Sys Eng Final

8/16/2019 Sys Eng Final

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I. Industry Analysis

A. Industry Description & Analysis

The iron and steel industry is a critical component of Philippine inclusive

economic growth and sustainable development. The industry plays a pivotal role in

long term economic development because it provides key material inputs for the

construction of roads, buildings, houses and factories as well as the manufacturing of

high growth exportable products such as automobiles, ships and electronics. This

well-established fact has led to the inclusion of the steel industry as among the 13

priority sectors identified under the 2011 Investment Priorities Plan (IPP) of the Board

of Investments from which strategic roadmaps are essential to the

development of the comprehensive national industrial policy as mandated in the

PhilippineDevelopment Plan 2011-2016. This new industrial policy seeks to spell out

opportunities,coordinate and promote the growth of forward and backward linkages in

priority areas and high potential growth sectors, and prepare other industries to attract

investments and generate jobs.

The current problems facing the iron and steel industry have gradually evolved

from the last decade when Vicente (2005) noted that the primary obstacles of

overcapacity, high cost of raw materials and energy, availability of raw materials,

macroeconomic instability and market uncertainty are the very same ones cited in the

1970s and 1980s studies of the Metals Industry Research and Development Center

(Department of Science and Technology). Since then, the steel industry hasundergone extensive consolidation after the shutdown of the Global Steelworks

(formerly National Steel Corporation) in following the still unresolved legal dispute

over real estate back taxes of NSC which caused supply disruptions sector-wide.

Global Steel was the dominant producer of cold rolled steel and the country’s sole

producer of hot rolled coils and plates.

Treasure Steel Corporation assumed the operation of Global Steel’s billet shop

and became the dominant manufacturer of billets for resale to end-users primarily the

rebar manufacturers in 2012.. In addition, the real estate surplus from the Asian

Financial Crisisand the recurring fiscal crisis limited private and public construction.

Consequently, sector output and employment fell by about 10 percent1 as local

production of hot-rolled coil/sheet, cold-rolled coil/sheet, tinplates, and wire rods were

completely displaced by cheap imports particularly from China.

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The business conditions for steel firms since 2005 have considerably changed.

The public image concerning the country’s macroeconomic instability and market

uncertainty has significantly improved as evidenced by the recent upgrade in credit

ratings and rise in global competitiveness rankings. While surplus capacity does exist

counting the rated capacity of mothballed plants that can still be re-opened, the reality

is that a significant portion of the capacities under consideration maybe considered

obsolete and/or not operating (even inoperable). The cost of semi-finished steel like

hot rolled coils, hot rolled plates, cold rolled coils is no longer high with the gradual

phase out of MFN tariffs and the ready availability of cheap imports (although

imported scrap is still subject to 3% MFN tariffs.) The country remains a net-exporter

of scrap, indicating the relatively low price of domestic scrap for production inputs. In

fact, the low-input price scenario has produced the opposite but negative effect of

local steel plants forced to rely on steel imports.

Competitors

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Market Share

Market Size

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B. Porter’s Five Forces Model Analysis

1. Current Impacts of Five- Forces

• Bargaining Power of Buyers - HIGH

Due to the increase in competition in the steal sector, the options for

buyers are on the rise. They have low product differentiation. The switching

costs of the customer is only medium to low, due to standard pricing of steal.

Buyers that are buying in large scale posses strong negotiating power.

• Bargaining Power of Suppliers - HIGH

Scarcity of raw materials like steel shreds, iron ore,coke, and recycledsteel. Their are only few suppliers of raw materials locally. Most of the raw

materials are imported.

• Internal Rivalry - MEDIUM

The industry has only few players, including the small companies that are

emerging. There is an existing intense rivalry when it comes to product pricing.

Since their products are standard steel their is no way to have a product

differentiation with competitors.

• Threat of Substitutes - LOW

There is no existing primary substitute for steal. Secondary substitute can

be aluminium, plastic & wood, but still the sales of steal are not affected.

• Threat of New Entrants - LOW

Huge capital requirements to start a steel production company. New

entrants will not be able to offer anything new due to lack of product

differentiation. There is a low access to raw materials causing problems in their

production.

