Title: A hybrid approach to minimising manufacturing costs - study in a heating ventilation and air conditioning industry

Authors: Niranjan Pati; Todd Kile

Addresses: Department of Management and Entrepreneurship, William G. Rohrer College of Business, Rowan University, 201 Mullica Hill Rd., Glassboro, NJ 08028, USA ' National Electrostatics Corporation, 7540 Graber Rd, Middleton, WI 53562, USA

Abstract: A leading producer of commercial air-conditioning equipment faces the need to update its sheet metal operations in support of its commercial chiller product line. Currently, the producer meets the majority of its sheet metal needs through in-house manufacturing operations. Thus, three basic alternatives confront the producer. Capital can be invested to maintain existing in-house operations. It could also be invested to develop outsource suppliers to completely fill the sheet metal requirements. Finally, an investment could be made involving substantial reliance on both in-house and outsource suppliers. To effectively analyse the true cost associated with each alternative, realistic cost structures are derived employing activity-based costing (ABC) techniques in conjunction with probabilistic market forecast data. The alternative including both in-house manufacturing and outsource suppliers was identified as optimal through linear programming (LP) techniques. The implementation of this optimal solution is then analysed using the programme evaluation and review technique (PERT).

Keywords: project management; cost management; systems approach; linear programming; operations research; activity-based costing; ABC; programme evaluation and review techniques; PERT; outsourcing; hybrid approach; manufacturing costs; HVAC industry; heating ventilation and air conditioning; sheet metal working; chiller products.

DOI: 10.1504/IJPMB.2013.058270

International Journal of Process Management and Benchmarking, 2013 Vol.3 No.4, pp.467 - 493

Available online: 11 Dec 2013 *

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