CASE IV REPORT

AIC Netbook: Optimizing Product Assembly

Submitted to -
Dr. RAJESH MATAI

Submitted By: Group 9

YASHWANTH CHINTA: 2019H1490849P
SREELAKSHMI MOHAN: 2019H1490862P
PRACHI: 2019H1490825P
SHIVAM MISHRA: 2019H1490841P
GARVIT JAIN: 2019H1490814P

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 EXECUTIVE SUMMARY
Advanced Integrated Circuitry (AIC) Systems, which is located in the city of Taichung, Taiwan, is
a manufacturer of the printed circuit boards; primarily they are for motherboards and video cards
for personal computers or PC. The firm is considered to be an Original Design Manufacturer
(ODM) and takes an active role in designing and innovating new generation of components of
the circuit board. By doing in house design and development, the company has been able to
foster exclusive and long term relationship with its customers. The firm AIC decides to diversify
its portfolio to include consumer electronics with a particular focus on mobile technology. The
goal of the firm is to move from manufacturing components of circuit board for other computer
companies to developing the firm's own line of branded consumer electronics such as mobile,
PC, Laptop, Netbook etc. The market for the new developed product Netbook, provides an
opportunity for AIC Systems to design and manufacture a branded product in the mobile
electronics industry. The manager of the production team has created an assembly line for
producing the new netbooks at the desired cost to company, and after three months of
production he must consider ways to improve efficiency and reduce production costs. We will
be performing a quantitative analysis of the existing assembly-line system and make
recommendations to reach optimal efficiency.

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 INTRODUCTION
Advanced Integrated Circuitry, Inc., that was afterward renamed as the AIC Systems Inc., which
was a Taiwanese company established in the year 1992. The main work done in the company
was to produce printed circuit boards for the PC. AIC also focuses on motherboards ans graphic
cards for the personal computer (PC) business. In the starting, AIC Systems Inc. was engaged in
competing for business as a low cost manufacturer in the industrial zone of Xitun, in which they
were focusing on the PCI bus chipset that instigated with the Intel Pentium CPU in the year
1993. Later, the firm got engaged in the supply of famous manufacturers with well-known brand
names of laptop along with desktops such as Hewlett Packard (HP), Compaq, and Dell. Whilst
AIC Systems entire volume was lower than Taiwanese opponents’ like Elite group Computer
Systems, ASUS, and MSI, the company’s persistent focus on cost management permitted it to be
a competitive foundation.
During the start of the year 2000, AIC Systems Inc., had changed themselves into what the
industry considered as an Original Design Manufacturer (ODM). As an ODM, the corporation
took a serious role in designing and inventing each new production of components. If a company
does its development in house, it was able to promote more exclusive and long term relationships
with its client. AIC Systems Inc. also secluded its position as a low cost dealer of the circuit
board by opening its Kaizhi plant outside Shenzhen in year early 2001 when the restrictions by
the Taiwanese government were relaxed in mainland China and its parts. AIC Systems was
among the first of the Taiwanese firms to transfer all of its manufacturing volume to China.
Management’s ferociousness in transitioning away from Taiwan-based manufacturing facilitated
the process team to shift rapidly down the learning curve and take benefit of the lower labour
costs which are available in Chinese market.
This case is about the development of the QuiN (Quick Net) Netbook, which is designed to
provide small and cheap sized laptop in electronic or PC market. This case analyses different
challenges which are faced by the company for the research and development of QuiN
Notebook. It was necessary for the company to develop motherboard immediately after the
introduction of new Intel processor in the market. It was also important for the company to meet
monthly demand for the netbook in peak hours. It was hard for AIC Systems to predict the sales
and demand of the netbook; however, their marketing campaign was capable of anticipating the
trend in the market about the production. Warehouses were also established for this purpose
only. Conveyer belts in the warehouse were effective enough to process ten netbooks at a given
time.
Multiple persons were responsible to handle conveyer belt in the production line. Tasks were
divided by supervisor and Kaizen principle was implemented to develop the netbooks affectively
and in controlled pricing given by the management. Demand of the Netbooks, suddenly
increased and the production line reached its extreme to produce large orders instantly. Ten to
twelve hours shifts were not sustainable for such a level of demand. 

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 PROBLEM STATEMENT
As soon as after the launch of Netbooks in the market, the demand for the Netbooks
increased very rapidly and so does the demand for employees to increase the production. The
scenario of the situation forced the managers of production at AIC Systems to make employees
work for more than nine hours in a shift. The management at AIC Systems did not want to start
a third shift as they didn’t want to make an investment in recruiting and training of new staff.
The extra overtime provided was neither cost effect, nor sustainable. Further, the Chief Strategy
Officer (CSO) of the company was also expecting to have a rise in the demand of Netbook by
more than 1,30,000 units in the upcoming months. The basic issues that the company was
facing, was related to maintaining the plant efficiency and increasing the productivity in the
assembly line. Moreover, the company was also facing issues in terms of variance in labour
efficiency.

