Article : Part II - Chapter 06 - Need Identification and Specification (p. 137)

Case 6-3: Haniff Machining

_______Below is an article, please read and view the following questions_____

Haley Gregson, manufacturing engineer at Haniff Machining (Haniff), in Mississauga Canada, was working on an assignment for Matt Salsberg, Haniff 's operations manager. Haley had just graduated from college and this was her first assignment.

She had been asked to prepare proposal justifying the purchase of a new 5-axis CNC machine.

The Haniff Machining case presents a context that you can relate to in the near term - becoming a new employee, fresh out of college, working on your first assignment.

There is obvious pressure on Haley to do good job, and as the case indicates, impress her new boss.

The case addresses two (2) important areas.

First, as described in Chapter 6 of the textbook, acquisition of capital assets have several unique aspects. Capital assets are long-term commitments that have an ongoing effect on the company's operations. In some cases, capital expenditures can be strategic decisions that influence the operations strategy of the organization.

Second, (as will be seen in Chapter 11) it also demonstrates the importance of using life cycle costing (LCC), or total cost of ownership (TCO), when analyzing capital asset purchases. Unlike other purchase decisions where price can sometimes be used as the principal criterion for supplier selection (e.g., reverse auctions), life cycle costs (LCC) need to be considered when purchasing capital goods. Lower prices can mask higher operating costs and maintenance costs, poor quality, higher energy use, etc.

The case provides data on the potential benefits of purchasing the new CNC machine through reductions in labor costs, but Haley must identify other factors that she should consider in her proposal. Consequently, the case provides an opportunity to develop a framework for life cycle assessment on a piece of capital equipment.

ASSIGNMENT QUESTIONS

1. (1)What labor cost savings are available through the acquisition of the new CNC machine? Is this a good investment?
2. (2)As Haley Gregson, what other factors would you include in your analysis? What information do you need and where would you get it?
3. (3)What are the differences between purchasing capital goods and raw materials? Between capital goods and services?
4. (4)What are the benefits to Haniff by standardizing to equipment manufactured by Mazak?
5. (5)Would you be prepared to use another supplier if the price of the equipment was lower?
6. (6)What benefits does the new equipment provide in the areas of quality and inventory costs?
7. IN-CLASS DISCUSSION QUESTIONS(Be Prepared)
8. (7)Can you quantify all of the potential savings? How do you put a number on improved
9. safety?
10. (8)How will the new equipment change the flow and material handling in the plant?
11. (9)Do you want to in-source some of the production at the supplier?
12. (10)Are the maintenance costs on the new equipment going to be more or less expensive?