Engineering Management Systems (MOD003628)

Department of Engineering & the Built Environment
Module: Engineering Management Systems (MOD003628)

Weighting: 90% of Module assessment
Submission Date: 30th April 2020

APPL Case Study
A review of the APPL Company’s position is attached.
1. Prepare an analysis of the company with particular reference to the following:
a) the characteristics of the market served by the company;
b) the length of lead time. Prepare an appropriate bill of materials for the company’s traditional factory,
find the longest cumulative lead time for the process, and comment on the length of the lead time.
c) A university has ordered for fully tested 50 of the 4620 Alpha terminals for their CAE laboratory to be
delivered within 5 months’ time. Assuming that, in agreement with reliable subcontractors, the initial
plan demanded for 10 finished terminals per week and, with the following starting inventory,
determine the latest planned work order releases for the Tablet, Pen, Agid PCBs and Cover Assembly
as particular items, and Cable as a general item. The default pre-testing safety stock is 10 unless
specified; the safety stock for the fully tested terminal is 2; and the lot size is 10 unless specified
The starting inventories (units) are:
Item Opening inventory Lot size Safety stock
4620 terminals (Pre-integration test) 10 10 10
Base Electronics Assembly 20 10 10
Monitor Assembly 15 10 10
Keyboard/tablet Assembly 30 10 10
Keyboard Assembly 25 40 10
Agid PCB 40 20 40
Assume that the factory works 5 days a week and lead times are to be rounded to whole number of
weeks for this section.
2. Discuss the specific changes that were made to the firm’s manufacturing planning and control system
as a result of the investment in the new production process.
3. Build a Witness model of the traditional Alpha production system. Validate the model, analyse the
results and comment on how performances could be improved.
5. Structure and presentation of report.

Any work extracted from texts must be clearly annotated as must all figures and diagrams.
referenced, contain a bibliography and be divided into suitable sections.
The work must be

The typed report should be around 2,500 words (excluding tables) and must be submitted by 30th April 2020.
Prepare a recommendation on the actions that APPL should take to bring about further new
changes in view of the transformation to Industry 4.0.
APPL designs and manufactures computer aided engineering (CAE), computer aided design
(CAD), and computer aided manufacturing (CAM) systems. APPL have a total of 1,000
employees and sales of approximately £100 million.
The high-end CAE products include sophisticated systems used for various analytical
engineering applications. The software for these high-end systems is proprietary and runs on
powerful central processing units with APPL designed workstations. The low-end CAM
systems use APPL software on workstations, and DEC VA processors. Major applications of
such CAM systems include robotics and numerical control machines.
APPL’s first product line, the APPL Graphics System (AGS) has been successfully selling the
electronics market. Although the AGS was a profitable product line for APPL, it was felt that the
electronics market at which it was aimed had become saturated. The real growth was then in
the mechanical market. In this market, intelligent CAD/CAM systems were increasingly being
applied by such users as the automotive industry and machine shops.
These market factors were instrumental in APPL’s decision to introduce the Series 4000, an
entirely new product line targeted at the mechanical market.
Rapid Change
The introduction of the Series 4000 was a major turning point for the company. APPL had
entered an extremely competitive market with a new and unproven product. Competing against
such CAD/CAM system producers such as Autodesk, APPL faced tremendous start-up
problems. One result of these conditions was a serious shortfall in actual sales as compared
with forecasts. At the time, however, management did not react to the shortfall in demand. The
belief was that sales would eventually increase once the introductory ‘bugs’ had been shaken
out. Thus no action was taken and APPL continued to build to finished inventory in anticipation
of increased demand.
Another problem was the higher than expected cost of introducing and manufacturing the Series
4000. The importance of reducing product costs was quickly becoming apparent. Unlike the
electronics market, the price-to-performance ratio was a critical issue to the price sensitive
CAD/CAM consumers in the mechanical market.
Large product start-up costs were incurred. These included training costs of field engineers,
applications engineers, and the salesforce. Frequent engineering change orders and reliability
problems also contributed to the high costs of product start-up by making obsolete large
amounts of finished inventories. Overhead costs were another contributing factor. Increasing
costs of materials management, production management, inventory control and quality
control were the norm.
