A pharmaceutical company manufactured a prescription drug that contained a tablet inside another tablet. This inner tablet, called a “core”, needed to be in the exact center of the larger tablet, and tolerances were measured in tenths of millimeters. The process was not robust, and the placement of the inner tablet sometimes drifted, requiring the scrapping of off-quality product and the adjustment of the tablet press. This resulted in significant scrap and tablet press downtime.
A process change was invented in Japan to correct the problem, using a new process to place the inner tablet in the die of the press that made the outer tablet. There were three of these tablet presses in use in the U.S., but modifications were made to one tablet press as a test. The modification to the first press cost $27,000. During the first batch the modified press ran the entire batch without a quality problem and without quality losses. The batch finished compressing in 16 hours, which was considerably faster than the typical time of 24 hours (however, core centering problems could cause a delay of several days).
Additional test batches were run, all with excellent results. A detailed quality examination proved that the modification performed as desired, reducing variation and nearly eliminating product scrap. The other two tablet presses were later modified. The total cost for all modifications, including spare parts, was $90,000.
Over the next year, the results of the change were analyzed. Product yield increased from 92.4% to 96.5%. Because less of the expensive active drug was scrapped and instead became good product, each 1% increase in yield was valued at $2.4 million per year. Operating efficiency improved, resulting in higher output because of less scrap and less downtime due to quality problems. Production plans called for 240 batches to be processed over the year after the tablet press modification was made. This product was produced daily, but production was reduced from three shifts to two because of improved efficiency. Production planning could not plan effectively; they knew that a batch could be processed in two shifts, not one to five days.
Year-end accounting showed $10 million saved in the first year. Because the product’s patent was about to expire, production was expected to be greatly reduced beyond this time.
1. ONE YEAR OF PRODUCTION HAD A VALUE $240,000,000
OVER THE YEAR BATCHES PRODUCED 240
VALUE OF ONE BATCH $1,000,000
2,PRODUCT YIELD INCREASE FROM 92.4 %TO 96.5%=4.1%
ONE % INCREASE RESULTS IN 2.4 MILLION=$2400000
4.2% RESULTS IN =$2400000*4.2=$10,080,000
3. CALCULATION OF P/V RATIO
CHANGE IN PROFIT/CHANGE IN SALES *100
10080000/240000000*100=4.2%
CALCULATION OF BREAK EVEN POINT= INITIAL COST/P/V RATIO
27000/4.2%=642857
4. CALCULATION OF PRESENT VALE OF THE PROJECT
PRESENT VALUE OF INFLOW 10000000*.86957=$8695700
PRESENT VALUE OF CASH OUT FLOW $ 90000
NET BENEFIT 865700
5.IF ONE BATCH IS PRODUCED DAILY THE SAVING SHOULD BE ACTUALLY COMPOUNDED ON DAILY BASIS
6 YES THE COMPANY WOULD FACE ETHICAL CONSIDERATION WHEN IT IMPROVES PROCESS EFFICIENCY RESULTING IN LOSS OF LABOR HOURS
AS ONE BATCH COMPLETE IN 16 HOURS THAN 24 HOUR BEFORE
RESULTING IN 8 HOUR LESS FOR ONE BATCH RESULTING IN REDUCTION IN SHIFTS FROM 3 TO 2
REQUIRES ONE THIRD OF LESS LABOR WHICH IS A SERIOUS IS TO BE CONSIDERED
THE COMPANY CAN PLAN OF ANOTHER PRODUCT MANUFACTURING ASSOCIATED WITH EXISTING ONE HAVING DEMAND IN THE MARKET OTHERWISE THEY HAVE TO FIRE THE LABOR WHICH IS AGAINST ETHICAL CONSIDERATION
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