Capacity adjustment and its financial
consequences at a new product introduction
Master Thesis
Capacity adjustment and its financial
consequences at a new product introduction
University of Groningen
Faculty of Management and Organization Operations and Supply Chains Department
Landleven 8, Postbus 800, 9700 AV Groningen, The Netherlands
Supervisor: dr. ir. S. Brinkman
Second Supervisor: Manda H. Broekhuis
Supervisor from Shell Gas Hungary Inc.: György Freisinger Author: Szabolcs Asbóth
Abstract
New product development and introduction is an essential issue for companies nowadays, since customers prefer larger and larger variety from a given product, international competition due to globalization is increasing, and product life cycles are shrinking. But in order to produce a new product, companies must accomplish different tasks before they are actually able to manufacture the product.
Most of the literature deals with new product introduction as a green field investment where companies and resources are established and installed based on the demand measured from the potential customer group. However, in most cases new products are introduced by companies that have been producing goods for a long period of time.
This is also the case in this thesis where Shell Gas Hungary Inc. has been hesitating as to whether to introduce a new product in the year 2009. The management of operation department is not sure whether the introduction and production of the new product, parallel with the already existing ones, is feasible in operation since the firm has been using economies of scale as operation strategy. As it is widely known, economies of scale strategy is used in order to reduce the average unit cost of a product by increasing its output rate. This strategy is generally used when a firm produces only one product. After analyzing the already available literature regarding new product introduction, the author finds out that the optimal operation strategy to produce more products on one production site is the economies of scope strategy.
The main issues within economies of scope strategy, while regarding Shell Gas Hungary’s situation, are recently used technology, available capacity and capacity
flexibility/constraints.
this manner the author tries to describe the constraints of each production units and the
constraints of the entire system.
After having a detailed picture about the technology and its constraints, the author looks further to determine how the new product might be produced within Shell Gas Hungary Inc.
The used literature in the thesis, serves the tool to analyze recently available resources and future demand requirements at Shell Gas Hungary Inc.
But in order to be aware of the recent production strategy and the production processes of the company, the author accomplished various interviews with different workers of the company. Further data collection was made through observation, and actual data was also collected from the internal system of the company.
In the thesis, this data was further used in order to define what alternative plans exist to manufacture and introduce the new product.
Each of the production possibilities are shown and described in a detailed way. But as every company, Shell Gas Hungary Inc. is also concerned about the costs of the different production possibilities.
Thus, if capital investments are needed to produce the new product, Shell Gas Hungary Inc. is concerned as to whether they are justified by return on investments. Therefore at each alternative plan Net Present Value calculations are included to decide whether the alternative plan is beneficial, and most necessarily to enable the author to show the most valuable production alternatives to Shell Gas Hungary Inc.
Parallel with the financial part of the project, the affects of the various new production manufacturing plans to the whole production system are described and illustrated as well.
demand. But based on the calculations, each of the readers can decide which is the best production alternative at the moment. However to choose among the alternatives is not the duty of the author, but that of the management of the organization.
Table of contents:
1 Introduction...7
1.1 Introduction of the problem ...7
1.2 Why do we call cylinders filled with propane, to a new product? ...9
1.3 Targets that the new product should meet ...11
1.4 Origin of the research project ...12
1.5 Research Question...13
2 Research design...14
2.1 Research objective ...14
2.2 Research Model ...14
2.3 Conceptual Framework...16
2.3.1 The nature of the production process (production capacity) ...17
2.3.2 Recent and Future Production strategy of Shell Gas Hungary Inc...18
2.3.3 Focus of the Research ...19
2.4 Scope of the research: ...20
2.5 Sub-questions...21
3 Research design and methods ...23
3.1 The research area ...23
3.2 Research topic...23
3.3 Research Question...24
3.4 Data collection ...24
3.5 Data processing method ...26
4 Analyses ...27
4.1 Supply chain and production of LPG gas at Shell Gas Hungary Inc...27
4.2 Production process ...28
4.3 Recent and future constraints of production stages ...28
4.3.1 Storage of raw materials: ...28
4.3.2 Pipeline connection and compression pump:...29
4.3.3 Empty cylinders: ...31
4.3.4 Chain conveyor:...32
4.3.5 Work Centers: ...33
4.3.6 Collecting empty and filled cylinders and fork-lift transportation: ...35
4.3.7 Warehouse storage: ...37
4.4 Conclusion ...39
5 Alternative plans and their financial consequences ...42
5.1 Empty cylinders ...42
5.2 Pipeline connection ...44
5.3 Work centers ...45
5.4 Warehouse storage ...48
5.6 Financial evaluation of alternative plans ...48
1 Introduction
1.1 Introduction of the problem
The Hungarian LPG (Liquid Petroleum Gas) filling plant of Shell Gas was built in 1995, and its location is the industrial park of Sóstó, Székesfehérvár. Recently Shell Gas Hungary Inc. has been commercializing two different LPG gases, propane and propane-butane mixture, in the following forms:
• Auto gas (special mixture of propane butane): The auto gas regulations are incredibly strict; therefore this special mixture of propane and butane gas must be always mixed at the same ratio. Therefore it is important to identify that this product is not identical to other LPG products.
• Propane butane mixture: This product is sold to customers who possess large reservoirs; and it is also filled into cylinders (11.5, 23, and 11kg) and sold as such to customers.
• Propane: this is only sold to customers who have large reservoirs.
Product type/type of LPG
Type of output/type of
LPG
Reservoir Auto gas reservoir Domestic cylinders (11.5 kg; 23kg) Forklift cylinder (11kg) Propane butane mixture x x x x
Propane x not feasible x not feasible
Figure 1: New and old products matrix
Furthermore, the red “x” shows the product which Shell Gas Hungary Inc. intends to introduce in the year of 2009 since prospective customers formulated the need for this new product based on the following attributes:
• The boiling point of propane is -42 °C, and the boiling point of butane is -2 °C. • Since propane butane mixture is just a mixture, these two types of gases in the
cylinders will level apart as propane and butane. -> If the temperature is colder than -2 °C but warmer than -42 °C the propane will come out of the cylinder but butane will remain inside. Consequently half of the bought product cannot be used in such circumstances. (source: www.dkk.pte.hu)
• In reservoir products they have already discovered this problem, thus during the winter season reservoirs are only filled with propane instead of the propane butane mixture.
Propane is more favorable for outside usage when the temperature is around 0
°C.
