Running Head: BUSINESS CASE: TUBE LASER PURCHASE 1

Assignment 6.1 - Develop a Business Case

This week you are ‘Bobby Zane,’ the controller for Precision Steel Fabrication (PSF). The PSF
vice president for engineering has asked you to prepare a business case to be presented to the
president of PSF on why (or why not) the company should purchase a tube laser. For the last
week, you have been collecting the data you need to make the case. Now it is time to put your
hard work together in a document to present to Tripper Hawthorne.

Your business case document must include:

 Title page
 An executive summary
 A description of the current situation
 The proposal (are we getting a tube laser or not?)
 The financial justification (you can use tables from the case study as illustrations but you are
expected to make the case in your writing)
 A conclusion
This assignment is not re-writing the case study. It is you making the case to expend
organizational resources. Make sure you review the Molisani and Graham (2008) article as you
prepare your business case.

Requirements:

 6-7 pages double spaced (not counting title page and reference page)
 12 point Times New Roman font
 Include graphics and illustrations where appropriate
 Use APA style citations and references
 Conform to plain language requirements
 At least four scholarly sources used as references
Submit the Business Case to Drop Box 6.1.
Business case: Tube Laser Purchase 2

Executive Summary

Precision Steel Fabrication (PSF) has potential investment opportunity in form of Tube

Laser Machine to be installed on the manufacturing floor. Tube Laser are new technology

machines which can potentially reduce three or more manufacturing processes at the PSF shop

floor. Tube Laser will save time on production and in turn will save money. The federal

government is offering tax benefit in form of 50% depreciation bonus on all the equipment.

Buying Tube Laser by the end of 2004 relieves PSF of any tax liabilities. Due to the decline in

the economy at the end of 2001, PSF had made some critical decisions regarding its operations

and cost cutting. Since the economy is on uptrend with projected PSF sales of $10 million, and

after factoring in Government tax benefits; it is probably a good idea to take advantage of the

opportunity at hand and buy Tube Laser Machines. This will help PSF get few new projects in

upcoming years, which can help PSF breakeven the cost of the Tube Laser, which is around $1

million.
Business case: Tube Laser Purchase 3

Current Manufacturing process

Precision Steel Fabrication (PSF) fabricates its products using roller tubular steel, solid

steel wire and sheet metal. The rolled tubular steel constitutes to approximately 75% of the

products sold, 20% sales come from wire and remaining 5% sales are from sheet metal. At PSF,

the parts are produced as per the customer’s orders and specifications. The price package

includes the part price, tooling cost and service. Tooling cost is significant component of the

package and could go up to $60,000 per project. The customer’s orders are fed in to the PSF’S

MRP system, Syteline, which then creates the job orders with instructions for shop floor. It

enlists all the manufacturing steps required to complete the job along with the bill of material.

Current Manufacturing steps are as follows:

 Cold Saw: First, operator loads the tube by standing in from of the saw and then manually

cuts the tube using the saw. Each tube is sized 20 feet in length of the tubular steel. Typical

production rate for manually cut parts is about 80 to 100 parts per hour.

 Hydraulic Presses: To punch and pierce the holes into the tube by using additional custom

tooling, depending on the number and shapes of the holes. The current process has

production rate of 150 pieces per hour, per machine.

 Deburring Wheel: To remove the sharp burrs from the tube often created by cutting and

punching the steel tubes. For the safety purposes the burrs must be removed manually by

using spinning wheel or hand file which can be time consuming.

 Hydraulic Tube Bender: To bend the tube to required shapes.

 Robotic Welder: To robot weld the steel components by holding them in a weld fixture.

 Power Coating: To clean the components of any dirt and oil and spray them with

magnetized colored powder as per the customer color specifications.

Business case: Tube Laser Purchase 4

Proposal

Tube Laser is relatively new manufacturing technology, which cuts the tubular steel

better than traditional method adopted by PSF at the manufacturing floor. For tube laser cutting,

the entire bundle of the steel can be loaded onto the tube laser loader. The machine loads each

individual tube autonomously, to laser cut the tubes at desired lengths. Compared to traditional

saw cutting, the laser cut production is up to 300% more efficient (300 to 400 parts per hour).

