Precision Steel Fabrication: An Equipment Purchase Decision

Precision Steel Fabrication (PSF) is considering whether to invest in a new laser tube cutter to increase production rates and reduce costs. This report analyzes the potential impacts and provides financial justification for the purchase. The report also discusses the current situation of PSF and the contract furniture industry. The decision criteria and available options are presented in detail.

abricators: An Equipment Purchase Decisio
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Executive Summary
Several manufacturing company is always striving for developing their competitive ability as
well as to the minor production rates through investing within verified or new manufacturing
technology project. As per this scenario, the central issues which is aspect by Precisions Steel
Fabrication involve whether the PSF would buy the industrial tube laser cutter. Even if they
should persistent working with this similar present equipment. In this way, the ultimate decision
is decided by Mr. Tripper Hawthorne, the chairman of the company. Being purchase the enhance
Tube Laser cutting tool that can also be helped to increase the annual turnover within PSF,
through the decreasing existing production rates and machine cost. In this manner, the Tube laser
is the comparatively innovative manufacturing equipment that acquired in the year of 1990. This
report will be discussed such issue on the superior depth in future section. Besides that, the long
term benefit considerably balance this single stock in purchase along with this industry can be
saved extensive capital as well as overview the increase rate of profit as the efficiency increase
and also productivity.
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Table of Contents
Situation Analysis........................................................................................................................................3
The Proposal................................................................................................................................................4
Financial justification..................................................................................................................................6
Conclusion...................................................................................................................................................7
References...................................................................................................................................................8
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Situation Analysis
Precision Steel Fabrication (PSF) is a steel fabricating company that produces all types of steel
products. The Company rode a strong influx of increments in contract furniture deals, which
began in the mid-2005 and crested in 2012 at deals volume of $11.9 million. Right now PSF
utilized 104 representatives.Because of a subsidence in the U.S economy toward the finish of
2002, the workplace furniture industry's deals dropped drastically, from 14.2 billion in deals to
9.5 billion before the finish of 2003. A drop of 35.5%. This market turn straightforwardly
influenced Precision Steel Fabrication. Throughout the following two years the organization's
business dropped to $7.9 million. The 23% lessening constrained cost decreases through the
organization, bringing about the layoff of 48 representatives. Being a littler family worked
association, these cutbacks took a moral toll on the administration group and condition in the
working environment. Accordingly, making the likelihood of rehiring the same number of the as
of late laid off workers stay among the highest point of PSF's needs. They plan to rehire 6
workers before the finish of 2003. In 2005, the Industry started to pivot bringing about deals
figure of $11 million for PSF. Industry examination anticipated that the business will keep on
growing sought after, giving PSF's administration group a moan of alleviation. Having the
capacity to create a section with bring down tooling and administration costs tended to win
business for a furniture provider. As per Hawthorne's convictions, the agreement furniture
industry was overwhelmed by four noteworthy organizations: HNI Corporation, Steelcase,
Herman, Haworth, and Miller. Many contract furniture organizations center around the plan, get
together and dissemination of their products while outsourcing the assembling of steel, wood,
and plastic segments to different associations. Steelcase was the industry leader with sales of
$2.5 billion, and was located in Grand Rapids, Michigan. HNI was close behind with $2.1
billion, and located in Haworth, Muscatine, Iowa. Herman and Miller were both located in the
same geographic region as PSF and had sales of $1.3 and $1.5 billion respectively. Together
these four companies occupied 78 % of the $7.9 billion industry. Flat incorporation is normal in
this industry, pushing organizations like Steelcase to center around their center abilities and
move far from vertically coordinated tasks.
PSF is now considering to induct laser tube cutters in their operations. Laser tube cutters are
going to increase the precision of the cuttings and hence boost the overall finish and quality of
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the product. This report is aimed at providing a balanced look on the impacts that laser tube
cutters are going to have and finally they will be analyzed to take a correct business decision.
The Proposal
The primary criteria for this situation includes the decision of regardless of whether PSF ought to
put resources into the new laser tube shaper. Contributing elements include:
Would psf be able to's stock and staff handle the speedier production rates?
How rapidly will this machine pay itself off?
Will this buy enable PSF to pick up an upper hand in their market?
Will the buy of the laser shaper enable the organization to venture into new markets?
Will it satisfy expanded deals estimates related with the buy of the laser shaper?
On the off chance that the buy is demonstrated doable, which laser shaper will they buy?
Will these quicker production rates and programmed machines kill more occupations for PSF
representatives?
Will this machine be in production before the finish of 2004?
PSF is looked with 4 contrasting options to browse. We have chosen to not pick this choice since
this will make PSF less aggressive. On the off chance that we proceed with production the
conventional way, PSF will pass up a great opportunity for new gets that would end up
accessible with the buy of the more proficient machine. Precision will not be able to mitigate
their tooling costs, which is an expense that their customers grieve to pay. Failing to invest in
this capital expenditure will void PSF of the potential savings they could achieve with the 50%
depreciation tax benefit that is offered for the capital expenditure in 2004. This elective will just
thwart PSF's choices to grow and be aggressive in the agreement furniture industry. The second
choice is to purchase the laser tube shaper from JLS/Brodure, a steel creation maker from France
that only represents considerable authority in laser tube cutters. This machine is utilized for littler
measurement cuts and more slender walled tubing, which is essentially what PSF cuts. This
machine has an autoloader on the back enabling it to run self-rulingly (Gorenc et al. 2012). The
machine can be purchased and in production at PSF manufacturing plant before the finish of
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2004. There are fifteen of these machines as of now being utilized for production in the United
States.
