Team 29

Tim Babyak.13

William Casey.329

TJ Kirby.209

Angelo Luchetti.3

8.1 Multi-Spindle Nut Runner Case Study

One important aspect of the manufacturing process is efficiency. The more goods that a

company can make in a smaller amount of time results in increased profits. For a large,

successful company such as Hummer, many of the aspects of the manufacturing process have

already been improved. However, one aspect with the potential to be improved would be the

process for tire installation on large trucks. Currently, the lug nuts on truck tires are being

tightened by hand. The installation of multi-spindle nut runners to tighten the lug nuts may be

beneficial to Hummer.

The purpose of this analysis is to outline the positives and negatives of implementing

this project. It is also to determine whether it is financially justified to incorporate multi-spindle

nut runners into the manufacturing process.

Assumptions

One assumption that was made for base calculations was the cost of maintenance. It

was assumed that maintenance would cost 10% of the cost of the nut-drivers in year one and

would then increase by 2% of the initial cost of the machine each year thereafter. This

assumption was made because as the machines age they will wear and require additional work

to keep them running. A second assumption made was in the costs of installation. The base

cost of installation is $375,000; an extra 10% of that was budgeted for anything unexpected that

could come up in the installation process. A third assumption made for install was for the cost of

downtime. This would include paying workers overtime and adding another manager as well as
added quality assurance. The cost of this came out to be $627,480. It was assumed that the

managers were paid twice the hourly wage as line workers and that it would take 25 line

workers being paid overtime to make up for the closing of this section of the plant. The MARR

was assumed to be 15% as this seemed to be an amount reasonable high to ensure that the

project risk stays low. The lifetime of the project was assumed to be 30 years because around

that time the machines could either lose their usefulness or better technology could come along

to replace them the multi-nut drivers.

Recommendations

The calculations that followed these assumptions support that this project is very

promising. The discounted payback period of the project is 2.06 years, the IRR for the project

over a 30-year life is 47% and the NPV of the project over its 30-year life is $3.68 million. Based

on these figures, it is highly recommended that the project be put into action. The short

discounted payback period and high long-term profit associated with this project make it a great

investment.

Alternate Assumptions

If there is a larger hiccup in the installation and instead of costing 10% more than the

base cost, it costed 25% more, some statistics of the project would change slightly. The NPV for

the project over 30 years would become $3.619 million, the IRR would decrease to 45.75% and

the discounted payback period would increase to 2.11 years. None of these changes would

affect the recommendation for the project. The small increase in upfront cost does not outweigh

the long term benefits. Even if this cost were to increase significantly it would not have much of

an effect on the outcome. Another alternate assumption that could be made is that the nut-driver

could be more dangerous than anticipated and there would be a higher risk for injury in this

section of the plant. In this case the insurance for those workers would increase. If there was a

50% increase in the cost of insurance, from $56,700 to $85,050 a year, then the discounted
payback period of the project would increase to 2.12 years, the IRR would decrease to 45.6%

and the NPV of the project would decrease to $3.49 million. In this case the annual profit of the

project would decrease, but it would not be a significant enough decrease. The project is still

worth doing even with the possible risk of increased installation and insurance costs.

Non-Economic Factors

There are some non-economic factors which should be considered when deciding to

implement the multi-spindle nut runner. The company will be moving towards an

automated assembly line which will decrease the amount of workers and promote technological

advancement. While the efficiency and safety will be increased, the decreasing amount of

workers may become a source of criticism towards Hummer. This in turn may decrease worker

satisfaction overall. The overall quality of the tightening job will be increased due to the multi-

spindle nut runner’s ability to continuously perform the same task over again with the same

results.

Aside from economic consequences of using a multi-spindle nut driver, there are other results

that cannot be quantitatively predicted. First, the company's reputation will be directly affected by this

shift towards automation. As more people are replaced with machinery, the company will experience

increasing public criticism for lay-offs. On the other hand, as the company embraces technology, it could

also receive praise for its move toward efficiency and technological advancement.

Second, it is impossible to determine what will happen to the families of those who lose their

jobs to the nut driver. The lost income could prove catastrophic to families in which it was the primary

source of finances.