Tube Laser does not require any kind of special tooling to punch and pierce the holes as required

in traditional hydraulic press punch. Tube Laser can punch the holes of different shapes and sizes

at the rate of 200 pieces per hour, at a better production rate compared to hydraulic press rate of

150 pieces per hour. Additionally, since the Tube Laser is extremely precise and makes smooth

cuts, the parts do not need deburr operations which not only saves time but also avoids potential

injuries to workers while cleaning the burrs.

Clearly, the use of tube laser at manufacturing floor could potentially make three or more

process and machines obsolete (depending on the number of punching holes per part), and

achieve cost savings. Tube Laser does not require any special tooling, which saves the time to

change the tools and reduces upfront cost to the customers. By using the Tube Laser, there will

be 40%-50% of reduction in the upfront tooling costs to the customers. JLS/Brodure, Nakamura,

and Luxemburg are the three manufactures that sell Tube Laser in the United States. The Tube

Lasers are roughly invoiced around $1 million by each of these suppliers. Even though, all the

companies have promising Tube Laser features, the most suitable to the PSF’s operational needs

is the Tube Laser sold by JLS/Brodure. Buying Tube Laser from JLS Group, which is based in

the United State, will save PSF on cost of shipping and required maintenance service in future.

The tube laser has auto-loading and autonomous operation features, saving the manpower
Business case: Tube Laser Purchase 5

required on traditional machines. JLS has tube lasers in the inventory and ready to purchase by

the end of 2004. Since the IRS has announced industrial tax savings program which rewards 50%

depreciation bonus on all the equipment purchased before December 31, 2004, there will be tax

benefit to the PSF. A $1 million tube laser would essentially eliminate the income tax liability of

the PSF in 2004. The tax cost savings could act as down payment for the Tube Laser purchased

from JLS Group. Furthermore, PSF might be able to hire back some of the employees laid off

last year, because of cash saving opportunities at PSF’s disposal.

BIFMA (the Business and Institutional Furniture Manufacture’s Association) purports

that the industry is on the rebound and in 2005 the sales are projected to be $10.02 billion.

Having a Tube Laser machine installed on the shop floor gives PSF competitive advantage over

rivals Lakeshore Steel and GVS to win more projects. Buying Tube Laser wins PSF the new

projects of $160,000 in year 1 and $600,000 in year 2, which otherwise PSF does not have

capacity to produce. The following financial analysis confirms that the cost of the purchase of

Tube Laser will breakeven within next few years.

The proposal section is where you unveil the Grand Idea. The previous section has foreshadowed it and established
that the company is experiencing pain. Now is the time to explain how to make that pain go away.

This section includes clear, specific details about the following:

 What is being proposed?

 How does it solve the problem?
 How much, if anything, does it cost? Include the “hidden” costs of labor here—this will show management
that you are looking after the big picture.
 What new income can be predicted from this initiative, and when will it pay off the costs? Alternatively,
what costs can be reduced or eliminated as a result of this initiative?

Address both the opportunities and the risks of this solution. If necessary, perform a SWOT (Strengths, Weaknesses,
Opportunities, Threats) analysis be- fore writing this section. SWOT analysis is a common business analysis tool;
for more information, search the Internet.

Anticipate any objections management (or anyone else) might have to the plan and preempt them. Either counter
them with information about how they won’t be a factor, or explain how the bene ts outweigh the objections.
Business case: Tube Laser Purchase 6

Financial Proof

Using charts and graphs, explain the following:

 How the ROI is calculated or the factors included and compared in the CA
 The sources for those numbers (did they come from historic company data, an external source, or some-
place else?)

Use the company’s historical data if possible. Make friends with the nance group in order to access the
data. If no data are available, use industry standard numbers. These are almost always avail- able through
any associations for your industry; for example, the Consumer Electronics Association has a lot of data
about the consumer electronics industry (DVD players, iPods, toasters, and the like). If there are no
associations, the Bureau of Labor Statistics, the Securities and Exchange Commission, or similar
government agencies usually have at least some industry data.

Keep it simple: use charts and graphs rather than the raw spreadsheet data. Provide full details in the
supporting materials.

Conclusion

This section summarizes the problem and the solution, referring back to points made in the body of the document. The
conclusion states that spending $X will generate $Y in cost savings or new revenue. It reinforces that this is an urgent
(or at least important) problem and that you know the answer. It ends with a call to action: adopt your proposal.