Choice three includes purchasing the laser shaper from Nakamura, a huge Japanese steel creation
hardware fabricating organization. Nakamura has been a pioneer in laser cutting innovation and
has been creating sheet metal lasers for a long time. Precision actually bought a metal sheet laser
in 1996 from this company. This machine has more capabilities than the other two cutters
because it is twenty feet larger in length, which allows it to handle thicker walled larger pieces of
steel. Although, due to its larger size and diverse capabilities, the production rates associated
with this machine are significantly lower. It has an automatic loading feature as well, but only
one model with this feature currently exists, and it is located in Japan. The purchase of this
machine could potentially allow PSF to expand into new markets by utilizing its capabilities to
process and manufacture larger pieces of steel. We decided to not pick this alternative because it
will not be able to produce as much as the other machines. The machine is capable of cutting
thicker steel, but PSF does not use thicker walled tube in much of its production. This laser cutter
is 20 feet longer than the other two machines, which could potentially be a problem for the
factory in terms of available space on the operating floor. Also, Nakamura did not indicate when
the machine could be delivered and ready for production, which is a big concern for PSF if they
want to reap the benefits of the 2004 depreciation tax benefit. Another factor to take into
consideration is that it’s an newly produced product, and there is currently only one that exists in
the world (Japan). So the long term effectiveness and operating capabilities are not proven
adequate. Luxembourg has been influencing laser to tube cutters for a long time. One of the
issues with this organization is that they are a monstrous organization and the laser tube division
is just a little segment of the association's business. Talking about, the Luxembourg despite of
having the less educated and unpracticed administration group, contrasted with the other two
organizations in the current time. This machine could be beneficial for PSF in the future. With
the increased sales forecast, the company may be able to afford the purchase of another laser
cutter. And with the purchase of this particular machine, they could expand into new markets and
begin producing larger steel products useful for other industries (McFadden & Packer, 2013).
The final option is Luxembourg, a German manufacturing company that is one of the biggest in
the world. This could cause problems for PSF in the future if they encounter any problems with
the machine and are in need of troubleshooting assistance. It has similar production rates
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compared to the Brodure or JLS mechanism along with it is also primarily used for thinner
walled steel. It has an automatic bundle loader and like the Japanese cutter, has no indication of
when the product could be delivered to PSF and ready for production
Financial justification
The management of PSF should purchase a massive stock laser tube shaper since the
organization is very qualified for grapping an opportunity to get. The laser tube shaper will
enable PSF to expand their production by 4.77 times and lessen work by 3.36 times contrasted
with the production numbers in 2003. The consideration of the mechanism within an
organization's manufacturing procedure would wipe out the many procedure framework that
presently been working, and rather actualize another procedure that will create the steel segments
in a more proficient and successful way. Prompting the PSF sparing profitable time and cash.
With the buy of a laser tube shaper, PSF will relieve their tooling costs that clients accept
accountability for, and give them a general more aggressive and engaging valuing bundle. PSF
will spare $55,365.98 yearly after they put the tube laser hooked onmanufacture process. By
buying the tube laser, PSF will have the capacity to get new contracts worth an anticipated
$150,157 in the first financial year alongside $590,000 in a financial year. The business firm will
be gotten the duty belittling derivation of 55% significance they won't need to pay charges in
2003, equivalent to $185,685 in impose investment funds. This gives the organization a
substantial up front installment for the machine.
The laser tube slicing mechanism that they acquired the Brodureor JLS demonstrate, aimed that
specific shaper is most appropriate for the development of the business (Sontheimer & Saa,
2013). An engaging component that accompanies the decision of this choice is that Brodure just
spends significant time in laser tube cutting hardware and has an extraordinary administration
group. PSF can get this machine before the finish of 2005, while alternate organizations did not
state if regardless of whether they can too. The detailed financial report is attached below.
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Conclusion
The company are planning to get the matter of Steel Case, since have as of late chosen to move
far from their vertically coordinated production process and spotlight principally on their center
abilities, which are outline, get together and dissemination. Steel Case is the greatest player in
the agreement furniture advertise, it would be gigantic for PSF to get their business. Likewise,
Steel Case is situated in an indistinguishable geographic zone from PSF, making for simple
transportation and lower costs. If everything goes well and they will keep increasing their sales,
as forecasted, they would like to progress into a larger variety of steel products. One example
could be steel I-beams that are used in the construction industry. If down the road, they decided
to horizontally integrate, we would look into investing into a laser cutter that was more similar to
the dynamics of the Nakamura laser tube cutter. Another potential movement PSF could one day
consider if business continues to flourish, is looking into expanding business to Canada. Since
London, Ontario is only four hours away it is not out of the question to sell to Canada. If the duty
fees and extra costs of exporting the steel doesn’t make us uncompetitive we should look into
this market.
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References
Gorenc, B., Syam, A., & Tinyou, R. (2012). Steel Designers' Handbook. Sydney: UNSW Press.
McFadden, M., & Packer, J. (2013). Weld design and fabrication for RHS connections. Steel
Construction, 6(1), 5-10. doi: 10.1002/stco.201300006
Sontheimer, R., & Saa, H. (2013). Automated positioning of welding torch with the fabrication
of steel structures with robots. Journal Of Constructional Steel Research, 46(1-3), 39. doi:
10.1016/s0143-974x(98)00054-6
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