APPL was also losing its competitive edge because of an inability to respond quickly enough to
changes in technology. It was not uncommon for radical hardware and software advancements
to occur on an almost monthly basis in this dynamic market. APPL had to become much more
responsive to the frequent design changes characterizing the industry.
Lastly, APPL was now dealing with a more sophisticated customer base than in previous
years. These consumers had a better understanding of both the hardware and software of
CAD/CAM systems. They not only developed higher expectations for price-to-performance
ratios and delivery responsiveness, but also demanded a higher quality product. APPL’s
quality improvements of one or two percentage points per year were not sufficient, and
something needed to be done to improve quality dramatically.
The traditional factory
Under the ‘traditional’ mode of operation, production would build to stock in accordance to an
annual build plan, as estimated by marketing. The perception was, ‘if the finished items could
not be sold it was a sales problem, not a manufacturing problem’.
Using the annual build plan, a master production schedule (MPS) was created for each month’s
production of end-items. These MPS requirements were then input into a materials requirement
planning (MRP) system. The MRP system generated the work orders for the lower-level items
by exploding through the bill of material (BOM), applying the ‘gross-to-net’ logic, and off setting
for lead times. These work orders were used to schedule and control production on the floor.
Figure1 is a simplified indented bill of materials for a typical product, the 4620 Alpha terminal.
This BOM shows the in-house manufactured items that support the top-level product. The BOM
also identifies the four types of manufacturing operations involved in producing the 4620; toplevel assembly, lower-level mechanical assembly, cable assembly, and printed circuit board
(PCB) production. Figure 2 shows the complete terminal and the three top-level assemblies that
make up the terminal.
The detailed production steps and material flows for each of the manufacturing operations are
shown in Figure 3. Here, the production process was initiated with the release of work orders by
the MRP system. These work orders were lot sized into one month batches. Material for one
month’s worth of demand was kitted in the central stockroom for each of the subassembly
(PCB, mechanical and cable) operations. These kits were then released to their corresponding
production areas. Once completed, the batches, or kits, of finished subassemblies were sent
back to the stockroom where they were rekitted for final assembly in the top-level assembly
The finished top-level assemblies were then integrated and tested as a single unit in the toplevel integration/test area.
Once tested, the terminals went to finished goods inventory. Upon receipt of an actual customer
order, the terminals and various purchased peripherals (plotters, tape drives, etc.) were
released to system integration and test. Here, the complete system was tested, and ‘burned in’.
After completing any necessary final touch-ups, the software and documentation were
consolidated with the system. The complete order then underwent final inspection before it was
shipped to the customer.
The various lead times associated with each of the processes are shown in Table 1. Figure 4
portrays the plant layout under this production system. Under this layout, the production
operations (top-level) assembly, mechanical assembly, cable assembly and PCB production)
and the integration activities are arranged in a functional manner.
This traditional MRP based production system was prone to a number of problems. These
problems became serious when APPL developed the Series 4000. Running the production
floor to an annual build plan and ignoring actual customer orders resulted in large amounts of
over-built finished inventories. £5 million worth of products sat in finished goods
(approximately four to five months’ worth of demand). In addition to the large finished inventory
levels, £11 million of component inventories existed, and over twenty weeks of work in process
was on the floor. These inventories not only tied up working capital, but also required extensive
floor space. Furthermore, millions were lost as a result of stagnant inventories being made
obsolete by the constant bombardment of engineering changes and new product introductions.
Reserves of £100,000 to £115,000 per month were routinely set aside for such obsolescence.
Large overhead expenses were associated with the traditional production system. The
numerous transactions in stockroom kitting, shopfloor control, and the production and financial
control mechanisms were key drivers of these overhead expenses. Eighty-three employees
were working in materials management and 60 in quality assurance (QA), as compared to only
160 actual line manufacturing operators.
The responsiveness of the traditional production system was too slow for APPL to remain
competitive in the dynamic CAD/CAM market-place. The four to five month manufacturing lead
times were much too long in a market where major product design changes were occurring on a
monthly basis.
The plug-and-play rate was 85 per cent. The plug-and-play rate is the percentage of units sold
to customers that contain no manufacturing defects and can therefore be plugged in directly
and used. Improvements in quality were needed to quickly get this rate into the upper 90 per
cent range. Quality problems also resulted in excessive rework requirements on the shopfloor.