Forecast for propane cylinders for the year 2009-2013 0,0 0,2 0,4 0,6 0,8 1,0 1 2 3 4 5 6 7 8 9 10 11 12 Tons Mon ths
Figure 2: Measured demand for propane filled cylinders (detailed forecast is visible in the appendices)
1.2 Why do we call cylinders filled with propane, to a new product?
First some literature regarding new product must be used, to decide upon what a “new product” exactly is. As already indicated by Trott, Paul, (2004) “newness is a relative term”. There were already many attempts to organize new products into certain categories, since the word “new product” may imply various things:
• New to the world: “The inventions that usually contain a significant development in technology”.
• New product lines (new to the firm): Although these products are not new to the marketplace, they are new to the particular company.
• Additions to existing lines: Products that are line extensions, variants of the already existing products.
• Cost reduction: These products are mainly new to the firm, since they are produced through improved manufacturing processes or use different materials than before.
• Repositioning: These products are the discovery of a new application for existing products.
In the table below, two old products and the new product of Shell Gas Hungary Inc. are listed.
Old product 1 Old product 2
New product LPG
Propane-butane mixture Propane Propane
Packaging Cylinder (11.5kg or 23kg) Transferred to reservoirs Cylinder (11.5kg or 23kg) Figure 3: New product components
It is obvious that Shell Gas Hungary Inc. is not trying to introduce a product which is new to the world, but a product which is a combination of the already produced products (additions to existing lines). With this idea Shell Gas Hungary Inc. has been trying to apply a phenomenon for new product introduction, which is called product platform.
Definition: “a product platform is a set of subsystems and interfaces intentionally planned and developed to form a common structure from which a stream of derivative products can be efficiently developed and produced” (Muffatto, Moreno; 1999)
The main idea behind the establishment of product platform is that products within a firm share assets, such as components, processes, knowledge, and people and relationships. (Robertson, Ulrich; 1998)
• Parts and assembly processes developed for one model do not have to be developed and tested for the others
• Reduction in manufacturing costs
• Reduction in production investments (Machine, equipment, tooling, engineering time)
• Simplify system complexity (cut number of processes)
Therefore if Shell Gas Hungary Inc. can use the product platform phenomena while introducing the new product in operation, it will be exceedingly beneficial for the company.
1.3 Targets that the new product should meet
The main performance targets, which the prospective customers of Shell Gas Hungary Inc. have, toward the new product are listed below:
• Easy to carry
• Relatively cheap (not a large investment) • Propane as a core product
After identifying the customers’ needs and expectations, Shell Gas Hungary Inc. will try to fulfill them with a suitable product offering. However, during the development of new product, companies will also attempt to satisfy the following objectives, which are set by the management of the firm (Fitzgerald, Herrmann, Sandborn, Schmidt; 2005):
• To satisfy customer needs/create value-maximize product performance
• To minimize development costs and unit cost (minimizing technology investment) • To minimize development time and time to market
When a company develops a new product, the aim is to satisfy customer needs and company requirements at the same time. Since if the company manages to satisfy customer needs but it overruns the available (financial) resources, it might happen that by the time the firm could earn back some initial investments it goes bankrupt and another firm will benefit from the situation. On the other hand, if the firm satisfies the requirements set by the management with the exception of satisfying customer needs, it might not be attractive for the customers. Therefore the two objectives must be satisfied together.
1.4 Origin of the research project
Shell Gas Hungary Inc. sees itself pressured from the side of competition, where companies like Primagaz, and Totalgaz possess most of the market shares.
The market leader company is Primagaz, with around 62% of the market. The two other main distributors are Total Hungary (19%) and Shell Gas (12%). Respectively they operate seven, three and one filling plants. (Shell Gas Hungary’s internal information)
On the other hand, Shell Gas Hungary Inc. is aware of the fact that on the gas market a niche market exists where customers desire a somewhat different product. Accordingly, based on customer requirements, Shell Gas Hungary Inc. intends to introduce a new product in the near future (in 2009) with which the company could get a short relief of competition while satisfying customer demand, and perhaps enhance its market share on the Hungarian market.
1.5 Research Question
Based on the research objectives as stated in the section above, a research question was formulated.
What kind of consequences need to be taken into consideration at the operation level by Shell Gas Hungary Inc. if the company intends to introduce the new product in manufacturing?
2
Research design
This part of the thesis contains the theoretical part of the research, and it will describe what the relevant factors in a company are that might influence the manufacturing of a particular new product.
2.1 Research objective
This research project is formulated with the aim of deciding upon whether the parallel production of the new product and the old products using the recently available resources is feasible for the company. Furthermore, if capital investments are necessary to produce the new product, the costs of investments and changes should be examined as to whether they are justified by return on investment.
Based on the above mentioned the following research objective is created:
To provide recommendations for Shell Gas Hungary Inc. as to how to introduce the new product in operation and how it can most efficiently use its already available capacity while minimizing investments.
2.2 Research Model
In my research I will analyze the production planning process of Shell Gas Hungary Inc. (cylinder gas business), especially from the aspect of available capacity considering new product introduction.
To derivate the factors which influence the planning of the production process, it is important to see the relations between the different functional strategies and the business strategy of the firm.
important environmental trends, e.g. technological changes, resource availability or customer needs, also influence the firm’s viability.
The operations strategy has the role of translating the firm’s overall goals into resource requirements and develops the capabilities that the firm needs to be competitive.
Operations resources Operations strategy should build operations
capabilities
Top down Operations strategy should interpret higher level strategy
Market requirements Operations strategy should satisfy the organisation’s markets
Bottom up Operations strategy should learn from day to day experience
Operations strategy
Figure 4: How operations resources are affect by operations strategy (Slack and Lewis, 2008)
Operations strategy is mainly concerned with the reconciliation of market requirements and operations resources. On one hand it attempts to influence the way it satisfies market requirements by setting appropriate performance objectives, and on the another hand it tries to influence the capabilities of its operations resources through the decisions taken in how those resources are deployed. (Slack and Lewis, 2008)
The strategic decision of operation must be translated at the levels of operations resources, such as capacity, supply networks, process technology, and development and
organization in order to make the right product in the right quantity and at the right time
But before making any decision at levels of operations resources, market requirements have to be translated to performance objectives such as quality, speed, dependability, flexibility and cost, to make them useful for operations.
This is also the case at Shell Gas Hungary Inc., where customers formed the market requirements which emphasis new product introduction, although these requirements must be translated into performance objectives to see the capabilities of each operations resources as to how they can perform their tasks in the introduction of the new project. But it has to be emphasized that the most crucial role of the operation resources is to make capacity available for satisfying demand at a cost which is acceptable for attaining profitability. Therefore, Vörös (2008) argues that price, cost, product development and process development has to be in balance.