Third, the introduction of this automated tool should ease the workload on the employees. It

allows for safer and less strenuous work. As a result, this should improve moral and therefore

productivity within the plant. Contrary to this, if the machine were to go down, the required overtime of

the workers could negatively impact this improved moral.

 Lastly, by saving Hummer money, the nut-driver opens up countless possibilities for investment

and philanthropy. With enough savings, Hummer could potentially create a new department or expand

its market, allowing for the introduction of even more jobs, counteracting the previously stated negative

outcomes. Overall, the decision to introduce the multi-spindle nut driver would be a positive one. If the

money it saves is reinvested properly, a vast majority of the negative outcomes could be completely

overcome, making the automation a wise decision.

Table 1: Base Assumptions and Calculations

Ye Installation Cost of Downtime Training Maintenance Compensatio Savings Net Income Balance

ar Costs Machines Cost n Insurance

0 $ (41 $ (95 $ (627 $ (10,0 $ $ $ $ (2,000, $ (2,000

2,500.00) 0,000.00) ,480.00) 80.00) - - - 060.00) ,060.00)

1 $ (95,0 $ (56,700 $ 1,134,00 $ 982 $ (1,017

00.00) .00) 0.00 ,300.00 ,760.00)

2 $ (114,00 $ (56,700 $ 1,134,00 $ 963 $ (

0.00) .00) 0.00 ,300.00 54,460.00)

