failed because there was no Alpha Insulator available when pushed into the system. As with all three demand levels, no Qu-Chips failed at the Beta Regulator step, most likely because of the zero service time associated with the Beta Regulator step, and the speed with at which Qu-Chips pass through mounting. With the increased demand, this scenario does result in 37 failures due to a queue in front of the laminating process. In terms of inspection, 150 chips failed high and 22 failed low. Adding these failures together, only 643 of 32877 Qu-Chips failed. Thus 98.04% of the demand was met. The simulation completed in 167.4656 hours and the cycle time for a Qu-Chip fell at .2504 hours per chip, slightly higher than the previous two demands.
When comparing each of the three demand levels, some telling statistics emerge. As a confirmation of the Arena model, there exist no queues prior to Alpha Insulation, etching, or mounting. If there were any queues in front of these processes, then those Qu-Chips would be immediately scrapped. Through the low and average demand levels, there is actually no waiting time in front of any of the processes. In the high demand week, there does exist some waiting time in front of laminating, which is allowed, yet constrained by the given t w value. In the case of historical high demand, 37 chips fail due to t w, which is reflected in the output results. The maximum waiting time in front of the laminating machines reached 0.068688 hours, exceeding t w . Therefore, logically speaking, it makes sense that some failure occurred at that point.
Category Units Demand 17801 Fail to seize Alpha 2 Fail to seize Beta 0 Fail at Tw 0 Fail - High Tolerance 88 Fail - Low Tolerance 12 Total Fails 102 Qu-Chip Cycle Time .2473 hrs Shipment Count 17699 Time Elapsed 167.8316 hrs Avg. Demand Category Units Demand 32877 Fail to seize Alpha 434 Fail to seize Beta 0 Fail at Tw 37 Fail - High Tolerance 150 Fail - Low Tolerance 22 Total Fails 643 Qu-Chip Cycle Time .2504 hrs Shipment Count 32234 Time Elapsed 167.4656 hrs High Demand 54
Utilization provides insightful, yet largely predictable metrics. When looking at all three scenarios, the etching machine utilization increases from .2226, to .4431, and ultimately to .7801. However, the maximum utilization in all three periods reached 1, and all 8 are utilized at least once in each demand period. Laminating instantaneous utilization increases in a similar pattern, starting at .2323 in the low demand week, and moving to 0.811 in the high demand period. However the maximum units busy is not consistent over the periods. For low demand, only 25 of the 48 laminating machines are used at least once. That number jumps to 44 in the average demand week, and finally reaches 48 in the week of high demand. When examining the Beta Regulators and mounting machine usage, it is clear that at no point is all of their scheduled capacity consumed. Even in the high demand period, only 6 of 8 mounting machines are used, and 1 of 8 Beta Regulators used. All 8 of each would still be required due to the cell layout our group is utilizing. See the below tables for further output metrics:
Modeling a real-life simulation under these requirements quickly proved troublesome. Although the given conditions stray far from commonality, staying true to the requirements was our primary goal. Alpha insulation requires immediate action upon Qu-Chip arrivals and varying interarrival times make any possibility of control futile. As each arriving entity equals one unit of demand, a model must not only keep up with order arrivals, but also process entities without failure. When considering these obstacles, our models results left Average Maximum Average Maximum Average Maximum Category Value Value Category Value Value Category Value Value Alpha Insulation 0.01102282 0.75 Alpha Insulation 0.02851647 1 Alpha Insulation 0.1729 1 Etching Machine 0.2226 1 Etching Machine 0.4318 1 Etching Machine 0.7801 1 Laminating Machine 0.2323 0.5208 Laminating Machine 0.4431 0.9167 Laminating Machine 0.811 1 Beta Regulator 0 0.125 Beta Regulator 0 0.125 Beta Regulator 0 0.125 Mounting Machines 0.02145445 0.375 Mounting Machines 0.03994529 0.625 Mounting Machines 0.072252002 0.75 Average Maximum Average Maximum Average Maximum Category Units Units Category Units Units Category Value Value Alpha Insulation 0.08818253 6 Alpha Insulation 0.2281 8 Alpha Insulation 1.383 8 Etching Machine 1.7808 8 Etching Machine 3.4545 8 Etching Machine 6.2411 8 Laminating Machine 11.1509 25 Laminating Machine 21.2691 44 Laminating Machine 38.9285 48 Beta Regulator 0 1 Beta Regulator 0 1 Beta Regulator 0 1 Mounting Machines 0.1716 3 Mounting Machines 0.3196 5 Mounting Machines 0.578 6 Low Demand - # Busy Average Demand - # Busy High Demand - # Busy Low Demand - Instantaneous Utilization Average Demand - Instantaneous Utilization High Demand - Instantaneous Utilization 55
us optimistic but we knew it needed improvement. The first step to improvement relied on obtaining control of order arrivals. When our supplier accepted our agreement to define an arrival rate, a proposal was born. This sign-off allowed us to implement a material-ordering lead time as quick as Just-In-Time. With the added flexibility, modifications were made to our simulation model to fit the LP parameters and forecasted demand with a constant entity release scheduled across demand periods. In place of data distributions fit to historical demand, our create modules time between arrivals parameters are now the user-defined variable Proposed Arrival Time. This allowed us to utilize Arenas OptQuest tool to optimize an arrival time to an objective function under the following constraints:
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Among the feasible solutions, these parameters yield the most optimal results for our model. Explanation of the objective function is available in the image taken from OptQuests objective function builder. The first constraint is in place to keep the new arrival time expression a real number and the second requires that throughput, the demand count record module, be equal to or greater than 120,240. This value is our uniform demand requirement for periods 1-62 of our five-year forecast. With our Proposed Arrival Time attribute and control solutions adjusted according to OptQuests recommendation, the results are seen here. While entities arrive in a uniform rate of one every 0.30 minutes, our manufacturing line is capable of shipping processed Qu-Chips to meet our 28-day demand with only 793 entities scrapped.