2.3 Conceptual Framework
To address the main research question, Shell Gas Hungary Inc. discovered a niche market within cylinder customers who desire propane filled cylinders as the product. Shell Gas Hungary Inc. has already started the product development process of this new product, but they wanted to have the opinion of an outsider as to how the operational launch of this new product is feasible.
Operations
Resources
Market
Requirements
Cost structure of capacity Availability of capital Forecast level of demand Changes in future demand Uncertainty of future demand Consequences of over/under supply Economies of scale/scope Flexibility of capacity provisions Overall level of capacityFigure 5: The main elements of new product introduction from the aspect of available capacity (Slack and Lewis, 2008)
2.3.1 The nature of the production process (production capacity)
According to Hayes and Wheelwright (1979) product development and process development have an impact on one another, thus it is important to know what the exact position of a company within the product process matrix is. Shell Gas Hungary Inc. is aware that propane butane filled cylinder products are produced in continuous flow, which suggests that the product is at its mature/decline state.
Hayes and Wheelwright (1979) also argue if a product is produced in high volume standardized form, its processes shift from flexibility to a standardized process. Even though products and processes mature, growth remains in the main focus of the management (Hayes and Wheelwright, 1981).
2.3.2 Recent and Future Production strategy of Shell Gas Hungary Inc.
So far Shell has attempted to use the strategy of producing in of scale (Krajewski, Ritzman, Malhotra, 2007) (the average unit cost of a product can be reduced by increasing its output rate) where they tried to reach production efficiency by:
• Spreading fixed costs over more units.
• Cutting costs of purchased materials: higher volumes can reduce the costs of purchased materials -> quantity discount.
• Finding process advantages: at a higher output rate, the process shifts toward a line process, with resources dedicated to individual products and also reducing the number of changeovers.
As Shell’s main product (propane butane filled cylinders) regarding Product Life Cycle (Reid and Sanders, 2005) entered into the decline stage, the company has had to review its recent strategy (Economies of scale) and adjust it in order to be able to benefit from it in the future. Due to the decline of the main product and to the introduction plan of the new one, Shell is attempting to introduce a new strategy which emphasis the production of product varieties with the same capacity.
Meredith and Shaffer (2005) argue that this concept implies that economies can also be obtained with flexibility by offering variety instead of volume. Meredith and Shaffer state that the real reason for the economies of scope derives from the same economies as those of scale -> spreading fixed costs among more products.
C(Y1, Y2) < C(Y1,0) + C(Y2,0)
(Helfat and Eisenhardt 2003)
C = total costs of production
Y1= output of product 1
Y2= output of product 2
Possible reasons:
• Product arise from a shared input
• Single item cannot fully utilize manufacturing plant or distribution channel…etc
• Economies of networking from joint production of networked products (same indirect personals)
• Reuse of inputs in more than one product • Sharing intangible assets between products
2.3.3 Focus of the Research
After having identified the new strategy direction that Shell intends to follow in its long term capacity plan, we define those performance objectives that Shell must focus on at its operation resources to achieve successful economies of scope strategy.
• Low cost: utilizing the already available resources, minimizing investments into new resources->low cost operation
• Consistent quality->error free process: using the already well known high quality technology
• Flexibility:
Resource (Technology) flexibility o Variety flexibility
Capacity flexibility o Volume flexibility
• Technology flexibility (at the product level it is defined as product mix constraint): technology flexibility is a crucial factor in a company which is producing more than one product on the same process or technology.
The more flexible a technology is, the more change over time can be reduced and as such it leads to capacity increase on the given process line or technology. Shell Gas Hungary Inc. needs such technology flexibility, since in the future its product portfolio will desire to produce more kinds of products on the same production line with the same capacity. (Kovács, 2001)
• Volume flexibility (volume constraint): Volume flexibility depends upon the available capacity. Available capacity limits the production volume of the whole production process. (Kovács, 2001) However, available capacity is not as straightforward and clear as it may seem. Available capacity could be defined in various ways, for example as theoretical/design capacity or demonstrated capacity, which is a fraction of the already mentioned theoretical/design capacity (Schonsleben, 2004 and Slack and Johnston, 1998).
Being aware of the available capacity of the current processes at Shell can be of great help to limit future available capacity problems in the future, when the company will produce various product variants on the same capacity.
2.4 Scope of the research:
• This thesis does not treat product development and introduction in the broad sense, since it is only dealing with the problem of how the new product and already available products can be manufactured together in operation and what the financial consequences are.
• In this thesis, only those products of Shell Gas Hungary Inc. are observable of which production relates to the manufacturing of the new product. Therefore auto gas and gas for the reservoirs are left out of the thesis.
• Through the financial analysis, the thesis only includes financial expenses that are necessary to the production of the new product. And while calculating the return of investment, the calculation is limited to the NPV calculation.
2.5 Sub-questions
Breaking down the conceptual framework into several pieces results in various sub-questions. Together, these questions should give an answer to the main research question, presented in paragraph 1.5.
1. How does the production process look like and how should it be changed concerning enhancement of the product portfolio?
Based on Figure 5 this sub-question tries to focus on the future customer demand and the ability of the company as to how it manages new demands.
2. Are there enough capacities, and are they flexible enough, for all products which desired to be produced in the process?
This sub-question focuses on the capacity level and its flexibility and also attempts to find out whether the company will be able to satisfy all customer needs at the same time with the already available capacity.
3. How much investment is necessary in order to produce the new product along with the old ones?
If the answers are obtained for these three sub questions the main research question can be answered more easily.
Nevertheless, it has to be mentioned that in Figure 5, which provides the background of this thesis, more variables are indicated, even though they are not analyzed further. However, forecasts of the new and old products are used through the analysis since they provide the basis of the whole thesis.
Uncertainty of future demand is also a crucial issue to deal with, since the company has
to decide how to handle such instances. Uncertainty can result in over and under supply and both can have serious consequences for the company. Therefore the author also tries to include this aspect in the analysis, even if it is not dealt with in a detailed way, since the main focus of the research is on different variables.
The Economies of scale/scope variable is not dealt with further in the thesis since
literature sources proved that the production of more products is only possible with economies of scope strategy.