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2. External Forces Analysis

• Political

The Philippine government, in its efforts to establish a local iron and steel

industry issued RA 7103 to set goals and strategies to promote local steel

production. However, even though it is able to identify the critical sectors of the iron

and steel industry, it still falls short in terms of implementation. Of the goals

promoted by the Philippine Iron andSteelIndustry

Act, very few of the strategies have been realized:

a. Power, Infrastructure, and Auxiliary Facilities. The cost of power continues to

be high and the impact of energy reforms are yet to be seen in the power industry,

especially in the industrial areas of Manila. No cost advantage is enjoyed by

energy intensive steelmaking activities, exacerbated by poor power quality.

Infrastructure, primarily ports, is still poor with inadequate handling equipment that

cost losses.

b. Financing and Other Loans. Financing is not considered a major problem in the

industry, but needed investments in integrated steel mills and in the modernization

of steelmaking technologies are low despite current incentives granted to

interested investors.

c. Tax and Duty Exemption on Imported Machinery and Tax Credit on

Domestic Capital Equipment and Other Incentives. These incentives are available

subject to eligibility requirements and certification by the Bureau of Investments.

Industries can also be declared by the Philippine Economic Zone Authority (PEZA)

to be special economic zones to enjoy a different menu of incentives.

d. Rational Tariff Incentives and Protection Scheme. Protection is down for

steel products, generally in the range of 0%-5%, which is relatively low compared

to our neighbors in Southeast Asia. Distortions are present in a number of product

codes, occurring between billets and other intermediate products. Some of the

current efforts to address tariff distortions include: a comprehensive tariff review by

the Tariff Commission and a resolution issued early this year in response to the

GSII’s application for tariff protection, the successive issuance of EO 375, and the

strong lobbying of downstream players against higher tariffs on raw materials.

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• Technological

Steel Asia, the country’s largest steel manufacturer, is investing P6 billion to put

up the biggest steel plant in the country.Steel Asia said the plant in Plaridel would

be among the most modern in the world.“It will be using the latest available

technology that allows production efficiency and environmental protection at thesame time,” the company said. The Plaridel plant will have a production capacity of

1.2 million metric tons, more than double the capacity of its recently inaugurated

P3 billion Davao plant which is at 500,000 metric tons.The Davao plant generated

around 2,000 direct and indirect jobs while the Plaridel plant is expected to create

nearly 3,000 direct and indirect jobs, Steel Asia said. Roberto Cola, Steel Asia vice

president, said the Plaridel plant would feature an array of environmental measures

that will allow the company to fully comply with existing laws.

Despite various groups who are against the project, Steel Asia said majority of

the residents of Plaridel are now supporting the rolling mill project in the area. Steel

Asia said an independent survey conducted by Greenboroughs Tech Inc. showed

82 percent of the sampling from the direct impact area support the project. The

company said it has been conducting continuing efforts to explain the technical and

environmental aspects of the plant, and its benefits to the community and its

environment. In an official public consultation conducted last month, Steel Asia said

the project has obtained the support from more than 5,000 federation of tricycle

associations of Plaridel. The project was also supported by the youth many of

whom have already taken advantage of the free skills upgrade training program

Steel Asia has been conducting for the community, the steel manufacturer said.

“Being open and transparent with the community was key to the support we are

getting for our project. We even brought some members of the Plaridel community

to our newly opened Davao plant for them to see and appreciate that we are real

partners in progress and we care for the environment as we go about our

business,” Cola said. Steel Asia has existing plants in Cagayan de Oro, Davao,

Cebu, Batangas, and two in Bulacan.

• Economic

Steel has enabled our modern way of life. It has helped lift societies out of

poverty, spurring economic growth, and continues to do so around the world today.

Iron, steel’s precursor, fueled the industrial revolution starting in 1750, enabling

manufacturing equipment in factories and rail transport. Modern steelmaking was

developed 150 years ago with the invention of the Bessemer process allowing for

the affordable mass-production of steel (an iron alloy). This set off a second

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industrial revolution, and sustained economic growth.