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 QUESTIONS
(1) How efficient is netbook assembly at the Kazhi plant?
(A) What is the monthly output of the plant?
Ans. To determine the monthly output of the plant, the cycle time of the 50 seconds per units is
used. For the production of the netbooks, there are four assembly lines and 2 shifts of 8 working
hours each. For the calculations, it is assumed by us that there are 25 working days in a month.
Exhibit 1, shows us the calculations done for the monthly output of the plant in the current
situation. After doing call the calculations, The monthly production of netbooks would be around
1,10,592 units.
 Calculations:
Monthly output of plant:
We will be taking some data which is given in the Case which is as follows:
Number of shifts in a day = 2,
8 working hours shift = 8*60*60 = 28800 seconds,
Number of working days in a week = 6,
Total number of working days = 25,
Number of assembly lines = 4,
Cycle time = 50 seconds per unit,
Therefore by using the above given data, we can calculate the monthly output of the
netbook production system.
 Number of Netbooks produced per assembly line per shift per day = (28800/50)
= 576 Netbooks /line/shift/day
 Number of Netbooks produced in total in a day = 576*2*4
= 4608 Netbooks/day
 Number of Netbooks in a month = 4608 * 6 * 6*4 = 1,10,592 Netbooks/Month

(B) What is the theoretical efficiency of the planned line, looking only at direct labour on
the assembly line?
Ans. If we are looking only at the planned operations of the direct labour at the assembly line it
is normal that the actual operations are taking more time than the planned operations. Case
shows that, the planned time per station on one unit is nearly 41 seconds for all stations.
Taking the data from the case, we can calculate the cycle time for the planned operation which is
equal to: 8*60*60/700 = 41.1428 Seconds / Netbook

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From the above calculations we can see that the actual cycle time for the planned operations is
roughly equal to 41.14 seconds per netbook.

 Therefore, by calculations, the theoretical time taken per station on an average is roughly
around 39.6 seconds.
 Hence, Theoretical efficiency of planned line
= sum of task times/ Number of workstations* Cycle time
= 39.6 seconds / 10 * 41.14
= 0.955 = 95.5%

(C) What is the actual efficiency of the assembly line?

Ans. Average actual time which is taken by workers on each station to work on one unit in the
assembly line is 44.3 seconds as shown in case. Exhibit 2 of the case shows the comparison
between the planned operations and actual time of operations. The difference in the planned
operations and actual operations time at each work station helps us to determine the bottlenecks
in the production line. As the station numbers 2, 6, 7 and 9 all take more than 15% of the
production time, these are identified as the bottlenecks in this given process.
Furthermore, the planned worker to be working per work station is one. However, actual data
shows that, there are more than one workers working in a work station. It seems like that because
workers are helping each other in their work; more than one worker is working in one work
station at a time. Rather than 10 workers in 10 stations as planned by the manager, there are 12
workers in 10 stations when actual work took place. This shows us, the efficiency of the
production plant is very low.
 Calculations:
 Cycle time planned operations 50 Seconds / Netbook: (Given in case Page 5, Para 3)
Actual efficiency of line (In terms of Netbook/ Labour hour)
= Actual Output (monthly) / No. of operatives * No. of working hours
= 119808 / 12 * 8
= 1248 Netbooks / Labour hour
 Actual efficiency (In terms of percentage) of planned line operations:
= sum of task times (Actual)/ Number of workstations* Cycle time (Actual)
= 443 seconds (as per exhibit 3)/ 10 * 50 = 0.886
= 88.6%

(2) How effective is the current operation?

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(A) What are the right criteria by which to evaluate it?
Ans. Criteria’s to evaluate the effectiveness for production of the netbooks are as follows:

 Mean Variation Per Station: Mean extra time taken per station can also be the measure of
effectiveness of operations. We can see from the calculations that +4.7 secs is the mean
time taken extra at every station.

 Cycle Time: As we have seen by calculations that planned cycle time to be 41.14 sec and
from the case facts, actual cycle time to be 50 secs. Therefore, we can tell from the results
that current operations are not effective using this criterion of production.

 Number Of Labours: In a planned production system each station was allotted only 1
labour working per station, but in actual production system there are 1.2 labours working
per station accounting to a total of 12 working labour instead of 10 working labour and
thus, this reduces the efficiency of the production system.