The availability of capital is not a relevant issue at this stage of the new product project,
3
Research design and methods
3.1 The research area
The research area in this thesis is the new product development/production. The issue of new product development/production is increasingly important, since customers require larger product variety and competition is also increasing due to globalization. Therefore firms in order to remain competitive are forced to introduce new products time by time. This is the case at Shell Gas Hungary Inc. where the management desires to enhance the product portfolio of the company.
3.2 Research topic
To enable the company to produce the new product along with the old ones, the recent strategy of the company, that is the economies of scale, has to be overviewed and adjusted to an economic of scope strategy in order to produce more products at the same time. The basic criterion of the economies of scope strategy is that common production of different products is cheaper than their individual production. Therefore the topic of the research in this thesis is how possible the introduction of propane filled cylinders using the already available production technology is.
Furthermore, the objective of the research is to analyze the recent production process, its capacity, and its flexibility/constraints, in order to enable the author/reader to decide what the alternative production plans for the new products are and furthermore, to determine what their costs and return on investment possibilities are.
3.3 Research Question
The research topic and objective leads to the main research question addressed in the thesis:
What kind of consequences need to be taken into consideration at the operation level by Shell Gas Hungary Inc., if the company intends to introduce the new product in manufacturing?
3.4 Data collection
The following data collection methods were used in the research:
• Interviews:
The interviews took place at Shell Gas Hungary Inc and they covered the topic of production processes, and their recent and future capacities, and also their constraints. Questions were also asked about the limit of investment which is still acceptable for the company. The questions were discussed with the operation/plant manager and with the operation planner as well.
Recent limits of the production:
1. What are the main production equipments and what are their theoretical capacities regarding cylinder filling processes?
2. How often do break-downs occur on the main production equipments and how do they affect the production?
3. How often does the production process have to deal with Quality problems? Do they limit the capacity of the system?
Future limits of the production:
5. Could the main production equipments be used to produce propane filled cylinders?
6. What would be the drawbacks of propane filled cylinder production? 7. How would the capacity change if propane filled cylinders are filled on the
same process like the propane butane filled cylinders? 8. What cylinders will be used to containerize propane gas?
Limit of Investment:
9. What are the financial limits of Shell Gas Hungary Inc. regarding future investments in order to successfully produce the new product along with the old ones?
10. What is the minimum return of investment that the company would like to gain on the invested capital?
The answers to these questions are elaborated and included in chapters 4 and 5, where the author analyzes the recent and future production structure and their financial consequences.
• Company internal data:
The internal documents and data were collected at Shell Gas Hungary Inc., since the author had the chance to spend some time at the company. The internal data contained information about capacity facts, which included theoretical and actual output data.
• Observation:
Regarding demand, all of them mentioned that these days the production quantity is not as high as some years ago.
3.5 Data processing method
4
Analyses
4.1 Supply chain and production of LPG gas at Shell Gas Hungary Inc
Indicates (road, rail) transportation of the product Indicates pipeline transportation of the product Indicates the information flow in the supply chain
Figure 6: Supply chain and production process of Shell Gas Hungary Inc.
This closed loop supply chain solution is closely monitored by Shell Gas Hungary Inc., and as a result, is running smoothly.
4.2 Production process
Production of cylinders holding LPG is performed in a very simple way. The raw material (LPG), which is held in different large vessels is fed to the filling stations through pipeline connection. The feeding is done with the help of various compression pumps, which takes away the gas from the container and transfers it to the different filling stations. Apparently there are three filling stations in active status, one of which is high volume automatic while the other two are mainly manual machines. At the same time these filling machines must be supplied with various empty cylinders to fill the gas inside of them. The empty cylinders are transported to the filling stations by fork-lift-trucks. After the filling operation is finished, the cylinders filled with gas are collected on pallets and transferred to the warehouse by fork-lift-trucks.
4.3 Recent and future constraints of production stages
This part of the work will reveal the constraints of all resources while using the mentioned flexibility measures.
4.3.1 Storage of raw materials:
Volume constraint: the raw materials are stored in seven large containers (four
of the raw materials cannot be considered as bottleneck resources. However, with the new product introduction, propane gas will be depleted in a shorter period therefore it must also be ordered more frequently. Nevertheless, it can be assumed that after the introduction of the new product, the storage of the raw materials will not be a constraint on the production.
Mix constraint: propane butane mixture is made up of the mixture of propane and
butane gas and according to the regulations this mixture contains at least 40% and maximum 60 % of butane gas. These two raw materials are mixed by Shell Gas Hungary Inc. However, the components of the mixture are fixed; the composition of the mixture may vary over time due to temperature increase or decrease. Although the composition of mixture might change over the time, the storage of the raw materials does not result in loss of capacity.
If, in the future, production changes from propane butane mixture to propane or vice versa, changeovers will occur since the gas will be sucked out from different containers. However, these changeover times are insignificant, since it can be done within minutes. Thus the storage of raw materials does not pose a mix constraint on the process.
4.3.2 Pipeline connection and compression pump:
Volume constraint: as it was indicated, pipeline connections serve the purpose to
with the compression pump could become bottleneck resources when the output of the whole operation should exceed the x kg per minute.
Capacity is measured in kilograms per time period
- Theoretical capacity: x kg per shift/8 hours (x kg*60*8) - Demonstrated capacity: x kg per shift/8 hours
In this case no differentiation is taken between the theoretical capacity and demonstrated capacity, since if a compression pump is in operation it will perform according to its theoretical capacity. The only thing to mention is that compression pumps also have down time. However, during this time another compression pump will accomplish the work, while the maintenance work is completed on the other one. If a compression pump breaks down while working, another compression pump will replace the failed one with an immediate effect and as a result lost time is negligible. Recently the company applies six compression pumps and all of them are multi purpose ones; thus they can always be used alternately. Nevertheless, it is essential to mention that pipeline down time directly results in the unavailability of the subsequent operations, since no in process inventory is kept. However, no pipeline failure has been recorded since the system was built.
Another essential issue to mention is that if the subsequent operations are not able to handle the amount of raw material transferred by the compression pump, another pipeline conveys the unused gas back to the containers, since it has already been mentioned that no in process inventory is kept.
Regarding the future, the pipeline and the compression pumps are able to provide the same capacity with a different gas as well, therefore they will not restrict the output of the system.
Mix constraint: nowadays the gas composition is equal for all products in the
However, in the future situation it will assuredly change. If propane needs to be transferred to one of the work stations after the propane butane mixture, it cannot be easily done. Since if the flow of the propane butane mixture is disrupted at the beginning of the process, the material will remain in the pipeline and it will prevent the immediate production of propane products as butane also has remained in the system.