3 $ (133,00 $ (56,700 $ 1,134,00 $ 944 $ 8

0.00) .00) 0.00 ,300.00 89,840.00

4 $ (152,00 $ (56,700 $ 1,134,00 $ 925 $ 1,81

0.00) .00) 0.00 ,300.00 5,140.00

5 $ (171,00 $ (56,700 $ 1,134,00 $ 906 $ 2,72

0.00) .00) 0.00 ,300.00 1,440.00

6 $ (190,00 $ (56,700 $ 1,134,00 $ 887 $ 3,60

0.00) .00) 0.00 ,300.00 8,740.00

7 $ (209,00 $ (56,700 $ 1,134,00 $ 868 $ 4,47

0.00) .00) 0.00 ,300.00 7,040.00

8 $ (228,00 $ (56,700 $ 1,134,00 $ 849 $ 5,32

0.00) .00) 0.00 ,300.00 6,340.00

9 $ (247,00 $ (56,700 $ 1,134,00 $ 830 $ 6,15

0.00) .00) 0.00 ,300.00 6,640.00

10 $ (266,00 $ (56,700 $ 1,134,00 $ 811 $ 6,96

0.00) .00) 0.00 ,300.00 7,940.00

11 $ (285,00 $ (56,700 $ 1,134,00 $ 792 $ 7,76

0.00) .00) 0.00 ,300.00 0,240.00

12 $ (304,00 $ (56,700 $ 1,134,00 $ 773 $ 8,53

0.00) .00) 0.00 ,300.00 3,540.00

13 $ (323,00 $ (56,700 $ 1,134,00 $ 754 $ 9,28

0.00) .00) 0.00 ,300.00 7,840.00

14 $ (342,00 $ (56,700 $ 1,134,00 $ 735 $ 10,023

0.00) .00) 0.00 ,300.00 ,140.00

15 $ (361,00 $ (56,700 $ 1,134,00 $ 716 $ 10,739

0.00) .00) 0.00 ,300.00 ,440.00

16 $ (380,00 $ (56,700 $ 1,134,00 $ 697 $ 11,436

0.00) .00) 0.00 ,300.00 ,740.00

17 $ (399,00 $ (56,700 $ 1,134,00 $ 678 $ 12,115

0.00) .00) 0.00 ,300.00 ,040.00

18 $ (418,00 $ (56,700 $ 1,134,00 $ 659 $ 12,774

0.00) .00) 0.00 ,300.00 ,340.00

19 $ (437,00 $ (56,700 $ 1,134,00 $ 640 $ 13,414

0.00) .00) 0.00 ,300.00 ,640.00

20 $ (456,00 $ (56,700 $ 1,134,00 $ 621 $ 14,035

0.00) .00) 0.00 ,300.00 ,940.00

21 $ (475,00 $ (56,700 $ 1,134,00 $ 602 $ 14,638

0.00) .00) 0.00 ,300.00 ,240.00

22 $ (494,00 $ (56,700 $ 1,134,00 $ 583 $ 15,221

0.00) .00) 0.00 ,300.00 ,540.00

23 $ (513,00 $ (56,700 $ 1,134,00 $ 564 $ 15,785

0.00) .00) 0.00 ,300.00 ,840.00

24 $ (532,00 $ (56,700 $ 1,134,00 $ 545 $ 16,331

0.00) .00) 0.00 ,300.00 ,140.00

25 $ (551,00 $ (56,700 $ 1,134,00 $ 526 $ 16,857

0.00) .00) 0.00 ,300.00 ,440.00

26 $ (570,00 $ (56,700 $ 1,134,00 $ 507 $ 17,364

0.00) .00) 0.00 ,300.00 ,740.00

27 $ (589,00 $ (56,700 $ 1,134,00 $ 488 $ 17,853

0.00) .00) 0.00 ,300.00 ,040.00

28 $ (608,00 $ (56,700 $ 1,134,00 $ 469 $ 18,322

0.00) .00) 0.00 ,300.00 ,340.00

29 $ (627,00 $ (56,700 $ 1,134,00 $ 450 $ 18,772

0.00) .00) 0.00 ,300.00 ,640.00

30 $ (646,00 $ (56,700 $ 1,134,00 $ 431 $ 19,203

0.00) .00) 0.00 ,300.00 ,940.00

Percent of Assumed Assumed Discounted

Wages as Lifespan MARR Payback Period 2.05653

Insurance (Years)

10% 15% NPV (30) $ 3,675,

30.00 402.65

IRR (30) 47.096%

AEW (30) $559,764.55

 The base assumptions here were the cost of installations being 10% over the given

$375,000, the downtime expenses due to paying extra workers overtime to cover this section of

the plant being down, the yearly cost of maintenance which starts at 10% of the cost of the

machine and then increases by 2% of that cost each year and the cost of insurance due to the

new machinery which was estimated at 10% of the yearly wage of a worker.

Table 2: Increased Installations Costs

Ye Installation Cost of Downtime Training Maintenance Compensatio Savings Net Income Balance

ar Costs Machines Cost n Insurance

0 $ (46 $ (95 $ (627 $ (10,0 $ $ $ $ (2,056, $ (2,056

8,750.00) 0,000.00) ,480.00) 80.00) - - - 310.00) ,310.00)

1 $ (95,0 $ (56,700 $ 1,134,00 $ 982 $ (1,074

00.00) .00) 0.00 ,300.00 ,010.00)

2 $ (114,00 $ (56,700 $ 1,134,00 $ 963 $ (11

0.00) .00) 0.00 ,300.00 0,710.00)