• Legal & Institutional

The Department of Trade and Industry (DTI) has issued notices of violation to

two retailers for selling sub-standard construction materials. In a statement, the DTI

said the notices were issued to Xtreme Unite Steel Inc. and WDL Enterprises whichwere both found to be selling uncertified and substandard construction materials

such as steel bars, angle bars and ceramic tiles during the recent market

monitoring conducted in Caloocan City. The DTI confiscated 1,650 pieces of

underweight steel bars and 48 pieces of underweight angle bars from Xtreme Unite

Steel, while 150 pieces of underweight steel bars, 69 pieces of underweight angle

bars, 10 pieces of uncertified angle bars, 8,250 uncertified ceramic tiles in 750

boxes and four rolls of uncertified galvanized iron wires were taken from WDL

Enterprises. The underweight steel bars and angle bars from Xtreme Unite Steel

showed the Continental and Dragon Asia brands, respectively.

On the other hand, underweight steel bars, underweight angle bars, and

uncertified ceramic tiles from WDL Enterprises displayed the brands Cathay

Pacific, Mackay, Somico, Arizona and THR. Continental, Dragon Asia, Cathay

Pacific, Mackay, and Somico have been issued the Philippine Standards (PS)

license by the DTI’s Bureau of Product Standards.

• Social

The most important issue in Steel Companies around the world is safety andwork place. Steel manufacturing is an industry where safe working procedures are

important, as workers face many risks due to the nature of the job. The work

environment is often hot and noisy, and work tasks regularly heavy and demanding

on the body, and there is an always present risk for crushing injuries and burns.

Figures from Sweden show that metalworkers were subjected to the largest

number of accidents annually (2006–2010) compared to other occupations (AFA

Insurance, 2012). The risk for new cases of long-term sick leave (>90 days) for

metalworkers was more than double that of the average worker (AFA Insurance,

2012). Metalworkers also had the largest number of cases of recognized work-related diseases among Swedish occupational groups during 2008 and 2009, with

0.7 cases per 1000 employed (AFA Insurance, 2012). Due to the types of risky

workplaces that steel manufacturing plants constitute, the companies need to

assure safe working conditions through systematic and regular safety audits and

risk analyses (AFS, 2001, SFS, 1977 and The Council of the European

Communities, 1989). Safety procedures and regulations need to be followed by the

management as well as the workers.

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• Ecological

Power Steel promotes focusing water more efficiently because of increasing watershortages. All retailers report supporting charitable causes forming partnerships withenvironmental nongovernment organizations. Participation in local communityenvironmental projects is effective for staff retention and creating good will in the

marketplace.

C. Opportunities and Threats

Opportunities

• Continuously improve services. Since there is a very low chance of product

differentiation they should focus on satisfying their customers when it comesto their services to develop loyalty.

• Strive to attain future opportunity for market expansion • Explore steel recycling to lessen the importance of raw materials.

Threats

• Customers can always choose to conduct business with other competitors.

• Competitive pricing • Job Hazards and safety risk are present

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II. Business Analysis

A. Business Description and Overview

1. Corporate Vision & Mission

Vision

As it was from the very beginning, the vision of Power Steel is to provide

quality steel products at a competitive price to meet the construction needs of

our customers. From households to large corporations, we aim to be the top of

mind steel company.

Mission

Power Steel is one of the most trusted distributors of metal products like

deform bars, angle bars, cr & hr plates, coils & beams in the Philippines. It is the

choice of contractors, architects, industrial users and purchasers mainly

because of our quality of service and the competitive pricing that we offer.

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1.2 Organizational Structure

The table above shows the basic organizational chart for each warehouse,

where most of the main operations of the company takes place.

1.2.1 Subsystems/ Departments

Strategy:

• Quality steel products at an affordable price compared to competitors.

• Has wide and complete steel products.

• They are creating warehouses in major roads like C1-C5 to be able tobe more accessible, therefore reaching markets that they haven't

served.

• They are planning to be able to import steel in the future.

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1.3 Leadership styles, employee skills and employee development

Style

Power Steel is committed to the highest standard and our guiding

principles that help us achieve it. With the best practices of our organization and

the best efforts of all our employees, we continually strive to be the no. 1 steel

supplier in the Philippines. The style of leadership behind our success is about

having a democratic leadership. This makes the firm improve through the years

in terms of innovation, marketing strategies and inventory management

upgrades, all comes through having better ideas from within each responsible

members of the organization. This is the main reason why Power Steel remains

to be one of the top competitors through the years. They continue to reach outnot just only to their customers, but also with the people who work inside the

firm.