Two ways exist to get rid of the propane butane mixture, which is inside the pipeline:
1. Exhaust/release the propane butane gas into the air: this procedure would take just a couple of minutes but it would generate loss (250,000 HUF/changover) to the company.
2. Suck back the gas to the propane butane container: this procedure would
take approximately 40 minutes, during which none of the work centers will be able to operate.
After, either of the scenarios applied, the whole pipeline connection needs to be washed out in order to get rid of the butane vestiges and enable the company to produce clear propane products. This process would take approximately 1.5 hours, while the whole filling operation needs to be stopped.
3. The only way to get rid of this loss of time is to build a new pipeline
connection which will only transfer propane gas to the workstations. Thus
we have to enumerate this possibility as the third one to solve the pipeline problem.
4.3.3 Empty cylinders: Volume constraint:
not being enough empty cylinders available. Otherwise the department always assures itself that the safety stock of empty cylinders is enough for at least one day production in the peak period. This fact implies that the number of empty cylinders available cannot create volume constraint on the production.
For the future, it has to be taken into account that available cylinders at Shell Gas Hungary Inc. are only enough to provide a sufficient number of empty cylinders to the recently manufactured products.
On the other hand, not all kinds of cylinders are intended for holding propane inside. According to various regulations and standards, among the cylinders used by Shell Gas Hungary Inc. only the cylinders holding 23 kg gas, are able to store propane.
So however, while cylinders holding 23 kg of gas are suitable for holding propane gas, the number of them is not sufficient to fill both products (propane butane mixture, and propane) into the already available cylinders.
Thus the company must invest in new cylinders: either they are 11.5 kg, or 23 kg cylinders, otherwise the number of cylinders will limit the production and Shell Gas Hungary Inc. will not be able to produce propane filled cylinders.
Mix constraint: Empty cylinders would only limit the production if the same
cylinders are used for holding propane butane mixture and afterwards propane. Since between the two holding duties, the cylinder needs to be washed in order to prevent the possibility of having butane vestiges in the propane product. Thus this process would strongly restrict the production of the system, since washing time (preparing the cylinders for propane gas) would consume much extra time.
4.3.4 Chain conveyor:
Volume constraint: this part of the operation only serves the Automatic Work
hour. But according to last year’s data, on average, the conveyor was transporting x unit cylinders an hour, which gives x% demonstrated capacity. Conveyor’s downtime directly leads to the unavailability of the Automatic work station and the fork-lift transportation. Therefore chain conveyor’s downtime is already incorporated in the demonstrated capacity of the subsequent operations. Furthermore it has to be stated that the chain conveyor’s performance will remain the same, either the cylinders will hold propane or propane butane mixtures.
Mix constraint: The conveyor can transport any kind of the cylinders and it does
not have to be changed in order to transport a different cylinder. Thus chain conveyor does not and will pose a mix constraint on the production.
4.3.5 Work Centers:
As was already mentioned in the process description, recently there have been three work centers in active status at Shell Gas Hungary Inc., two of them are mainly manual and the remaining one is automatic. Therefore the volume constraint of these two types of work centers will be specified separately.
• Manual Work stations: these work stations are applied to fill those cylinders which have smaller demand on average and these are the cylinders holding 23 kg and 11 kg (forklift) of gas.
The theoretical capacity of these two work centers is x kg gas within a shift if only cylinders holding 23 kg gas are filled; however, the theoretical capacity is x kg if only cylinders holding 11 kg gas are filled. Since there is no such a day, when only one kind of cylinders is filled at these stations, I will consider the average of the two capacities, which is x kg of gas as the theoretical capacity. Taking into consideration last year’s data, these two work centers filled x kg gas on average in a shift, which is x% production of the theoretical capacity.
11.5 kg of gas have respectably the highest demand, thus these types of cylinders are filled in this work station.
The theoretical capacity of this work center is x kg of gas within a shift. Even so, according to last year data, only x kg gas was averagely filled into cylinders within a shift, which is x % of the theoretical capacity. According to the available data, it is clearly visible that there is no need to make the machine to work at 100% capacity, since no demand exists for that many products and it would also strongly harm the inventory costs and consequently would tie up capital.
Since no in process inventory is kept, Work Centers downtime directly results in unavailability of the subsequent operation. Thus the downtime of the Work stations will be incorporated in the demonstrated capacity of the subsequent operations. The output of the work centers, regardless what kind of gas is filled into the cylinders, will remain the same.
Mix constraint: since all of the covers on the top of the cylinders holding LPG
cylinders on the automatic station, the setup time of the work station equals 12 hours, but if 11.5 kg cylinders are chosen, setup time will not occur.
In the case of manual work stations the situation is totally different. When a cylinder is being filled the operator checks and stops the procedure if the cylinder has enough gas inside. Thus there is no difference taken and no change time occurs if different cylinder needs to be filled. Since the demand for the new product is relatively low comparing it to the other products, it should be also filled on the manual work stations, since low demand products are filled on this type of work centers. If these work centers are used to fill the new product, changeover time will not occur, since the stations’ toolings are suitable to fill each kind of cylinder.
4.3.6 Collecting empty and filled cylinders and fork-lift transportation:
The transportation of empty cylinders to the filling stations is done by fork-lift trucks. After finishing the filling operation of the different cylinders, the end products are collected on pallets and they are collectively transported to the warehouse.
Shell Gas Hungary Inc. differentiates between two filling operations (whether automatic work station, or manual work station is used) and accordingly they also keep this differentiation at the collecting and transportation operation.
Manual Work stations: the unloading and loading process of empty and full
cylinders to and from the pallets is done manually. However, the unloading and uploading process is not particularly difficult, since the fork-lift transports the cylinders right next to the work stations, so the necessary movements are just a couple of meters.
Automatic Work station (Karusel): the unloading and loading process of empty
process is automated. The empty cylinders on pallets are transported to the unloading point, where the unloading process is done with the help of a machine. This machine accomplishes the following tasks:
1. The movements of pallet, from the place where the fork-lift truck unloads the pallet, to the place where the empty cylinders are unloaded.
2. The movement of empty cylinders from the pallets to the chain conveyor.
3. The movement of empty pallets from the unloading to the loading point.
4. The movement of filled cylinders from the chain conveyor to the pallets.
5. The movement of full pallets from the loading point to the point where the fork-lift picks up the pallets and transport them to the warehouse.