Though the proposed models results are exciting, further sensitivity analysis is required to verify the outcomes. Since our proposals principal element of improvement relies on the regulation of material ordering, we exploited this control in our analysis. Using Arenas Process Analyzer, behavioral inconsistencies amongst scenarios following historical arrival distributions and uniform rates are observed.
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The scenarios under comparison represent the four modified simulation models discussed in this report. Differing only by their create modules time between arrivals expression, the results yield undeniable incongruities. Scenario three stands out for producing the highest Qu-Chip throughput, but its accumulated scrap is 2,665. Observed uptrends of scrap are sometimes compromised for throughput, but is this one of those situations? Our proposed alternative offers 1,872 fewer scrapped Qu-Chip entities, however, most of scenario threes failures are observed at the two lowest-costing failure points on the manufacturing line. For supplementary analysis, the third scenarios outputs shown here represent average user-specified responses after five replications in Arena with the same parameter measures performed above. Please note that the Demand Count is the same response as QuChip Arrivals. While this value proves consistent with only 17 additional entity arrivals, the same cannot be said for the shipment count. When the model replicates for a longer period of time it cannot keep up with the discontinuity of the observed interarrival data distribution fit. When the arrival distribution encounters numerous surges of arrivals pertaining to their assigned values, the manufacturing line loses fluidity and enormous queues form at time-dependent intervals as is the case for the increased Tw scrap and failures at alpha insulation. When run for a short time, the line can keep up with small spikes of demand but it cannot be relied on for everyday production. Again, scenario three has the most volatile probability of arrival surges because its rate of arrival was fit during our most demanding observed week but the average and low demand fits of the first two scenarios will not offer the throughput required during our forecast period. Additional Sensitivity Analysis The original linear program called for a uniform production of 120,240 QuChips in periods 1-62 of our forecasted demand with the use of six sets of manufacturing cells (6 Alpha Insulators, 6 Etching Machines, 36 Laminating Machines, etc). An order point at week 63 increased this figure to eight cells to meet a demand of 160,320 uniformly-produced QuChips per period. Alpha insulators are located outside the manufacturing cells for entities to seize them upon arrival, and because of the cost advantage of adding additional insulators to our order we decided to purchase 12. 58
Limitations present in the real-world such as transfer times, machine failures, scrapped entities and multiple service distributions are accounted for in our simulation model. It is unrealistic to assume our model identically matches our real-world facility but it is extremely thorough for the time frame given and certainly covers more of these issues than the linear program can. After making adjustments to the LP to include service times for a few of these issues, we came to the mutual conclusion that eight cells were required at the start of week one. The comparison above was run with the same bounds on resource controls as this image shown but the objective function was set to minimize accumulated scrap. In this scenario, 25 simulations were executed for a varying rate of three to six replications a peace with the objective function to maximize shipment count (throughput). As expected, OptQuest recommends a quicker entity arrival rate and one additional alpha insulator capacity.
One additional work cell yields 185,211 QuChips per period. Notice a need for additional alpha insulation.
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With two additional cells our manufacturing line can produce 202,703 chips per period.
Failure rates can easily be defined to a resource in the advanced process data module. The sensitivity analysis will use a normal distribution, starting with a mean uptime of 166 hours with a std. deviation of 2 hours. Resource down times will be set for 2 hours down time with a std. deviation of 1 hour. These numbers are used because they cover failure rates around the clock on a 24-hour manufacturing facility. In the scenario that numerous resources are assigned to the same failure expression, Arena will allocate the downtime to all resources assigned that expression in the case it experiences a failure. This is not ideal for this system which is why the five resource set names are observed by themselves. A total of three scenarios will be run from our optimal model: NORM(166,2) , (166,1) , No Failure and downtimes NORM(2,1) , (1, 0.5), No Failure. NORM (166, 2) uptime with NORM (2, 1) downtimes.
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NORM (166, 1) uptime with NORM (1, 0.5) downtimes.
The expected results of this performance measure should indicate a steady drop in throughput as results are read from NO FAILURES SCHEDULED NORM (166, 1) uptime with NORM (1, 0.5) downtimes NORM (166, 2) uptime with NORM (2, 1) downtimes. Run conditions are set to five replications per scenario.
As anticipated, scheduled failures dramatically skewed the results of these scenarios. Since our machines are considered, as far as we believe, to be a top-of-the-line product it seems unrealistic to believe any given machine is expected to fail once a day. Nonetheless, running a test like this drives home the importance of each and every machines role in keeping the production flow optimal.