Under the traditional system, a lot, on average, had to be completely reworked one time
through each of the four manufacturing operations (PCB production, mechanical assembly,
cable assembly and top-level assembly).
Quality improvements were difficult to achieve under this system because work was scheduled
in lots of one month’s worth of demand. Such scheduling in monthly batches caused the quality
problems to be masked by inventories. Moreover, the low visibility of defects, combined with
slow feedback to the source of the quality problems, did little tofoster worker involvement in any
quality improvement efforts.
JIT Implementation
APPL came to realize that the manufacturing methods were now inappropriate for the highly
competitive and dynamic mechanical market. Don Fedderson, the company’s president at
the time, issued a mandate to Tom Genova, the newly promoted vice-president of
manufacturing: ‘Reduce costs and inventories, increase quality and responsiveness,
and make APPL competitive once again.’
Genova, being the ‘radical young engineer who was put into the factory by Fedderson to shake
things up’, was given free rein to implement any changes deemed necessary. Genova
concluded that just-in-time (JIT) production was the solution that APPL was looking for. With
the support and backing of Fedderson, Genova forced manufacturing to convert to JIT.
JIT production was first implemented on a single product model, the 4620 Alpha terminal.
Experience with the Alpha line then allowed for a full conversion effort, which started three
months later.
This full scale conversion to JIT can be divided into three phases. Phase 1, which took place
over the second half of the year, focused on process conversion. Phase 2, which began at
the beginning on next year and lasted into the beginning of the 3rd year, focused on
resource management. APPL is now in the third phase of implementation where major efforts
are being directed towards improving vendor integration.
The conversion to JIT resulted in far-reaching changes at APPL, many of which are still
occurring. Production related changes include the layout of the shopfloor, the production
processes, production scheduling and control, MRP and capacity planning, master
production scheduling and order processing.
Layout and process improvements
One of the first actions taken when converting to JIT was to rearrange the equipment to achieve
a smoother flow of production. In this respect the concept of work cells, in which equipment is
grouped by product or similar product families, was introduced.
Concurrent with the relayout into work cells were efforts focused on process improvements.
Assembly instructions were improved to help maintain the rapid flow of production characteristic
of JIT. In addition, equipment and production processes were modified to reduce set-up times
so that production could be scheduled in small, daily lot sizes.
The layout of today’s JIT based production facility is illustrated in Figure 5. The figure also
shows the flow of materials through the plant. As can be seen by comparing Figures 4 and 5,
the total area dedicated to manufacturing has been significantly reduced under the new layout.
Purchased materials enter the plant through receiving and either go to inspection or, if coded as
‘dock-to-stock’, go directly to the using work cells. At this time, only 30% of the purchased items
must be inspected upon receipt. Purchased items are designated as dock-to-stock if the QA
department determines that they need not be inspected. The goal is to have all incoming parts
as dock-to-stock and thus totally eliminate incoming inspection.
Parts that fail to pass inspection are sent to the material review board (MRB) area. This is a
temporary holding area for ‘bad’ material. Here, the decision is made as to either rework the
defective parts in-house, use them as they are, or send them back to the vendor.
All other parts are sent directly to the printed circuit board (PCB) production area, the final
assembly (FA) work cells, A, B, C and D, or to location Kit. The production of PCBs is the first
in-house production step. Components enter this production area, are built into PCBs, and then
sent directly to the FA work cells. As such, the PCB area may be viewed as an in-house vendor
to the FA work cells.
Work cells A, B, C and D are the final assembly areas. Work cell A produces the Alpha
terminals. Cell B produces Headlight terminals and Micro-VA workstations. Cell C is the final
assembly work cell for Micro-VA central processing units. Cell D is the Sun work cell. Work cell
D is differentiated from the other FA cells in that no in-house manufactured PCBs feed into it. In
each FA cell, the mechanical assembly, cable assembly, and the top-level assembly operations
for a particular end-item (or similar group of end-items) are consolidated. In addition to these
assembly operations, the top-level testing, burn-in, clean-up and packaging activities are also
performed in the FA cells.
Kit is a staging area for purchased, shippable products, such as printers and plotters. Kit
products will eventually be packaged with the completed final assembly items in finished
goods inventory (Fin).
Figure 6 illustrates the production steps that the Alpha terminal would go through. PCB
production follows nearly the same sequence of operations as under the old MRP-based
system. The major process differences include the elimination of the PCB preparation operation,
and the elimination of all but one inspection station.