After being an observer at Shell Gas Hungary Inc., it can be assumed that pallet capacity, and the speed of fork lift trucks could be bottleneck resources. Thus it is essential to mention that the capacity of one pallet is 60 units if 11 kg and 11.5 kg, and 40 units if 23 kg cylinders are transported to the work stations. Regarding the fork lifts, two of them are available per shift, which has proved to be sufficient, since no down time was due to fork lift unavailability.
Theoretical capacity of the fork lift:
Demonstrated capacity of the fork lift:
According to the average output/shift of the automatic and the manual work centers, the fork lift truck needs to transport approximately x pallets in a shift and consequently it makes a turn around within x minutes -> x%
Taking into consideration the above written, it can be stated that pallet size does not restrict the capacity of the operation. The fork lift down time could restrict the operation; however one of them is working in one shift and the second is only used when break down occurs and used in other duties which does not have a direct effect on production. The machine moving the cylinders to and from the chain conveyor could cause a volume restriction, however its down time is already incorporated in the chain conveyor’s and the automatic work center’s (un)availability. In the future the capacity of the transportation will remain the same if cylinders holding propane needs to be transported as well.
Mix constraint: during collection and transportation the same equipments and
machines are used in an identical way regardless of what type of cylinders are collected or transported, thus no changeover time occurs, accordingly we cannot talk about mix-constraint in this part of the operation.
4.3.7 Warehouse storage:
Volume constraint: Shell Gas Hungary’s warehouse is located beside the filling
limitation is the number of available pallets and the reaching height of the fork lifts. So far, Shell Gas Hungary Inc. has been able to store x unit identical pallets in which all types of cylinders can be stored. However, they never place different types of cylinders within the same pallet. As it was indicated, in one pallet 60 units of cylinders holding 11 and 11.5 kg and 40 units of cylinders holding 23 kg gas can be placed.
If only cylinders holding 11 and 11.5 kg gas are stored: x*60=x
If only cylinders holding 23 kg gas are stored: x*40=x
According to the inventory manager, x pallets are reserved to store 11.5 kg cylinders; consequently the storing limit is x units. The remaining x pallets are divided into two parts x and x units which serve the purpose to store the 11 and 23 kg cylinders up to the limit of x and x units of cylinders respectively. But Shell Gas Hungary Inc. established an inventory policy where the safety stock for each kind of product is on average, higher than one day’s demand in the peak period; consequently it assures smooth supply. And if we consider the minimum requirements of the established inventory policy (using the actual data from 2007) the company had to store x 11.5 kg cylinders, which is approximately x pallets, x kg cylinders, which is approximately x pallets, and x pieces of 11 kg cylinders, which is approximately x pallets, since these numbers ensure that the safety stock is at least as large as one day demand in the peak period. It is obvious that pallets occupied by the safety stock do not reach the third of the available pallets.
Thus, it can be assumed that warehouse storage does not imply volume constraint on production. With the introduction of the new product, the capacity of the warehouse will remain unchanged and it will still be able to store x pallets.
Mix constraint: The available space in the warehouse does not constrain the mix
policy of the warehouse, where x pallets are available and x, x, and x units are dedicated to hold specific products, would constrain the mix of the internal production structure, since space for having new pallets to hold propane cylinders is just not available.
4.4 Conclusion
The section above covered the discussion about available and used capacity and it also provides information on the specific work centers at Shell Gas Hungary Inc.
Constraint Resource Volume Mix Capacity measure unit Theoretical capacity (100%) Actual output Demonstrated capacity/utilization Storage of raw
materials m3 x n/a n/a
Pipeline connection and compression pump
•
Kg/Shift x x 100% (It is always 100 %) Manual Work Centers•
Kg/Shift x x x% Automatic Work Center•
•
Kg/Shift x x x% Work Centers together•
•
Kg/Shift x x x% Empty cylinders•
•
pieces n/a n/a n/a
Chain conveyor
Kg/Shift x x x%
Collecting empty and filled cylinders and fork-lift transportation Kg/Shift x x x% Warehouse storage
•
Number of pallets x <x <x% Figure 7: Capacity and constraint analyzesof the resources pose mix constraint on the production, however the automatic work station could if different products were scheduled on it.
5
Alternative plans and their financial consequences
In this section the alternative plans of how the manufacturing of cylinders filled with propane gas is feasible and what their costs and what their returns of investment possibilities are. This part of the study will be based on the previous section where it turned out that new constraints arise if the new product will be introduced in manufacturing. Thus those constraints and the opportunities of avoiding them will be analyzed from a technical and financial point of view as well while using the forecast for the period 2009-2013.
5.1 Empty cylinders
During my consultations with the production manager of Shell Gas it became apparent that the company has not decided yet about the two packaging possibilities of the new product. As it was already mentioned only the 23 kg cylinders are suitable from the already available cylinders to be filled with propane gas. If the company chooses to satisfy demand with the already available cylinders, they have to be aware of, and also have to be able to answer, the following questions:
- Can we satisfy demand with the available number of cylinders? - Which gas should be filled in the specific cylinders?
- Do we have enough staff capacity to wash out the cylinders and enable them to be suitable for propane production?
- How do we differentiate between propane or propane butane filled cylinders?
If it is decided to use and buy new cylinders for the new product introduction the company must choose between 23 and 11.5 kg cylinders.
• The demand indicates that in the peak period, approximately x cylinders are needed in a day if the demand is satisfied with 11.5 kg cylinders. According to the opinion of the management on average a 2 week peak period needs to be covered with available cylinders to assure the safe and smooth supply of the product.
The average cost of an 11.5 kg aluminium cylinder is 16,000 HUF, which is multiplied by the 2 week peak demand (x*10=x units) therefore the necessary investment in cylinders is x HUF. If it is decided to introduce the new product in 11.5 kg cylinders another x HUF cost will occur, which is the authorization fee that gives the permission to commercialize propane gas in new 11.5 kg cylinders. Accordingly, in this case the necessary investment is x HUF. The residual value of the cylinders after a 10 year usage period is x HUF per unit, which equals x HUF if all the future cylinders are considered.
5.2 Pipeline connection
The initial problem with the pipeline is how to get rid of the propane butane mixture to enable propane transfer.
• Exhaust/release the remaining propane butane into the air: each time in doing so, this process would generate 250,000 HUF losses to the company. Of course, the scheduling and the inventory policy could help to perform this process as rarely as possible, but on the other hand the institution responsible for the safety environment would not encourage the company to further reckon with this possibility, since all the LPG gases are highly explosive and this way the company would highly jeopardize its surroundings. Consequently this possibility is not dealt with further.