Sustainability
Strategy and Management Approach
At the forefront of a revolutionary process in computer chip manufacturing we understand that corporate responsibility and business must go hand in hand. The corporate objective should be for continuous improvement to balance care of the planet, care for people, and profit as well as education and inspiration of the next generation. It is imperative to create long term business values and insist that transparency an essential part of how the operation is run. Transparency holds the company accountable and encourages two-way dialogue with employees which maintain our commitment to ethics. We are basing our business model off Intel Corporations plan. Intel Corporation is the worlds largest semiconductor chip manufacturer. Their sustainability motto is, Focus on responsible business practices helps us mitigate risks, reduce costs, protect brand value, and identify new market opportunities. (Intel, 2010) All the people that are associated with the business from the suppliers of the raw materials for the product, the manufacturing facilities that produce the product, and the customers that buy the product should be engaged in the sustainability planning of the company as a whole. 61
Employees can add to the continuous improvement of all aspects of the business through the process of an integrated system of open-door policies that give the employees access to management at all levels. In turn this provides a direct means for creativity and improvement. Employee surveys, weekly or daily feedback tools to keep the employees informed of what is happening within the facility, and quarterly meetings for all employees and management that provide question and answer sessions can result in exellent communication within all levels of the organization. Utilizing these practiesmakes it easy to track performance and identify key areas for improvement.
Facility visits or conferences with all the suppliers can be used in order to establish clear expectations and improve efficiency throughout the supply chain. Risks can be more openly identified and solutions determined. Participation in the Electronic Industry Citizenship Coalition (EICC) to hold suppliers to a set of standards is also highly recommended. Customers can be included to provide valuable insight into the quality and services provided by the company. A third party Customer Feedback Program can be implemented to obtain the surveyed feedback. It turn it can analyze the areas that are performing at a high level and those that need improvement. This is an excellent method of to determine whether or not the quality control methods of the company need to be addressed.
Communities can be involved as well. Community advisory panels could be eatablished established in order to get direct feedback on how the company is viewed by the public. A few other options to addess community concerns are two way forums, need assessments, and perception surveys. Company employees should be placed on community non-profit boards and commisions in order to maintain extensive working relationships with local educators and institutions. All these measures are designed to establish good working relations between the company and the community.
Involvement with local government policy and legislation efforts aim to foster credible trustworthy relationships and show that the company is a valuable corporate citizen. Overall this also demonstrates the support of a healthy public policy environment.
A Comprehensive Approach
Approach is specifically designed to help you turn sustainability challenges into business advantages. (Rockwell, 2009)
Achieve your business goals
At the core is a fundamental belief that corporate investment in the environmental and social responsibility must strengthen business performance which in order to be truly successful it must: reduce environmental impact, achieve a genuine economy in the use of resources, deliver a return on investment, and improve the equity of your company.
Enhance your sustainability
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Three major corporate sustainability objectives include: energy conservation and efficiency, environmental responsibility and resource management, safety for workers, machinery, processes, and products.
Integrated Strategic Approach
Economic Impact
There are four basic levels of Economic Impact: Direct Impact : Company sells products, provides wages to employees, and pays taxes Indirect Impact: Company pays suppliers and creates business for resellers, who in turn generate employment Induced Impact: Consumer spending by the company employees and suppliers stimulates additional economic activity Productivity Impact: The use of products containing Qu-Chips result in productivity gains in the economy
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Money invested in a site in Nevada will include an economic impact to the region of non- company jobs that result from operations in the state, company employees volunteering in the local community, and providing improvements for local schools and non-profit organizations.
Code of Conduct
Our code of conduct is modeled after Intel Corporations and establishes a simple mission statement of which all other aspects of the business must comply. This guides the behavior of the officers, employees, and suppliers. The principles promote ethical conduct and compliance with applicable local and federal laws and regulations. The code also expresses the adherence to non- discrimination, antitrust, anti-corruption, privacy, health and safety. Employee impacts are both long and short term on the community and the environment when they are making business decisions. All employees should receive proper training in the code of conduct when they join the company and annually thereafter. Multiple channels will also be provided to allow employees to raise ethical questions and issues. This will be highly encouraged. Subjects can be simple or include such important topics as human rights principles.
Conduct business with uncompromising integrity and professionalism. (Intel, 2010)
Political Accountability
All political affiliations and political contributions including the details of the accountability of the senior management and Board of Directors level should be readily available. A Model Code of Conduct for the Corporate Political Spending should be established. Transparency should be the main focus to establish trust with the community.
Environmental Sustainability
Recognize that consumer usage of the product accounts for largest overall carbon footprint.
An employee-initiated sustainability network should be established. This chartered employee group provides employee networking, volunteering, and educational opportunities which align with the corporate environment focus areas.
Climate Change and Energy Efficiency
Industry accounts for 40% of total worldwide energy consumption. (Rockwell, 2009) 64
Green building design should incorporated into the facility. Leadership in Energy and Environmental Design (LEED) certification should be the goal of the facility. This can also include renovations of LEED criteria such as the use of low-VOC paints, low-flow faucets and toilets, and non-adhesive carpets and furniture which are recyclable at the end of their lives. The company should also invest in renewable/green power if at all possible. As part of the U.S. EPAs Green Power Partnership program the company should commit to purchase renewable energy. Partnering with third parties to complete solar or wind installations in the state of Nevada as well as on the facility itself could add to community support of regulatory obligations and programs. All of the company facilities should conform to the Energy Star Program Requirements.
Water Conservation
Water conservation is a huge responsibility in the industry. Intel estimates that it takes 16 gallons of water to produce a single chip, by comparison, producing one pair of jeans takes 2900 gallons, one hamburger takes 634 gallons, and one cup of tea takes 9 gallons. In an analysis of the water Footprint the findings suggest that the largest impact of water use is from the direct operations as well as the production of electricity. The smallest portion comes from material suppliers.
