Microlite S. A. is a company in Brazil that manufactures alkaline and zinc-carbon batteries. In 1992 the company was faced with a reduction of tariffs on imported manufactured goods which would mean that the international competition would increase significantly. Luiz Pinto, who was a Microlite manager at the time, was faced with the opportunity to reduce labor and manufacturing costs by closing down the plant in Guarulhos and move production to the plant in Jaboatao. The choices that Mr. Pinto was faced with were to move the Guarulhos equipment to Jaboatao or to purchase new and faster equipment.
Moving the Guarulhos equipment to Jaboatao would minimize the capital investment and also increase the workflow due to the reliability of the equipment. Purchasing the new equipment would require more capital investment but reduce labor and increase production. The new tariff reductions were set to be implemented in 1995 and the problems were that Mr. Pinto had to reduce labor and increase productivity in an effort to maintain the large share of the Brazilian battery market that it currently owned. One non-production issue that Mr. Pinto is faced with is from a financial aspect. One option presented to Mr. Pinto is to purchase new Pan-Orient equipment.
The investment in new equipment would be approximately $2 million. It is unknown from the case study how the $2 million would be paid or financed. This, however, would have an impact on the decision of the stakeholders on whether to accept this proposal or not. The Current Situation The current bottlenecks in the operation of the AA battery operation at Jaboatao are the steps “add paste to cup” and “inspect carbon rods. ” These two steps operate below the required rate of production and would need to be corrected to improve productivity.
In an effort to increase productivity, the Jaboatao plant should add one machine from Guarulhos dedicated to “add paste to cup” production. While this solution will increase productivity, it will also increase labor required to operate the machine and additional labor would be required to inspect carbon rods. If the two bottleneck problems in the process are corrected, this would bring production up to the required 540 units per minute. One concern to Microlite is the amount of downtime that is experienced in Jaboatao. One obvious way to decrease downtime would be to simply add more machinery from Guarulhos.
This would increase productivity but the company is still faced with the increased labor costs associated with the additional machinery. If I were the manager of the Jaboatao plant, I would be faced with a difficult decision. I ultimately would not want the addition al machines due to the associated costs. Instead, I would research the differences in operations of the two plants and determine what is factoring into the additional Jaboatao downtime. I would use the information to re-train employees and educate them on the Guarulhos processes and procedures.
Justification If the Guarulhos machines are installed it can cure the bottleneck at the “add paste to cup” portion of the process. Increasing the machinery will allow for the production to be increased to 540 units per minute and the bottleneck is corrected. The secondary bottleneck, “inspect carbon rods,” would require additional labor. It is estimated that the process would require one additional employee to increase the production of inspecting the carbon rods. The additional machinery and manpower would adequately make up for 1/8 of the production from the Guarulhos plant.
Purchasing and installing the new Pan-Orient equipment seems extreme due to the significant amount of capital funds required as an initial investment. Microtel did not appear to be heavily in favor of this decision and I would imagine that stakeholders would be weary of the large investment. Moving the equipment from Guarulhos appears to be the wisest choice as it is the least expensive and drastic. The additional funds that are saved could also be used on training and machine modifications to improve machine productivity.
The difference in annual expenses is large but the amounts are offset by the initial investment of the Pan-Orient equipment (See exhibit). During my evaluation I determined that the ideal transition would be to move the equipment from Guarulhos to Jaboatao to increase productivity and reduce downtime in the process. The Pan-Orient equipment is a good investment for the future but does not appear to be the right decision now. There could be a smoother transition in the future by introducing the Pan-Orient equipment at later time.