Staff

Power Steel team is treated with respect, courtesy and fairness. Tent to

rest on past accomplishments, constantly challenge themselves and their

colleagues to find innovative ways to create value, increase efficiency and

provide the highest level of service to our clients and partners.

Skill

In Power Steel, we definitely value customer satisfaction, and with this,

we have employees who carry our values and morals with competency and

discipline. Employees are dynamic and productive here in power steel they

provide exposure to various facets of the industry enhancing both professional

and personal skills. They also provide extensive training of employees specially

for those who are assigned in production. They also conduct team buildings that

help the employees learn to work together as a unit.

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http://www.powersteel.com.ph/http://www.powersteel.com.ph/


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Shared Value

Power Steel exists to provide one thing customer satisfaction and that is

why we offer personalized service. Unlike other companies that are focused on

shareholders, ours is a family operated business. Hence, we remain committed

to the values instilled to us by our forefathers and that is to provide total

customer satisfaction.

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1.5 Systems

According to our interview, the only existing inhouse system is quickbook

and the basics which is excel and POS. They are planning to add SAP to their

system in the future.

B. Value Chain Analysis

!

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To further explain the

operation done in the inbound

and outbound delivery we have

included the swim lane of

activities done to successfully

perform the activity. We also

included the input process

output of production.

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C. Financial Analysis

Gantt Chart

!

The gantt chart shows a graphical image of the percentage of sales per class of

each product. The products are also divided into classes which is class A, B & C.

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The Table above show the monthly sales of each product and the total percentage of

sales for each class. It shows that class A has the most sales. Their average monthly sales is

Php.105,164,488.85

.

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This is the cash flow of power steel from Jan.1-Feb.16 2015.It can be seen that Power Steel is really doing a good job ofkeeping the ratio of inflows higher to the outflow. There are

just some notable points where they have a very highamount of receivables and payables which are not a goodsign in terms of liquidity and sustainability for the company.

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From the following balancesheet, it can be clearly seen thatthe current ratio (current assests/current liabilities) 641,493,685.85/617,111,367.04 = 1.04% meaninga general rule of thumb is that itshould be at least 2:1. A lowercurrent ratio means that thecompany may not be able to payits bills on time, while a higherratio means that the company hasm o n e y i n c a s h o r s a f einvestments that could be put tobetter use in the business

Another notable figure isthe amount of accounts payableof 402 M which is almost 65% of

their total liabilities. This meansno harm but it does mean thatmost of Power Steels liabilitiescome from suppliers which aremostly the items they retail.

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D. Strengths and Weaknesses

Strengths

1. Produces economical and efficient steel and power.

2. Sports a product portfolio that caters to varied needs in the steel market.

3. Has force of innovation, adaptation of new technologies and the collective skills ofits strong, committed workforce

4. Has an enterprising spirit and the ability to discern future trends

5. Has operations in Steel, iron, electricity generation and distribution

Weaknesses

1. Shortage of coking coal and is largely dependent upon its import

2. Weak performance on the back of the higher raw material cost and the power &

fuel cost

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III.PROBLEM STATEMENT

A. Problem Identification

The problem statement will be computed using this formula:

2. of Problem= Total Waste Cost / Total Sales

C.of Problem = "13,758,338.56/"67,695,353.24

of Problem = 20.32%

According to the average sales(per month) and waste cost document of Power steel

the company experienced a 20.32% waste cost last 2014 and early 2015 that will

amount to 13,758,338.57.

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Review Of Documents

G33

G40

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G60

I-Bar & Z-Bar

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Angle Bar

MSCP

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C- Purlins

SB

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Flat Bar

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MSP

PRB

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GIP

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BIP

Based on our interview not all items that are accounted as waste cost are defective

items, some are items that cant be found or items that are not recorded in their system.

As of today, the system that they use to account their inventory is through excel only

which makes it hard for them to keep track of returns and randomly observed damaged

products.