Partnering with the local community to address sustainable water issues is recommended. Implementing a progressive water management system to reduce daily demand or implementation of a facility to treat the plants waste water from the plant so that it can be reused is highly recommended. Capturing wastewater to use in cooling towers is another beneficial possibility. To f The performance of the facilitys water use and reuse is a trademark with other semiconductor companies. Participating in environmental benchmarking activities with other industry members of the World Semiconductor Council (WSC), Semiconductor Industry Association (SIA), and International SEMATECH Manufacturing Initiative (ISMI) will allow the company to be appropriately compared. This will demonstrate transparency, establish risk assessment, and areas for improvement.
Waste: Reduce, Reuse, and Recycle
Installation of more efficient lighting in the facility, smart system controls, boiler and chiller water system improvements, cleanroom heating, ventilation, air conditioning, and heat recovery should all be pursued. Employees should continue to identify new opportunities to minimize waste and recycle/reuse materials from large scale process improvements to everyday actions. These might be composting programs for cafeteria waste, or the sale or donation of waste materials that cannot be used by our facility to environmental industries such as wind or solar.
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Chemical Waste
Sustainable projects that can be undertaken by the company on an ongoing basis include improvements in the use of paper. Reduced paper usage can be encouraged among employees to receive electronic credit card, retirement, and payroll documents. Personal codes on the company printers can also raise the awareness of printing volumes. Travel and ground transportation can include booking only hotels that are labeled as green hotels and rentals of vehicles can have a minimum standard of miles per gallon as well as Carbon emmission levels. Office supplies and the suppliers can also be tested for sustainability. Marketing initiatives can also be printed closer to their final destination to reduce shipping and delivery related emissions.
Landfill Impact From Finished Goods
Electronic waste (e-waste) such as computers and mobile phones are a global concern. Involvement in the EPSs Plug-In to eCycling campaign is a must. This campaign is designed to build public and private support for proper recycling of used electronics. A collection site at the local facility and drop off points in the local and state community would be an excellent positive relationship builder with the community.
Product packaging is also an environmental concern. Reducing the waste generation and emissions through better design of the trays and packaging materials used to ship products is key. Reducing the tray and packaging weight can also help reduce the transportation costs and fuel consumption. Constant improvement into the type of material used for the packaging and the packaging design to allow for a more dense packing of the chip compared to the volume of the shipment; can ultimately improve the environmental impact as well.
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Reducing Air Emissions
Joining the EPAs Center for Climate Leadership and playing an active role is highly recommended. (EPA.gov/climateleadership) EPAs Center for Corporate Climate Leadership serves as a resource center for all companies looking to expand their work in the area of GHG measurement and management. The Center was launched in 2012 to establish the norms of climate leadership by encouraging companies with emerging climate objectives to identify and achieve cost-effective GHG emission reductions. They also aim to aid more advanced companies to drive innovations by reducing their greenhouse gas impacts in their supply chains and beyond. A company policy is needed to minimize the emissions of both volatile organic compounds (VOCs) and hazardous air pollutants (HAPs). Thermal oxidizers and wet scrubbers should be used to neutralize and absorb gases and vapors where necessary.
Performance Summary and Goals
An overall goal in order to reduce the companys carbon footprint, purchase green power, and invest in energy saving projects. Employee compensation should be implemented to further encourage employees to take action recommended actions. Establishing goals for each year and meeting or exceeding those goals, while communicating these goals to the public, is a great way to show transparency, community, and environmental awareness.
Ethics
The company should be viewed by the employees as a great place to work and that should be reflected in the corporate philosophy and management practices. Cultivating open and direct communications, rewarding and recognizing the employees, and investing in career development and leadership should be major company goals.
Career Growth and Development
Employees should be encouraged to continuously learn. This can include on the job learning, classroom learning, and by connecting with others. Working with managers to align job assignments with strengths and interests as well as the needs of the organization is beneficial to the individual and to the company as a whole. Providing resources and tools by encouraging employees to connect with managers and senior leaders. The company should also provide mentoring relationships, open forums, quarterly events, employee groups, and social media channels. Employees should also be given an opportunity to do rotational or temporary job assignments that expand the skill levels of the employee.
Communication and Recognition
Open door policies should enable employees to speak directly with all levels of management. Concerns, ideas, problems, and workplace issues can be addressed. Meetings, surveys, question and answer sessions about workplace improvements and innovation should happen relatively frequently. Also multiple tools equipment should be used encourage sustained improvement 67
practices, rewards, and leadership practices. This can include a designated website to collect the data. All of this can lead to increased employee satisfaction and reduced employee turnover.
Diversity
Diversity in the workforce is an integral part of creating the companys competitive strategy and vision. Many studies show that employees working in a diverse environment tend to feel more fulfilled, creative, and productive on the job. Continuously striving to attain a work environment that honors, values and respects all employees should be the goal. The company will comply with all applicable laws and provide equal employment opportunity for all applicants and employees without regard to race, color, religion, sex, national origin, ancestry, age, disability, veteran status, marital status, sexual orientation, gender identity. This includes reasonable accommodations for disabled employees. The employment, advancement and retention of women in technical and leadership areas should also be a focus of the organization.
A perfect example of a changing corporate world is the installment in 2012 of a woman in charge of Lockheed Martin. The President and CEO is now a woman, Marillyn A. Hewson. Creating programs designed to promote cultural awareness as well as frequent company events that give employees the opportunity to share their heritages and connect with other employees in conjunction with intercultural training can create better working relationships between the employees.