3 $ (133,00 $ (56,700 $ 1,134,00 $ 944 $ 8

0.00) .00) 0.00 ,300.00 33,590.00

4 $ (152,00 $ (56,700 $ 1,134,00 $ 925 $ 1,75

0.00) .00) 0.00 ,300.00 8,890.00

5 $ (171,00 $ (56,700 $ 1,134,00 $ 906 $ 2,66

0.00) .00) 0.00 ,300.00 5,190.00

6 $ (190,00 $ (56,700 $ 1,134,00 $ 887 $ 3,55

0.00) .00) 0.00 ,300.00 2,490.00

7 $ (209,00 $ (56,700 $ 1,134,00 $ 868 $ 4,42

0.00) .00) 0.00 ,300.00 0,790.00

8 $ (228,00 $ (56,700 $ 1,134,00 $ 849 $ 5,27

0.00) .00) 0.00 ,300.00 0,090.00

9 $ (247,00 $ (56,700 $ 1,134,00 $ 830 $ 6,10

0.00) .00) 0.00 ,300.00 0,390.00

10 $ (266,00 $ (56,700 $ 1,134,00 $ 811 $ 6,91

0.00) .00) 0.00 ,300.00 1,690.00

11 $ (285,00 $ (56,700 $ 1,134,00 $ 792 $ 7,70

0.00) .00) 0.00 ,300.00 3,990.00

12 $ (304,00 $ (56,700 $ 1,134,00 $ 773 $ 8,47

0.00) .00) 0.00 ,300.00 7,290.00

13 $ (323,00 $ (56,700 $ 1,134,00 $ 754 $ 9,23

0.00) .00) 0.00 ,300.00 1,590.00

14 $ (342,00 $ (56,700 $ 1,134,00 $ 735 $ 9,96

0.00) .00) 0.00 ,300.00 6,890.00

15 $ (361,00 $ (56,700 $ 1,134,00 $ 716 $ 10,683

0.00) .00) 0.00 ,300.00 ,190.00

16 $ (380,00 $ (56,700 $ 1,134,00 $ 697 $ 11,380

0.00) .00) 0.00 ,300.00 ,490.00

17 $ (399,00 $ (56,700 $ 1,134,00 $ 678 $ 12,058

0.00) .00) 0.00 ,300.00 ,790.00

18 $ (418,00 $ (56,700 $ 1,134,00 $ 659 $ 12,718

0.00) .00) 0.00 ,300.00 ,090.00

19 $ (437,00 $ (56,700 $ 1,134,00 $ 640 $ 13,358

0.00) .00) 0.00 ,300.00 ,390.00

20 $ (456,00 $ (56,700 $ 1,134,00 $ 621 $ 13,979

0.00) .00) 0.00 ,300.00 ,690.00

21 $ (475,00 $ (56,700 $ 1,134,00 $ 602 $ 14,581

0.00) .00) 0.00 ,300.00 ,990.00

22 $ (494,00 $ (56,700 $ 1,134,00 $ 583 $ 15,165

0.00) .00) 0.00 ,300.00 ,290.00

23 $ (513,00 $ (56,700 $ 1,134,00 $ 564 $ 15,729

0.00) .00) 0.00 ,300.00 ,590.00

24 $ (532,00 $ (56,700 $ 1,134,00 $ 545 $ 16,274

0.00) .00) 0.00 ,300.00 ,890.00

25 $ (551,00 $ (56,700 $ 1,134,00 $ 526 $ 16,801

0.00) .00) 0.00 ,300.00 ,190.00

26 $ (570,00 $ (56,700 $ 1,134,00 $ 507 $ 17,308

0.00) .00) 0.00 ,300.00 ,490.00

27 $ (589,00 $ (56,700 $ 1,134,00 $ 488 $ 17,796

0.00) .00) 0.00 ,300.00 ,790.00

 28 $ (608,00 $ (56,700 $ 1,134,00 $ 469 $ 18,266

0.00) .00) 0.00 ,300.00 ,090.00

29 $ (627,00 $ (56,700 $ 1,134,00 $ 450 $ 18,716

0.00) .00) 0.00 ,300.00 ,390.00

30 $ (646,00 $ (56,700 $ 1,134,00 $ 431 $ 19,147

0.00) .00) 0.00 ,300.00 ,690.00

Percent of Assumed Assumed Discounted

Wages as Lifespan MARR Payback Period 2.11493

Insurance (Years)

10% 15% NPV (30) $ 3,619,

30.00 152.65

IRR (30) 45.750%

AEW (30) $551,197.67

In Table 2 all of the base assumptions were held constant except the initial cost of

installations. An alternate assumption was made for this cost. Instead of 10% extra on top of

the cost of installation it is now assumed that the cost will be 25% more.

Table 3: Increased Compensation Insurance by 50% each year

Yea Installation Cost of Downtime Training Maintenance Compensati Savings Net Income Balance

r Costs Machines Cost on

Insurance
0 $ (412,500. $ (950,000. $ (627,480. $ $ $ $ $ (2,000,060. $ (2,000,060.

00) 00) 00) (10,080.00) - - - 00) 00)

1 $ (95,000.0 $ (85,050.0 $ 1,134,000.0 $ 953,950. $ (1,046,110.

0) 0) 0 00 00)

2 $ (114,000.0 $ (85,050.0 $ 1,134,000.0 $ 934,950. $ (111,160.

0) 0) 0 00 00)

3 $ (133,000.0 $ (85,050.0 $ 1,134,000.0 $ 915,950. $ 804,790.

0) 0) 0 00 00

4 $ (152,000.0 $ (85,050.0 $ 1,134,000.0 $ 896,950. $ 1,701,740.

0) 0) 0 00 00

5 $ (171,000.0 $ (85,050.0 $ 1,134,000.0 $ 877,950. $ 2,579,690.