(B) Is the operation designed appropriately to meet demand?

Ans.
They can produce monthly output of
= 700 * 2 * 4 * 6 * (52/12)
= 145,600 Netbooks/month
Number of shifts in a day = 2,
8 working hours shift = 8*60*60 = 28800 seconds,
Number of working days in a week = 6,
Total number of working days = 25,
Number of assembly lines = 4
 Which is well over the estimated demand of 130,000 /month.
 But they are currently producing only 119,808 netbooks / month, which is not as
expected.
 Also, the labour planned was 10 labour working per line, but Actual operations uses 12
direct labours working per line.
From the above calculations we can conclude that the production system was NOT designed
appropriately to meet the demands of the firm.

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The only ways to achieve this target are:
 Either to increase the labour force so as to decrease extra time taken per station to meet
planned cycle time of 41.1 seconds rather than current actual cycle time of 50 seconds.
 To setup an extra line to increase total production.
 To add a new shift and make 3 working shifts in a day instead of 2 working shifts.

(3) What is the financial impact of bringing the operation closer to "full potential" and
achieving planned production levels?
(A) What is the planned production level in terms of monthly output?
Ans. Using the data given in the case, we have done the following calculations to fine out the
planned production level in terms of monthly output.

Given data in Case:

Planned Production per line per shift= 700 units
Number of shifts in a day = 2,
Number of working days in a week = 6,
Number of assembly lines = 4,
Number of weeks in a year = 52/12
Therefore, planned production level in terms of monthly output = 700*2*6*4*52/12

= 1,45,600 units/month.

(B) What is the financial impact of achieving the target cycle time?
Ans.

 Actual Production:
8 working hours shift = 28800 seconds,
Number of shifts in a day = 2,
Number of working days in a week = 6,

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 Number of assembly lines = 4,
Cycle time = 50 seconds per netbook
Number of Netbooks produced per assembly line per shift per day = (28800/50)
= 576 Netbooks /line/shift/day
Number of Netbooks produced in total in a day = 576*2*4
= 4608 Netbooks/day
Number of Netbooks in a month = 4608 * 6 * (52/12) = 1,19,808 Netbooks/Month

 Targeted Production:
Cycle time planned = 8*60*60/700 = 41.14 Seconds / Netbook
8 working hours shift = 28800 seconds,
Number of shifts in a day = 2,
of working days in a week = 6,
Number of assembly lines = 4,
Number of Netbooks produced per assembly line per shift per day = (28800/41.1)
= 700 Netbooks /line/shift/day
Number of Netbooks produced in total in a day = 700*2*4
= 5600 Netbooks/day
Number of Netbooks in a month = 5600 * 6 * (52/12) = 1,45,600 Netbooks/Month

 Difference Between Targeted Production and Actual Production

= 1,45,600 -1,19,808
= 25,792 Netbooks/Month

 Gross profit per netbook= $ 19.20

Therefore, as we can see from the above calculations that the financial impact of achieving the
target cycle time = 19.20 * 25,792 = $ 4,95,206/Month

(C) How important is reducing direct labour as a means to improve financial performance?
(assume each assembly line worker costs $500 per month).

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Ans.
 Actual Production:
Number of Netbooks produced per assembly line per shift per day = (28800/50)
= 576 Netbooks /line/shift/day
Assembly line worker costs $500 per month

 Direct labour cost

 Total Working Labour: 12
Per person production per day per shift per line: 576/12 = 48
Cost per month for direct labour = 500 * No of labour * No of shifts * No of line
= 500 * 12 * 2* 4 = $48000/month
 Total Working Labour: - 10
Per person production per day per shift per line: 576/10 = 57.6
Cost per month for direct labour = 500 * No of labour * No of shifts * No of line
= 500 * 10 * 2* 4 = $40000/month

 Now, as given in the case:

Labour cost per unit = $ 4.80
Total labour cost with 12 working labours = 4.8 * 119808(units/month)
= $575078.4/month
Total labour cost with 10 working labours = 575078.4 – 8000 = $567078.4/month

Per unit cost difference = 567078.4/119808 = $4.73 / unit.

Thus $0.066/unit can be saved if we achieve direct labour cost from actual 12/line to
planned 10/line.

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 RECOMMENDATION
From our side, it is highly recommended that management change the current production system
of the company that will be achieved through the implementation of 24 hour production line. In
addition to this, there should be 3 shifts in day instead of 2. With this, working hours for each
shift needs to be reorganised as well, that are from 8 hours to 7.25 hours which is 7 hrs and 45
min per shift. As per the calculation, it can be seen that the number of units has increased to
more than 1,30,000 units and thus, forecasted demand can be easily met now.

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