Health, Safety, and Employee Wellness
Physically and mentally fit employees can be more productive as well as enjoy a better quality of life.
Cumulative Trauma Disorders (CTDs) and Repetitive Stress Injury (RSI) can be key problems. Proper training and ongoing emphasis on proper techniques such as rest breaks can reduce the number of these injuries. Proactive policies and early symptom detection can also reduce these issues. An established Environmental Health and Safety (EHS) policy to provide a safe and injury free work place is essential. Safety training, orientation sessions, and continued on the job training can be utilized. Electrical safety, control of hazardous materials, chemical safety, and ergonomics should all be addressed. ISO 14001 and ISO 18001 should seriously be considered.
Performance Summary and Goals
Continuous improvement in this area should be established as a goal. Additionally annual data should be collected as well as surveys of employees.
Supply Chain Responsibility
The supply chain should have very clear expectations in terms of their business ethics and sustainability. Suppliers should work with the EICC and other associations as well as collaborate with us on broad initiatives. The tracing and eliminating of conflict minerals from the electronics supply chain is of key importance. Purchase of raw materials in the supply chain that may have a 68
link to human rights atrocities must be eliminated. Therefore transparency of the suppliers is of vital importance. US Conflict Minerals Law applies to materials originating (or claimed to originate) from the DRC as well as the nine adjoining countries: Angola, Burundi, Central African Republic, Congo Republic (a different nation than DRC), Rwanda, Sudan, Tanzania, Uganda, and Zambia.
Supplier Environmental Impact
Suppliers must actively support the companys responsibility and goals by creating their own corporate responsibility strategy or policy that sets aggressive goals in which they engage and audit their own suppliers. They must make sure that all the links in the supply chain have the same rigorous standards in terms of sustainability. This includes worker safety, ethics, human resources, and environmental management.
The EICC Code sets forth performance, compliance, management system, and reporting guidelines. It also provides assessment and audit procedures across key areas of social responsibility and environmental stewardship. It covers human rights issues and labor standards related to child and forced labor, freedom of association and collective bargaining, diversity and non-discrimination, working hours and minimum wages, ethical practices, and worker health and safety.
Supplier continuous quality improvement is another area of interest. To drive our suppliers improvements we should use our tools and management systems to help improve them while making scheduled visits as well as acknowledging them publicly. A measure of risk across all suppliers in the supply chain needs to be generated along with an annual audit of those at the highest risk level needs to be performed.
Contributions to Society
Through collaboration, creative applications of technology, strategic giving, transforming education, and increasing economic opportunity; the company makes the community where our facilities are located better places to live and work. Investments in the community are beneficial to both parties.
Education
Investment in education expands opportunities for young people, while also benefiting the company. Education is the foundation of innovation and as a technology company the success of the company rests on the availability of skilled workers, a healthy technology ecosystem, and knowledgeable customers. In turn, the health of local economies, including those where our employees live and work-depends on access to technology and quality education. International studies show that education plays a pivotal role in fostering labor productivity and economic growth.
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Community Engagement and Employee Volunteerism
Shared value with the community that a facility is located is paramount. Constructive relationships with a community allow for valuable feedback that helps to improve performance. Encouraging meaningful volunteerism of employees positively impacts their satisfaction and pride. It also helps to attract and retain talented people. Volunteer work can be business plans for non-profits, after school education, volunteering for local clubs The possibilities are limitless. Science fairs and local contests with the local community and educational centers can inspire young innovators and encourage students to become actively involved in their education. Employees can serve as mentors for the participants.
Annual community giving campaigns of food, clothing, school supplies, holiday gift drives are also a worthwhile way to become a good community stewardship.
Empowering Women
As with before in the section covering diversity, women need to be an integral part of the company policies as well. To foster innovation and drive economic growth the company needs to enable everyone, especially women with education and entrepreneurial skills. This is a shared goal with governments, NGOs, and development agencies. By empowering girls and women, we also improve the lives of their children, families, and communities.
Recommendations
Our group realizes that the decisions we are making and analyzing now will be over a five year span. With that said, we are aware that there is plenty of opportunity for variability in the system after our proposal is made. We believe that after implementation of our processes, the system must be managed properly. As of now our forecasting is based off of 2 years of history. As time goes on the size of the Qu-chip history will increase and allow for more accurate forecasts. We will also be forecasting for use on smaller timelines. Instead of having a forecast trying to predict the demand of chips within five years from now, we will be interested in looking at the near future, such as the next two periods (two months). Creating a moving forecast and reducing our scope will be very beneficial for the company as more and more history is collected for our Qu- chips. In addition, the moving forecast will also allow us to see if and when capacities have to be increased and therefore more machines have to be purchased. We may also see an increase in technology in the future that may allow for new and better decisions to be made for our production process and these ideas need to be dealt with accordingly.
As of now we have noticed a very unfortunate production aspect that we believe can be improved significantly. The demand data given to us reveals that the demand for chips is equivalent to the arrival of the chips. This is a very troubling situation. Our process will always produce scrap up to about 5% and in that case demand will not be met. Not only that, but since we do not control the amount of chips we receive to manufacture, we have no way of making up that demand lost. If demand is not met, then it simply will not be taken care of in the description of the arrival process we were given. We have come up with a proposal that will allow our company to schedule chip shipments to our system. This will give us more control of our 70
manufacturing process in many ways. For example, it will allow us to make up any demand that we lost in scrap and give us the opportunity to create inventory for future large demands with the use of material resource planning (MRP). We will also be able to set a production schedule in which we manufacture the same amount of chips every week in order to decrease the amount of variation on the shop floor and ensure that our capacity is being utilized effectively. Ideally, we believe that this goal can be accomplished if our supplier is willing to ship unmanufactured chips to us on a schedule that we create instead of having individual chips show up at varying rates throughout the week. We believe this tactic will be extremely beneficial to both the supplier and us.