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3.2 Objectives

The objectives for improvement:

• Identify the root cause of the waste.

• Reduce waste by 15%.

• To design a system that will avoid reoccurrence of problem.

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IV. CAUSAL ANALYSIS

4.1 Current System & Subsystems

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Based on the interview that we have conducted we were able to list down all the

occurring problems for each activity.

• INBOUND ACTIVITIES

! Delivery from Suppliers

There is only one checker per delivery & due to this he misses a lot

of defected units, that are only seen when the items are being prepared

for delivery to customers.

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! Returns

They receive a lot of returns from customers that are not only

minor defects, mostly unrepeatable defects that leads to waste & unsold

items.

! Backloading

Same problem with delivery from suppliers.

! Transfer

Transfer items, are items that came from other warehouse branch

of Power Steel, which adds cost to the company. This occurs when they

do not have enough stocks to meet customers demands. Which leads

us to our next problem, which is their current way of encoding theirstocks which is through excel, that makes it hard for the warehouse

secretary to keep track of defected stocks and the current stocks that

they have.

• OUTBOUND ACTIVITIES

! Delivery to customers

Since 2 checkers are assigned in this area, this is where they find

most of their defected items. When they find defected items it is totalled

and tell it to the warehouse secretary. It is the encoded in excel but

since everything is manual not every item is successfully encoded

properly in excel thus resulting to stocks & sold items are not balanced

which leads to waste costs.

! Pick-Up

Since customers are allowed to check their purchased items once

they sign the receipt, they only have 3 days to have it replaced thatminimises the companies returned items.

Currently, they do not have a copy of data showing where the defects

came from because when the defects are seen on the inbound delivery from

supplier it is automatically deducted to total units purchased. All the defected

items after that, is recorded together and taken away to check if it can be

repaired if not it is considered as junk or waste.

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Current Warehouse Process

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This is the current process of stocking the products inside the warehouse. The

researchers have observed that they don't have any protective material that

prevents the steel from touching the surface to prevent rusting. Also the products

are directly just pilled up using a single crane that may cause deforms and defectson the product. During the tour the researchers observed that there is no standard

work flow procedure and that the employees have minimal control over their

responsibilities, resulting to inefficient manpower assignment. Their employees are

also not wearing any protective gear that causes job hazard in the warehouse.

The current material handling that the company observe is, from the delivery

trucks they load the steal on a crane and pile the products above each other. Some

products are manually carried by their employees. When the products are pilled up

deformation could occur and damage the products. If proper machineries and

equipment would be implemented or used pilling up or stocking of products will be

much easier and they could prevent manual stocking of products because stocking

of products would be a lot easier if they will use machines that are up to date and

accommodate large quantity of items each time it unloads a delivery truck.

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ac y

The researchers have also observed a huge pile of junk around the warehouse.

This are some of the items that have defects and can no longer be sold. They just

put it on a side with the rest of the products, this pile of junk can easily cause a

hazard or a discrepancy on their inventory.

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Data Review

With the use of Pareto Analysis we have narrowed down the list of items

that produce a significant amount of waste cost.

A. G40

B. Angle Bar

C. G60

D. G33

E. GIP

F. MSP

G. C- Purlins

By the 80-20 rule the researchers decided to focus on 7 item category.

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The data shown above are the sample end of the month inventory of

Power Steel. Based on our interview this particular data shows, Expected Units

Sold includes the orders made at the start of the month minus the stocks they

have & all the transferred units they’ve had. While, Actual Units Sold includes

items that are directly ordered by the customers, transferred items that are sold

are not included here. The Defect Items are the encoded / reported number ofdefect items.

As the data show, there is a discrepancy with the number of expected

units sold, actual units sold. This items are the missing items that were not

accounted in their inventory. This only proves that their inventory system needs

improvement. There is also a large number of defect per item that shows that

their quality maintenance needs further improvement.

We have computed for the percentage of waste cost produced from the

defects and missing items. Using the formula:

%of Defected Items= Total Defects/Total Waste

%of Defected Items= 8,790/11,939

% of Defected Items= 74%

%of Missing Items= Total Missing/ Total Waste

%of Missing Items= 3,149/11,939

% of Missing Items= 26%

This computation clearly shows that the defected items contribute more

to Power Steel’s waste costs.

