To: Mark Taylor, Operations Manager
Date: 11 July 2013
Subject: Purchase of a CNC router
Recommendations: Purchasing of a new CNC router is more cost-effective and appropriate compared to a used one with regard to its maintenance requirement. This is mainly because of its longer warranty period. This is evident through calculations relating the buying and maintenance charges to the contract duration.
Short Term-Immediately to One Week
1) Before the purchase of this equipment, it is crucial to research about the selling company to guarantee that their products are standard.
2) Compare the efficiency of the machine in relation to human labor in order to maintain the quality of the products.
Medium/Long Term-One week to Six Months
1) Seek the opinion of an expert in accountancy in order to make a knowledgeable decision.
3. Control and Feedback Mechanism
This system helps to manage changes that may arise from this decision. This method should help evaluate the advantages of the new router over the old one. This is possible by assessing the production capacity of the machine in relation to human work. This evaluation should continue even after purchasing the router.
4. Contingency Plan
When purchasing the appliance, a contract detailing terms of the warranty is vital. This will help correct the situation in case a malfunction arises.
Thicketwood Limited has been in the kitchen cabinets’ industry for more than twenty years. Its popularity is mainly because of the quality products offered to their clients. Because of the increased demand of their commodities, the Operations Manager of this firm has to formulate strategies that will increase its production capacity. Among these plans is the purchase of a CNC router that will improve the course-plotting section of the manufacturing process.
Problem Statement: Decision-making on whether to buy an old or new CNC router and the implications of each choice.
Short Term- Immediately to One Week
1) Conduct a detailed research on the competence of both suppliers. This includes searching for information regarding their past transactions. Doing so will enable him acquire needed facts on the quality of both products in order to choose the best router. Such information is accessible from the internet, the companies’ clients and the sales department of the organizations. Through financial calculations, procuring a new CNC router is the most appropriate solution for the company’s production line. Unlike the used equipment, it has a longer warranty span of five years, which aids in reducing its maintenance cost. Moreover, it trims down the labor fee by a substantial amount because of the elimination of some employees.
Cost of new machine per year (5 years): $4500 (maintenance) +$40000(labor cost) +$1500(training cost) +$1000(electricity) +$150000(purchase) =$62000
Cost of old machine per year (3 years): $44500(maintenance) +$40000(labor cost) +$1500(training cost) +$1000(electricity) +$60000(purchase) =$147000
2) Consider several factors while making the judgment. Firstly, he should weigh the efficiency of his employees and the machine. The expectations from their customers are high; therefore, his decision should play a role in delivering these anticipations. Although this apparatus will increase Thicketwood’s production, the manager should be careful not to compromise the products’ value. Manual labor may produce better quality commodities compared to tasks performed by the routers. At the same time, the incorporation of these appliances will result to job losses for a number of employees who depend on this business to earn a modest living.
Medium Term-One Week to Purchase of the Router
1) Secondly, he should seek the services of a professional in the field of accountancy in order to make an informed decision on the acquisition of equipment.
Control and Feed Forward System
Taylor has to incorporate a control and feed forward mechanism for the plan implementation to be efficient. This system aids in managing changes that may arise from the decision made by Taylor. He needs to measure the advantage of using the CNC router over manual labor in order to make the best choice. Moreover, he needs to compare the efficiency of the new machine over the old one. This is measurable by contrasting the cost of purchasing and maintaining the apparatus in question. Moreover, there is a need to evaluate the production capacity of each router as a measurement tool.
Additionally, he needs to be precise in his assessment in order to make a choice that will garner more income for the company. He should take time before deciding on the machine’s purchase, as this will influence the firm’s operations. After buying the router, he should also assess it in order to be sure he made the right selection. This is to correct the situation quickly in case the purchased machine is not in a proper working condition. As a result, a contingency plan is crucial to cater for such circumstances. This may be in the form of a detailed contract of the warranty, which will be useful in case the machine is faulty. In such a case, the manager should exchange it immediately.