Our team would also recommend that an existing structure be purchased for the manufacturing plant, instead of building a brand new manufacturing plant. This would save a lot of money and a lot of time. We would also recommend becoming an active member of the EPAs Center for Climate Leadership. EPAs Center for Corporate Climate Leadership acts as a resource center for companies that want to develop their work in GHG measurement and management.
Conclusion
To meet the requirements of this project we utilized analytical forecasting techniques to determine the projected demand of our product. We forecasted our data five years. After creating this forecast we were able to analyze what machines would serve our plant best. Once we understood which machines provided an economic advantage, we utilized Arena to analyze which machines functioned best. In the end we decided to buy the NUR etching machine, Whitworth laminating machine, and Rudd mounting machines. With types of machines chosen, we then went to Arena again to simulate the entire process. Then we decided we would need eight NUR machines, forty-eight Whitworth, and eight Rudd, eight Beta Insulators, and twelve Alpha Insulators. With these factors determined we organized our plant into eight work cells consisting of these machines.
Finally after a thorough examination of all factors of the project, the anticipated rate of return for our Qu-Chip manufacturing business is above fifteen percent. The final rate of return based on our calculations is approximately twenty-eight percent. This is right on the goal presented to us at the beginning of the project. Therefore the amount of capital proposed will be a worthy investment.
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Appendix Money Conversions
75
76
America Europe Swiss Franc Japan Great Britain USD Euro Chf Yen GBP Pounds 1 0.75 0.92 93.54 0.65 1.333333 1.086957 0.010691 1.538462
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Demand Charts
Data Summary Table of Fastest Average Inter-arrival Week
Data-Histogram Plot of Fastest Average Inter-arrival Week
78
KS Test of Fastest Average Inter-arrival Week
Chi-Square Test of Fastest Average Inter-arrival Week
Arena Output of Fastest Average Inter-arrival Week 79
Data Summary Table of Medium Average Inter-arrival Week
Density Histogram Plot of Medium Average Inter-arrival Week 80
KS Test of Medium Average Inter-arrival Week
Chi Square Test of Medium Average Inter-arrival Week
Data Summary Table of Slowest Average Inter-arrival Week 81
KS Test of Slowest Average Inter-arrival Week
Chi Square Test of Slowest Average Inter-arrival Week
82
Density-Histogram of Slowest Average Inter-arrival Week
83
Location
Old Design Evaluation Chart:
Nodes Production Shipping/
Receiving Storage Warehouse Cafeteria Office Maint Engineering/ IT Totals Production (P) - 4 X 0 4 X 0 1 X 0 2 X 0 3 X 0 3 X 0 0 Shipping/Receiving (S/R) - - 3 X 3 1 X 3 2 X 1 2 X 0 2 X 0 14 Storage Warehouse (W) - - - 0 X 3 1 X 4 0 X 3 0 X 5 4 Cafeteria (LR) - - - - 1 X 0 0 X 5 0 X 3 0 Office (O) - - - - - 1 X 3 3 X 0 3 Maint. & Tool (M/T) - - - - - - 1 X 4 4 Total - - - - - - - 25 84
0 5000 10000 15000 20000 25000 30000 35000 93 94 95 96 97 98 99 100101102103104 N u m b e r
o f
Q u - C h i p s
Week Given Demand Given Demand Forecasting
Last 12 Weeks of Demand
This graph shows weekly demand.
These are the regression line values when this demand is aggregated into 3 periods of 4 weeks.
Slope: 1719 Intercept: 101320
Aggregate Forecast in Excel
85
There are several more values that we omitted.
