Case Study: Demanufacturing of Computers

Lets consider a case that deals with a timely important issue concerning environmental economics. What are companies to do with all the old computers that typically accumulate at their facilities?

As one possible solution to this problem, a number of states and companies have jointly established resource recovery facilities to process the handling of old electronic equipment, such as used computers. Demanufacturing of computers involves disassembly, refurbishing, and either donating or reselling the units. However, there are some residuals, or remaining components, that cannot be reused, are harmful to the environment, and contribute to the cost of demanufacturing.

Lets consider the case of one resource recovery center in the Northeast that currently handles approximately 2,000 computers per year. Of these computers, approximately 50% are refurbished and donated, 40% are remanufactured and resold, and 10% are residuals. What to do with the residuals is a challenging problem.

The facility currently has a contract with an outside source to take the monitors and CPUs. This leads to storage requirements in their facility, and there are issues concerning the determination of the optimal truckload capacity. The labor costs for the outside contractor are $10.00 per unit, and transportation costs are $1.70 per unit, for a total of $11.70 per unit, based on a full capacity truck load.

The recovery facility is seeking an alternative solution to the handling of residuals. One alternative under consideration is to establish a method for demanufacturing the computers that will consider the CPUs only, since there are environmental issues associated with computer monitors.

The recovery facility recently completed a work measurement study to develop a method for demanufacture of the CPUs. The method is as follows: 1. Remove fasteners or screws. 2. Remove metal casing. 3. Remove power and data cables from floppy drive. 4. Unfasten floppy drive. 5. Unfasten supporting bar. 6. Remove support and floppy drive. 7. Remove power and data cables from power supply. 8. Remove motherboard. 9. Unfasten and remove power supply. 10. Unfasten drive housing. 11. Remove rubber feet.

******************************************************************See the Cost Template table below, page 4, to derive information for calculations. From the industrial engineers time study, it is determined that the demanufacturing rate is 7.35 minutes/unit. The facility uses an internal labor rate of $12.00/hour, and it is estimated that training costs for the demanufacturing method will be 10% of total labor costs. Setup costs and transportation costs are estimated at 150% and 20% of total labor costs, respectively. The facilitys goal is to demanufacture 200 units during regular operations. From this it is determined the estimated cost per unit for the proposed demanufacturing method, shown in the table, Row J, is $4.37.

Directions: Answer the following using the Cost Template table below.

Question 1: Quality training costs (Row B) are 10% of the Factory Labor (Row A), is this a worthwhile expenditure, should it be provided? Defend your answer as to why or why not you would provide training for the demanufacturing process.

Question 2: What percentage reduction is this over the per unit cost of using the outside contractor? (HINT: The demanufacturing cost per unit is $x compared to the $x of the cost for the outside contractor. $x represents an approximation of x% of $11.70, so there is a reduction of x%).

Question 3: In your own words, of 6 to 10 cohesive, professionally written advantages on: how and why is this a Green initiative?

Question 4: The industrial engineer performs the following calculations: For 200 units, the labor quantity is estimated as 7.35 minutes/unit 200 units = 1,470 minutes = 24.5 hours. What is the cost of Factory Labor? What if there was a wage increase to $13/hour?

Question 5: Using the industrial engineers statistics above, would it be advisable to increase the training to 15% in order to reduce the labor quantity to 6.35 minutes/unit? What would be the new cost of Factory Labor (RowA)? Qualtity - Training Costs (Row B)? Total Labor (row C)? Total Demanufacturing Costs (Row H)?