The FA work cell is the consolidation of all the non PCB production related activities necessary
to assemble an end-item. The cable and mechanical subassemblies are now built up in the FA
work cell, rather than in their own functional areas. Purchased parts making up these
subassemblies are delivered directly to the FA cell from receiving (or inspection if not coded as
dock-to-stock). Typically, a minimum level (one or two) of these subassemblies is built up one
day ahead of time for the next day’s production of end-items. The cable and mechanical
assembly processes follow the same sequence of operations as under the old MRP system
except for the elimination of all the inspection tasks.
Production scheduling and control
With JIT, production scheduling is no longer done at the subassembly level. Scheduling is done
only at the final assembly level. In conjunction with this fundamental change, a completely new
production control system was devised.
The first step in developing this new system was to eliminate work orders generated by the
MRP system. Since production was only to be scheduled at the end-item level, there would no
longer be a need for the lower-level work orders. Instead, a card system, similar to the Toyota
Kanban system, was used to control the flow of materials. Under this system a ‘move’ card was
used to move material (or assemblies) between successive work centres. ‘Production’ cards
were used to build or test materials within a work centre. These cards identified the production
lot sizes, move quantities, routeings and so on. With this card system, the practice of picking
materials from the stockroom was eliminated. Material inventories were now placed in bins
located directly in the work cells. As a result, the central stockroom was eliminated.
The card system, however, was short-lived. It was soon realized that the use of these cards was
unnecessary. Having come from an environment characterized by work orders and excessive
tracking and control mechanisms, the natural tendency was to use the card system to maintain
control over the production floor. Experience showed that the workers could build to the daily
production quota and move items to the proper place without the cards telling them what to do.
As a result, control of the shopfloor was given to the equipment operators and a new system
unique to Applicon’s work environment was developed.
In this system a production card initiates work at the first operation in the production process,
the building of PCBs. The PCBs are scheduled on a rate per day basis and are ‘pushed’ through
the production floor. The operators at the first process of PCB production, HPDI insertion, read
the information on the production cards and build to that schedule. All subsequent PCB
processes work to the same daily rate. The PCB production cards (Figure 7) are issued by the
production scheduler four days before an order is due in finished inventories. The four days is
the total production lead time for a completed unit.
At the other end of the production process final assemblies are ‘pulled’ by customer orders.
Using actual customer orders, the production scheduler converts the weekly production plan
into specific daily requirements. This information is posted on a status board visible to all the FA
work cells. The production scheduler also places end-item build cards in a sequential pile in
each corresponding work cell. These build cards (Figure 8) are used to schedule work in the
[mal assembly work cells. They identify the customer for which a top-level unit will be
assembled, and any specified options that must be built into that particular unit. A separate,
individual build card is used for each top-level item. To assemble a terminal, the operators will
remove the card from the top of the pile and build the terminal with the specified options. Only
one terminal is assembled at a time. Thus, for example, if the status board indicates that two
terminals are required for Monday, then the first two build cards on the pile will be used to
assemble the customer-specific units for that day.
Under JIT, only two inventory transactions are made. The first transaction is to credit item
inventory balances in one general floor-stock location (FLS) upon receipt of materials at
receiving. Floor-stock includes all the areas shown in Figure 5 except for MRB and Fin. The
second transaction occurs when finished products from work cells A-D, and peripherals from Kit,
enter Fin. This transaction is the system “backflush”.
Backflushing is widely used with JIT. Under the old system, inventory tracking was based on
detailed transactions that were generated by the MRP system whenever materials (kits) were
put into or released out of the central stockroom, or whenever the kits moved from one task to
the next in the production process. Eliminating work orders and very short lead times made this
system of control obsolete.
With the backflush transaction, the finished products (and any purchased peripherals) are
credited to Fin upon entering finished inventories. At the same time, all the lower-level
components that make up these products are subtracted from FLS. These lower-level
components are identified by the MRP system bill of materials. The MRP system has been
modified to treat all non-purchased components and subassemblies in the BOM as ‘phantom’
parts. Thus, when backflushing, the system will work through the BOM and stop only when
branches that end with purchased items are reached. The appropriate usage multiples of these
purchased components are then subtracted from FLS

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