86
$0.00 $5,000.00 $10,000.00 $15,000.00 $20,000.00 $25,000.00 $30,000.00 1 4 7 10131619 222528313437 40434649525558 6164 A W
( $ )
Period AW When Purchased In Period t Etching Machine Laminating Machine Mounting Machine Aggregate Planning
Linear Program Screen Shot AW Objective Function Values 87
Employees Salaries
F i n a n c e s P r i c e
( h o u r l y ) P r i c e
( a v g
U S
$ )
a n n u a l Q u a r t e r l y
S a l a r y
C o s t P e r i o d
S a l a r y
C o s t q u a n t i t y A n n u a l
U n e m p l o y m e n t
I n s u r a n c e D i s a b i l i t y
a n d
H e a l t h
i n s u r a n c e
c o s t Q u a r t e r l y
t o t a l
s a l a r y a n n u a l
s a l a r y
c o s t
w i t h
b e n e f i t s T o t a l
s a l a r y
c o s t / p e r i o d T o t a l
s a l a r y
c o s t /
p e r i o d
w i t h
b e n e f i t s E m p l o y e e s U p p e r
M a n a g e m e n t / t o p
e x e c $ 9 0 . 4 8 $ 1 8 8 , 2 1 0 . 0 0 $ 4 7 , 0 5 2 . 5 0 $ 1 4 , 4 7 7 . 6 9 1 $ 7 9 3 . 5 5 $ 9 3 . 6 7 $ 4 7 , 0 5 2 . 5 0 $ 1 9 4 , 8 3 3 . 6 0 $ 1 4 , 4 7 7 . 6 9 $ 1 4 , 9 8 7 . 2 0 m a r k e t i n g
a n d
s a l e s
m a n a g e r s N / A $ 0 . 0 0 $ 0 . 0 0 1 $ 0 . 0 0 $ 0 . 0 0 $ 0 . 0 0 b u s i n e s s
o p e r a t i o n s
s p e c i a l i s t s $ 3 2 . 5 1 $ 6 7 , 6 2 0 . 0 0 $ 1 6 , 9 0 5 . 0 0 $ 5 , 2 0 1 . 5 4 1 $ 7 9 3 . 5 5 $ 3 5 . 7 0 $ 1 6 , 9 0 5 . 0 0 $ 7 4 , 2 5 6 . 0 0 $ 5 , 2 0 1 . 5 4 $ 5 , 7 1 2 . 0 0 f i n a n c i a l
s p e c i a l i s t s $ 2 7 . 7 9 $ 5 7 , 8 0 0 . 0 0 $ 1 4 , 4 5 0 . 0 0 $ 4 , 4 4 6 . 1 5 1 $ 7 9 3 . 5 5 $ 3 0 . 9 8 $ 1 4 , 4 5 0 . 0 0 $ 6 4 , 4 3 8 . 4 0 $ 4 , 4 4 6 . 1 5 $ 4 , 9 5 6 . 8 0 c o m p u t e r
s p e c i a l i s t s $ 2 1 . 5 2 $ 4 4 , 7 7 0 . 0 0 $ 1 1 , 1 9 2 . 5 0 $ 3 , 4 4 3 . 8 5 5 $ 7 9 3 . 5 5 $ 2 4 . 7 1 $ 5 5 , 9 6 2 . 5 0 $ 5 1 , 3 9 6 . 8 0 $ 1 7 , 2 1 9 . 2 3 $ 1 9 , 7 6 8 . 0 0 c o m p u t e r
h a r d w a r e
e n g i n e e r s $ 4 5 . 8 5 $ 9 5 , 3 7 0 . 0 0 $ 2 3 , 8 4 2 . 5 0 $ 7 , 3 3 6 . 1 5 8 $ 7 9 3 . 5 5 $ 4 9 . 0 4 $ 1 9 0 , 7 4 0 . 0 0 $ 1 0 2 , 0 0 3 . 2 0 $ 5 8 , 6 8 9 . 2 3 $ 6 2 , 7 7 1 . 2 0 e l e c t r i c a l /
e l e c t r o n i c s
e n g i n e e r s $ 4 2 . 1 6 $ 8 7 , 6 9 0 . 0 0 $ 2 1 , 9 2 2 . 5 0 $ 6 , 7 4 5 . 3 8 8 $ 7 9 3 . 5 5 $ 4 5 . 3 5 $ 1 7 5 , 3 8 0 . 0 0 $ 9 4 , 3 2 8 . 0 0 $ 5 3 , 9 6 3 . 0 8 $ 5 8 , 0 4 8 . 0 0 s a l e s
r e p s N / A $ 0 . 0 0 $ 0 . 0 0 1 $ 0 . 0 0 $ 0 . 0 0 $ 0 . 0 0 c u s t o m e r
s e r v i c e
r e p s N / A $ 0 . 0 0 $ 0 . 0 0 1 $ 0 . 0 0 $ 0 . 0 0 $ 0 . 0 0 p a c k e r s ,
p a c k a g e r s ,
h a n d $ 1 1 . 9 3 $ 2 4 , 8 1 0 . 0 0 $ 6 , 2 0 2 . 5 0 $ 1 , 9 0 8 . 4 6 4 $ 7 3 1 . 9 0 $ 1 5 . 1 2 $ 2 4 , 8 1 0 . 0 0 $ 3 1 , 4 4 9 . 6 0 $ 7 , 6 3 3 . 8 5 $ 9 , 6 7 6 . 8 0 p a r k i n g
l o t
