From the predetermined 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 facility’s goal is to demanufacture 200 units during regular operations. Determine the estimated cost per unit for the proposed demanufacturing method. What percentage reduction is this over the per unit cost of using the outside contractor?
CASE STUDY: DEMANUFACTURING OF COMPUTERS
Let’s consider a case that deals with a timely and important issue concerning environmental economics. What are companies to do with all of 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. Let’s 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 of 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 CD drive.
4. Unfasten CD 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.
From the predetermined 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 facility’s goal is to demanufacture 200 units during regular operations. Determine the estimated cost per unit for the proposed demanufacturing method. What percentage reduction is this over the per unit cost of using the outside
contractor?
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