• Suck back the gas to the propane butane container: obviously this process would not generate loss, but it takes 40 minutes to do so, while none of the machines are able to work. This duration does not seem to be a lot, however, another 40 minutes have to be added, since propane has to be sucked back as well to enable the operation to produce propane butane mixture.
After the process of sucking back the propane butane mixture, the pipeline has to be washed to enable the company to produce clear propane products without any propane butane vestiges. When the propane is sucked back, washing is unnecessary, since propane butane products will be manufactured anyhow. Thus taking everything into consideration, the two sucking and the washing processes/the setup for propane product will take 2 hours and 50 minutes (2 times 40 minutes for sucking and 90 minutes for washing). This is a long period of time without effective production, and it is also taking a large slice of the theoretical capacity.
changeover time would be insignificant, and scheduling would be also a much easier duty. In this case the investment costs would equal x HUF. The residual value of the pipeline connection after 10 years usage period is x HUF.
Taking everything into consideration, the sucking back and washing scenario proved to be the cheapest one; however the new pipeline opportunity provides a smoother but more expensive solution.
5.3 Work centers
The situation of the work centers greatly depends upon the fact as to how the pipeline availability is solved and which of the cylinders are chosen for production.
• If the gas is sucked back and the pipeline is washed it takes 2 hours and 50 minutes, which consumes x% of the theoretical capacity (in a 3 shift day) of the
manual work centers. If the process needs to take place once a day, the effective
capacity (theoretical capacity-setup time) of the manual work center is x kg per day which is averagely x kg per shift (assuming chasing demand plan – Slack). Accordingly the company would not have enough capacity to satisfy demand in the peak period since demand equals x kg per shift. However, if the scheduling department decides to do the process only once every 2 days, the available/effective capacity (theoretical capacity-capacity consumed by the scheduling) increases to x kg per shift in the peak period, which is sufficient to fill x kg per shift. This way the efficiency (actual output/ effective capacity) of the machine would be x%. This ratio can be further improved if changeover occurs only once every three days. Effective scheduling and inventory policy can create sufficient capacity even on the well utilized work centers.
If the propane production is scheduled on the automatic work center, two possibilities can be applied and they depend upon the type of cylinder used for the propane production:
1. 23 kg cylinders: in order to produce propane on the automatic work
station, the setup time amounts to 12 hours and the set down (back to 11.5 kg cylinders) is again 12 hours, which accumulates to make 24 hours together. In this case a whole day production on the automatic work center should be missed to enable propane production. This possibility is not considered further, since its feasibility is only possible with costly inventory policy (having large stocks), effective scheduling, and probably with the introduction of new shifts, which are also great expenses.
2. 11.5 kg cylinders: if propane production is done in these kinds of
which has to be paid at a rate of 1.5 times higher than regular hours. If we assume that the work center is able to work at 100% theoretical capacity, the needed extra working minutes this way x minutes in March, and x minutes in November. This amounts to x hours and x minutes, which is approximately x hours. Since on the automatic work center x people always work and the regular monthly cost of a worker is x HUF for 8 hours work/day, the necessary cost is the following:
x/160=x HUF is the cost of a regular working hour.
x*1.5=x HUF is the cost of a working hour in overtime.
3*x*x*20*2=x is the cost of overtime workers within two months (20 days worked in a month).
5.4 Warehouse storage
If the recent policy regarding the reserved number of pallets to each product type were changed and a certain number of pallets out of the x units serve the purpose to hold propane cylinders while still having enough to correspond to the safety stock regulation, the mix constraint can be solved. This solution certainly seems to be logical if we take into account the fact that forecasted demand has decreased, thus safety stock should decrease as well.
5.6 Financial evaluation of alternative plans
When alternative plans are concerned, possible demand increase or decrease regarding propane and propane butane cylinders are not considered, since if information about demand increase/decrease is conveyed, different calculations would be necessary in the section above, and also the available capacity would change accordingly; either there is an increase or decrease in the demand. In the financial evaluation of the alternative production plans the Net Present Value (NPV) calculation will be used as a tool where the future cash flows at a discounted value are added to the negative initial investments. Consequently the calculation will illustrate whether a plan is beneficial for the company or not. (Pálinkó, 2006) During the financial evaluation of the alternative production/investment plans, 10 years will be the recommended lifetime of the capital investments, while the interest rate on the capital will be 7% (the interest rate shows what the company could earn if it invests into a bank deposit). Also, the future cash flows of the company equal to x HUF after every sold 11.5 kg of gas. In this case we assume that all the forecasted amount of gas will be sold and therefore the future inflow of cash will add up to x HUF (x HUF*x units) per year. The rest of the costs, which will be used are already given/calculated in the section above.
¾ 11.5 kg cylinders: NPV=-x+x*(P/A, 7%, 10) +x*(P/F, 7%, 10) = -x+x*7.024+x*0.508=x HUF ¾ 23 kg cylinders: NPV=-x+x*(P/A, 7%, 10) +x*(P/F, 7%, 10) = -x+x*7.024+x*0.508=x HUF
• If in the future Shell Gas Hungary Inc. chose to fill the propane cylinders on the automatic work center with the recent pipeline solution, the costs would be the followings (salary increase is not considered):
¾ 11.5 kg cylinders:
NPV=-x-x*10+x*(P/A,7%,10)+x*(P/F,7%,10)= -x-x+x*7.024 +x*0.508 =-x HUF
¾ 23 kg cylinders:
Not considered since it would be way too costly, due to high inventory costs and extra shifts.
¾ 11.5 kg cylinders: NPV=-x-x+x*(P/A, 7%, 10) +x*(P/F, 7%, 10) + x*(P/F, 7%, 10) = =-x-x+x*7.024+x*0.508+ x*0.508 =x HUF ¾ 23 kg cylinders NPV=-x-x+x*(P/A, 7%, 10) +x*(P/F, 7%, 10) + x*(P/F, 7%, 10) = =-x-x+x*7.024+x*0.508+ x*0.508= x HUF 5.7 Conclusion
The section above provides information how the production of propane filled vessels is feasible and what kind of cash inflows and outflows would associate with the alternative solutions. The analysis is summarized in the table below and it is well indicated how profitable the certain production plans are.