a t t e n d a n t s / s e c u r i t y $ 1 0 . 5 5 $ 2 1 , 9 4 0 . 0 0 $ 5 , 4 8 5 . 0 0 $ 1 , 6 8 7 . 6 9 1 6 $ 6 4 7 . 2 3 $ 1 3 . 7 4 $ 8 7 , 7 6 0 . 0 0 $ 2 8 , 5 7 9 . 2 0 $ 2 7 , 0 0 3 . 0 8 $ 3 5 , 1 7 4 . 4 0 p u r c h a s i n g
a g e n t s $ 2 5 . 8 7 $ 5 3 , 8 2 0 . 0 0 $ 1 3 , 4 5 5 . 0 0 $ 4 , 1 4 0 . 0 0 2 $ 7 9 3 . 5 5 $ 2 9 . 0 6 $ 2 6 , 9 1 0 . 0 0 $ 6 0 , 4 4 4 . 8 0 $ 8 , 2 8 0 . 0 0 $ 9 , 2 9 9 . 2 0 b o o k k e e p i n g ,
a c c o u n t i n g ,
a n d
a u d i t i n g
c l e r k s $ 1 7 . 6 5 $ 3 6 , 7 1 0 . 0 0 $ 9 , 1 7 7 . 5 0 $ 2 , 8 2 3 . 8 5 2 $ 7 9 3 . 5 5 $ 2 0 . 8 4 $ 1 8 , 3 5 5 . 0 0 $ 4 3 , 3 4 7 . 2 0 $ 5 , 6 4 7 . 6 9 $ 6 , 6 6 8 . 8 0 s e c r e t a r i e s
a n d
a d m i n i s t r a t i v e
a s s i s t a n t s $ 2 5 . 9 1 $ 5 3 , 9 0 0 . 0 0 $ 1 3 , 4 7 5 . 0 0 $ 4 , 1 4 6 . 1 5 2 $ 7 9 3 . 5 5 $ 2 9 . 1 0 $ 2 6 , 9 5 0 . 0 0 $ 6 0 , 5 2 8 . 0 0 $ 8 , 2 9 2 . 3 1 $ 9 , 3 1 2 . 0 0 o f f i c e
c l e r k s ,
g e n e r a l $ 1 5 . 2 0 $ 3 1 , 6 2 0 . 0 0 $ 7 , 9 0 5 . 0 0 $ 2 , 4 3 2 . 3 1 2 $ 7 9 3 . 5 5 $ 1 8 . 3 9 $ 1 5 , 8 1 0 . 0 0 $ 3 8 , 2 5 1 . 2 0 $ 4 , 8 6 4 . 6 2 $ 5 , 8 8 4 . 8 0 m e c h a n i c a l
e n g i n e e r s $ 3 8 . 9 7 $ 8 1 , 0 6 0 . 0 0 $ 2 0 , 2 6 5 . 0 0 $ 6 , 2 3 5 . 3 8 8 $ 7 9 3 . 5 5 $ 4 2 . 1 6 $ 1 6 2 , 1 2 0 . 0 0 $ 8 7 , 6 9 2 . 8 0 $ 4 9 , 8 8 3 . 0 8 $ 5 3 , 9 6 4 . 8 0 I n d u s t r i a l
E n g i n e e r $ 3 6 . 2 4 $ 7 5 , 3 7 0 . 0 0 $ 1 8 , 8 4 2 . 5 0 $ 5 , 7 9 7 . 6 9 8 $ 7 9 3 . 5 5 $ 3 9 . 4 3 $ 1 5 0 , 7 4 0 . 0 0 $ 8 2 , 0 1 4 . 4 0 $ 4 6 , 3 8 1 . 5 4 $ 5 0 , 4 7 0 . 4 0 i n s p e c t o r s ,
t e s t e r s $ 1 8 . 1 5 $ 3 7 , 7 6 0 . 0 0 $ 9 , 4 4 0 . 0 0 $ 2 , 9 0 4 . 6 2 8 $ 7 9 3 . 5 5 $ 2 1 . 3 4 $ 7 5 , 5 2 0 . 0 0 $ 4 4 , 3 8 7 . 2 0 $ 2 3 , 2 3 6 . 9 2 $ 2 7 , 3 1 5 . 2 0 q u a l i t y
e n g i n e e r s
( a l l
o t h e r ) $ 4 0 . 8 5 $ 8 4 , 9 7 0 . 0 0 $ 2 1 , 2 4 2 . 5 0 $ 6 , 5 3 6 . 1 5 8 $ 7 9 3 . 5 5 $ 4 4 . 0 4 $ 1 6 9 , 9 4 0 . 0 0 $ 9 1 , 6 0 3 . 2 0 $ 5 2 , 2 8 9 . 2 3 $ 5 6 , 3 7 1 . 2 0 M a n a g e m e n t /
S u p e r v i s o r s /
T e a m
L e a d s $ 4 5 . 6 6 $ 9 4 , 9 7 0 . 0 0 $ 2 3 , 7 4 2 . 5 0 $ 7 , 3 0 5 . 3 8 8 $ 7 9 3 . 5 5 $ 4 8 . 8 5 $ 1 8 9 , 9 4 0 . 0 0 $ 1 0 1 , 6 0 8 . 0 0 $ 5 8 , 4 4 3 . 0 8 $ 6 2 , 5 2 8 . 0 0 J a n i t o r s $ 1 3 . 0 4 $ 2 7 , 1 3 0 . 0 0 $ 6 , 7 8 2 . 5 0 $ 2 , 0 8 6 . 9 2 8 $ 7 9 3 . 5 5 $ 1 6 . 2 3 $ 5 4 , 2 6 0 . 0 0 $ 3 3 , 7 5 8 . 4 0 $ 1 6 , 6 9 5 . 3 8 $ 2 0 , 7 7 4 . 4 0 C o m p u t e r
C h i p
T e c h n i c i a n s $ 1 5 . 1 8 $ 3 1 , 5 7 0 . 0 0 $ 7 , 8 9 2 . 5 0 $ 2 , 4 2 8 . 4 6 1 $ 7 9 3 . 5 5 $ 1 8 . 3 7 $ 7 , 8 9 2 . 5 0 $ 3 8 , 2 0 9 . 6 0 $ 2 , 4 2 8 . 4 6 $ 2 , 9 3 9 . 2 0 M a c h i n i s t s $ 1 9 . 8 6 $ 4 1 , 3 2 0 . 0 0 $ 1 0 , 3 3 0 . 0 0 $ 3 , 1 7 8 . 4 6 9 6 $ 7 9 3 . 5 5 $ 2 3 . 0 5 $ 9 9 1 , 6 8 0 . 0 0 $ 4 7 , 9 4 4 . 0 0 $ 3 0 5 , 1 3 2 . 3 1 $ 3 5 4 , 0 4 8 . 0 0 M a i n t e n a n c e