0) 0) 0 00 00

6 $ (190,000.0 $ (85,050.0 $ 1,134,000.0 $ 858,950. $ 3,438,640.

0) 0) 0 00 00

7 $ (209,000.0 $ (85,050.0 $ 1,134,000.0 $ 839,950. $ 4,278,590.

0) 0) 0 00 00

8 $ (228,000.0 $ (85,050.0 $ 1,134,000.0 $ 820,950. $ 5,099,540.

0) 0) 0 00 00

9 $ (247,000.0 $ (85,050.0 $ 1,134,000.0 $ 801,950. $ 5,901,490.

0) 0) 0 00 00

10 $ (266,000.0 $ (85,050.0 $ 1,134,000.0 $ 782,950. $ 6,684,440.

0) 0) 0 00 00
11 $ (285,000.0 $ (85,050.0 $ 1,134,000.0 $ 763,950. $ 7,448,390.

0) 0) 0 00 00

12 $ (304,000.0 $ (85,050.0 $ 1,134,000.0 $ 744,950. $ 8,193,340.

0) 0) 0 00 00

13 $ (323,000.0 $ (85,050.0 $ 1,134,000.0 $ 725,950. $ 8,919,290.

0) 0) 0 00 00

14 $ (342,000.0 $ (85,050.0 $ 1,134,000.0 $ 706,950. $ 9,626,240.

0) 0) 0 00 00

15 $ (361,000.0 $ (85,050.0 $ 1,134,000.0 $ 687,950. $ 10,314,190.

0) 0) 0 00 00

16 $ (380,000.0 $ (85,050.0 $ 1,134,000.0 $ 668,950. $ 10,983,140.

0) 0) 0 00 00

17 $ (399,000.0 $ (85,050.0 $ 1,134,000.0 $ 649,950. $ 11,633,090.

0) 0) 0 00 00

18 $ (418,000.0 $ (85,050.0 $ 1,134,000.0 $ 630,950. $ 12,264,040.

0) 0) 0 00 00

19 $ (437,000.0 $ (85,050.0 $ 1,134,000.0 $ 611,950. $ 12,875,990.

0) 0) 0 00 00

20 $ (456,000.0 $ (85,050.0 $ 1,134,000.0 $ 592,950. $ 13,468,940.

0) 0) 0 00 00

21 $ (475,000.0 $ (85,050.0 $ 1,134,000.0 $ 573,950. $ 14,042,890.

0) 0) 0 00 00
22 $ (494,000.0 $ (85,050.0 $ 1,134,000.0 $ 554,950. $ 14,597,840.

0) 0) 0 00 00

23 $ (513,000.0 $ (85,050.0 $ 1,134,000.0 $ 535,950. $ 15,133,790.

0) 0) 0 00 00

24 $ (532,000.0 $ (85,050.0 $ 1,134,000.0 $ 516,950. $ 15,650,740.

0) 0) 0 00 00

25 $ (551,000.0 $ (85,050.0 $ 1,134,000.0 $ 497,950. $ 16,148,690.

0) 0) 0 00 00

26 $ (570,000.0 $ (85,050.0 $ 1,134,000.0 $ 478,950. $ 16,627,640.

0) 0) 0 00 00

27 $ (589,000.0 $ (85,050.0 $ 1,134,000.0 $ 459,950. $ 17,087,590.

0) 0) 0 00 00

28 $ (608,000.0 $ (85,050.0 $ 1,134,000.0 $ 440,950. $ 17,528,540.

0) 0) 0 00 00

29 $ (627,000.0 $ (85,050.0 $ 1,134,000.0 $ 421,950. $ 17,950,490.

0) 0) 0 00 00

30 $ (646,000.0 $ (85,050.0 $ 1,134,000.0 $ 402,950. $ 18,353,440.

0) 0) 0 00 00

Percent of Assumed Assumed Discounted 2.118

Wages as Lifespan MARR Payback Period 89

Insurance (Years)

15% 30. 15% NPV (30) $ 3,489,257.1

00 3
 IRR (30) 45.613%

AEW (30) $531,414.55

In Table 3 all the base assumptions are held constant, except the cost of insurance. In

this case the machinery was more dangerous than previously assumed and the insurance is

50% more expensive than previously assumed.