NPV (Forecasted demand) Risk if demand is higher than forecasted Risk if demand is lower than forecasted
Manual/11,5kg/suck&wash x Low Low
Manual/23kg/suck&wash x High Low
Automatic/11,5kg/suck&wash -x - -
Automatic/23kg/suck&wash Out of scope - -
New pipeline/11,5kg x Low High
New pipeline/23kg x High High
Figure 8: Financial and risk analyzes of alternative plans
However, if demand is higher than forecasted, the already well utilized manual work centers with the recent pipeline solution will not be able to handle the increased demand (it certainly depends upon the amount of increase). This might lead to unsatisfied demand and lost of sales, which result in lost of revenues. Even if the new pipeline solution is introduced, the company cannot be sure that the manual work centers can handle an increased demand. And due to the usage of the 23 kg cylinders, propane cannot be filled on the automatic work center, since the long setup of scales would result in additional costs. Therefore, if demand is perchance to increase, the use of 23 kg cylinders is risky since even if a new pipeline is built, they cannot be filled on the automatic work center, thus demand cannot be satisfied, which result, in loss of revenue.
If the demand is perchance to increase, the plan where the lowest risk is implied is the plan where 11.5 kg cylinders are used. Since if demand in the future is higher than the forecasted, these cylinders, with the help of a new pipeline, can be filled on the automatic work center without having any extra setup time, extra inventory or labor costs.
If the demand is perchance to be lower than the forecasted, the plan which contains the lowest risk and the highest return on investment is the production of 23 kg propane filled cylinders on the manual work centers with the recent pipeline solution.
6
Conclusion
In the case of Shell Gas Hungary Inc. it became clear that the operation strategy of the firm has to be changed from economies of scale to economies of scope strategy if the company intends to produce more products with the same capacity. Furthermore, if the forecast of the company is proven to be good, the best solution for the company is to fill propane gas into 23 kg vessels on the manual work stations with the same equipments, since this production alternative leads to the highest return on investment (x million HUF). However, to have enough capacity in production, a good/efficient scheduling must take place. Nevertheless, in this production alternative the company does not posses a flexible production process. Large flexibility and more capacity can be gained if a new pipeline solution is built. However, its return on investment with the recent demand forecast is less (x and x million HUF) than what the previous alternative provided.
As a recommendation for the future, Shell Gas Hungary Inc. must assure itself that the forecast provided by the sales department is nearly 100 % accurate, since if in the future it becomes faulty, the result of this project can be misleading. As a result over or under capacity could have serious effects on the company’s financial performance and certainly on customer satisfaction as well.
As can be easily seen, the research is based on the forecasted demands, although it is not known what methods and tools were used while the forecast for the new product was created, which can be a weakness of the whole work. However, this fact can also provide a field for further research, since Shell Gas Hungary Inc. must be convinced that the new product has a market.
References
• Pálinkó Éva-Szabó Márta, Vállalati Pénzügyek, Typotex Kiadó, 2006
• Fitzgerald, P. Daniel; Herrmann, W. Jeffrey; Sandborn, A. Peter; Schmidt, C. Linda; Environmental Objectives for New Product Development Decision-Making, University of Maryiland 2005
• Meredith, R. Jack; Shaffer, M. Scott; Operations management for MBAs; Second edition; John Wiley & Sons Incorp.; 2002
• Kovács, Zoltán; Termelés Menedzsement: Interaktív Bevezetés A Termelő Rendszerek Tervezésébe, Szervezésébe, Irányításába; Veszprémi Egyetemi Kiadó; 2001
• Robertson, David; Ulrich, Karl; Planning for Product Platforms, Sloan Management Review, 1998
• Muffatto, Moreno; Roveda, Marco; Developing product platforms: analysis of the development process; University of Padua, 1999
• Trott, Paul, Innovation Management and New product Development, Second Edition, Prentice Hall, 2004
• Schönsleben, P., 2004, Integral Logistics Management: Planning and Control of Comprehensive Supply Chains, Second Edition, Boca Raton: St. Lucie press. • Reid, R. Dan; Sanders, R. Nada; Operations Management; 2nd Edition; Wiley
Publication, 2005
• Slack, N., Chamnbers, S., Johnston, R., Operations Management, Second Edition, Prentice Hall, 1998
• Slack, Nigel; Lewis, Michael; Operations Strategy, Second Edition, Prentice Hall, 2008
• Krajewksi, J. Lee; Ritzam, P. Larry, Malhotra, K. Manoj; Operations Management; Eights Edition; Prentice Hall; 2007
• Vörös, József: Termelés management, Pécsi Tudományegyetem Közgazdaságtudományi Kar, 2008
• Hayes, H., Robert; Wheelwright, C., Steven; Linking manufacturing process and product life cycle, Harvard Business Publishing, 1979
• Hayes, H., Robert; Wheelwright, C., Steven; The dynamics of product process lifecycle, Harvard Business Publishing, 1981
• http://www.shell.com/
• http://www.shellgas.hu/
• http://www.shellgaslpg.com/
Appendix 1
(Data from the year 2007)
Months Forecast (tons) Sale (tons) Output (tons) Actual output (kg) in 11.5 kg cylinders/ day Per shift/ 11.5 kg Actual/ max. output on aut. WC Actual output (kg) in 23 kg cylinders/day Actual output (kg) in 11 kg cylinders/ day Actual output (kg) 11kg+23kg cylinders/ day Per shift/ manual work center Actual/ max. output on manual WC January xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx February Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx March Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx April Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx May Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx June Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx July Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx August Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx September Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx October Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx November Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx December Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx
Blue line indicates two Shifts Red line indicates three Shifts
Appendix 2
(Forecast for the period 2009-2013) Propane butane mixture
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Cumulative forecast in tons xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx xxxx Forecast for 11.5 kg/in tons Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx xxxx Forecast for 23 kg/in tons Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx xxxx Forecast for 11 kg/in tons Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx xxxx Propane gas
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Forecast in
tons Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx xxxx
Cylinders per
Appendix 3
(Efficiency of manual work centers if propane is produced on them)
Manual work centers
Propane and propane butane mixture Jan Feb March Oct Nov Dec
Sum Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx
Max output per shift Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx
Future work per Shift Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx
Utilization if no setup occurs Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx
Futurely worked minutes in a shift Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx
Futurely worked minutes in a day Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx
Maximum capacity in a day Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx
Setup time (170 minutes) Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx
Max avail. time-setup time (1 setup/day) Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx
Needed output (kg) Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx
Effective capacity (1 setup/day) Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx
Max output/shift (1setup/day) Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx
Efficiency should be (1setup/day) Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx
Max avail. time-setup time (1 setup/2days) Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx
Effective capacity (1 setup/2days) Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx
Max output/shift (1 setup/2 days) Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx
Efficiency should be (1 setup/2days) Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx
Effective capacity if new pipeline/min Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx
Effective capacity if new pipeline/kg Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx