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Facility Defects Contribution

Materials handling – causing defects inside warehouse

In the power steel warehouse, defects occur from the picking up and placing

down of steel products as it was handled down by a centralized gantry crane located

in the warehouse ceiling alongside with 13 forklifts used to transport the products into

the 12 wheeler trucks. The point where defects occur are from the following reasons;

1) falling steel products from the gantry crane and forklift due to untightened cables

and ropes that causes deformation and corrosion 2) excessive weight loaded to the

forklifts causing the items below to deform. 3) in a rare case, storing the steel

products with cramped spaces inside the warehouse, causing deformities or corrosion

when some items moist through time.

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Systems Flow (inbound)

Manufacturer to Warehouse

*Highlited in red are the process that contributes defects

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General Process Outflow (Warehouse to

Customer)

*Highlited in red are the process that contributes defects

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Facility and Materials Handling Analysis

Stante for MSCP

Plates

DRB & ABSmallSizes

Plain Round Bar

Flat Bar

PRB/SB (Thick)

DRB 10x6 g33

DRB 16x6DRB 12x6

CBSTWF

RB/SBDRB 10x6 g40

SBPRB

CB

Pipes

MSP

Angle Bars

Pipes

Angle Bars

BackloadOFF LENGTHS

DRB g60

TRUCKMAINTENANCE

AB Small SizesPRBZBIB

PRB

DRB 12x6 g33

DRB G60

WF

DRB 10x6 g40DRB 12x6 g40

OFF LENGTHS

DRB g60

OFFICE

Gate

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Class Item Monthly AVE% ofSales %Cumulative % of Sales

A

DRB 42,743,143.98 40.64% 40.64%

87,203,168.26

BARS

15,484,825.2014.72% 55.37%

Beams

10,595,194.8910.07% 65.44%

Pipes

9,467,179.679.00% 74.45%

Plates

4,579,094.324.35% 78.80%

Tubes 4,333,730.194.12% 82.92%

B

CP

3,012,024.082.86% 85.78%

14,438,577.39

WWM

1,964,867.361.87% 87.65%

Wires

1,887,358.211.79% 89.45%

Sheets 1,879,394.13 1.79% 91.23%

hardware

1,791,453.521.70% 92.94%

Fab

1,787,238.401.70% 94.64%

PRB 1,092,806.581.04% 95.68%

SS 1,023,435.13 0.97% 96.65%

OS

984,044.180.94% 97.59%

ConP

685,233.380.65% 98.24%

CRS 501,700.070.48% 98.71%

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The positioning of steel products in the facility is based on the following criteria:

• Ease of access of the lead selling products (based on ABC analysis)

• Flow of movement (material handling equipment like forklifts and the overhead

gantry crane at top)

• Space utilization (utilizing about 83% of the total 1,540 sq.m) for the storage

and the remaining for the rooms like the office and the spare parts room for the

trucks

• Ease of communication and support (office and truck maintenance spare part

room located near the front gate)

For the ease of access of the lead selling products

• Products which sells more are positioned nearer to the gate than the others,

for the reason to lessen the travel times from the material handling equipment

like the crane and forklift and will surely lessen handling times when counted at

a long time and will incur less effort and costs.

C

cts 483,057.540.46% 99.17%

3,522,743.20

WR

371,552.490.35% 99.53%

FT 273,401.280.26% 99.79%

ZP001

107,158.920.10% 99.89%

KS

55,554.560.05% 99.94%

FTB

50,868.580.05% 99.99%

AP

6,110.580.01% 100.00%

AFB

3,962.250.00% 100.00%

HB

99.380.00% 100.00%

105,164,488.85

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For flow of movement

• Allotted with 2 lanes for easy access of forklifts to the product that is needed to

be extracted.

Space Utilization

• The space utilized is 83% (that is 95% of the time) meaning the stocks of steel

products inside never go on a critical low level due to proper inventory

management

Ease of Communication and Support

• Orders and deliveries need validation from the office (checking and receiving

of invoices) and also truck spare parts storage like spare tires and tools like

tire wrench, screws and car jack.

Inventory Improvement System

The current inventory system that the Power Steel have is a manual input

system that uses the excel software. Common errors and disadvantages in the

current inventory management process will be the following; 1) Error in manual data

input 2) Inability to track historical trends and ability to make informed forecasts for

future needs. 3) Needs more time, effort and incur more costs like utility expense etc.

4) has the risk of having fraud or falsified data with the limit of data encryption to

selected users only

These are the actual effects of manual excel inventory management

• Interchanged the codes of certain steel products (eg. DRB to PRB) which

creates inventory figure discrepancy like sales and items currently on hand vs

items currently sold

• Trends in steel products sales can be seen by only through manual scanning,

therefore can incur unmeasurable amounts of opportunity loss when eg. There

is a need of increasing production capacity in the months of October to March,

but did not execute due to lack of proper procedures and data analysis.

• Consumes more time, effort and cost. Utility expenses incurred through long

usage of computers in workplace just for manual inputs and checking of data

integrity. Need also a lot of man power to process certain data and information

that can be executed through a better way like having an automated system

• The excel file used can be accessed by almost anyone. Having excel files with

critical data inside it will surely have risks of having frauds and falsified data.

Data integrity will be questionable through this manual process.

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4.2 Identify the root causes of the problem

By using all the data, interview knowledge & observations the

researchers have came up with some of the of the problems. To be able to trace

down the root cause of the problem. Stream Diagnostic chart will be used.

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Conclusion

Symptoms

Large number of Items with defects.

Core Problem

Products are not properly stored.

Fundamental Core Problem

Items are not declared in the inventory.

Why Why Diagram

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V. Decision Analysis:

Cost Benefit Analysis

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Installation of SAP could help the company because this system could be an

easier way of keeping track of their inventory. If an item is missing or defected it can

easily be classified in the system. Also this system can automatically trace

discrepancies on their inventory to reduce items that are missing or not declared on

their inventory.

Since at the moment we have no means of finding out how this

implementation alternatives would work on their system. We decided to benchmark

on previous studies that has the same problems as ours. We found out that to be

able to effectively reduce waste costs and defects it is very important to have a

properly oriented employees. Employees should be well trained in handling stocks

and stocking them. We also based our estimation of waste reduction on the past

studies that we have acquired though some of the estimation are altered to fit our

study and the company needs.

Another alternative that is greatly needed and well known to prevent defects

are the addition of machines and equipments which are used to stock the products

properly. With the use of proper quality & quantity of the said equipment we can

avoid deformations and rusting on the products. With the help of the crane and forklift

the employees chances of having to manually unload and stock the items will

decrease therefore items will be handled properly and prevent unnecessary pressure

or coalition between items.

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Scoring Model:

( 1-5, 1 being the lowest and 5 the highest)

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Discussion of weight:

a.) project cost (0.4) = the cost of the project the lower the better

b.) probability of reducing waste (0.3) = the chance of achieving reduction of waste etc. the

higher the chance the better.

c.) probability of improved work system (0.3) = the chance of achieving an improvement of

work system in the company. the higher the better.

Alternatives:

Criteria weight score weighte score weighte score Weighte

( A) d (B) d (C) d score

score score

Project 0.4 3 1.2 5 2 3 1.2

Cost

probabili 0.3 3 0.9 1 0.3 4 1.2

ty of

reduced

Waste

probabili 0.3 3 0.8 2 0.6 4 1.2

ty of

improve

d work

system

Total: 3 2.9 3.6

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According to the Alternative scoring model and cost benefit analysis method the right

choice or alternative is, Alternative C that has a weighted score of 3.6. Meaning power steel

should consider the choice of having additional equipment and machines.

How-how

Risk Analysis

RISK Possible Loss Mitigation Method

Deformed and Rusted Steels Loss of Sales and Profits Improve Facility

Improper placing of Inventory Loss of stocks Proper Training of employees

No proper process ininventory management

Loss of stocks Planning

Items are not qualifying fromthe standards

Shortage of stocks Weekly supplier check

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Consequence of choice (install SAP):

a.) Current employees will have difficulties in using SAPb.) Maintenance cost of the SAP software

Consequence of choice (New work standard):

a.) additional labor costb.) Small probability that waste percentage will decreasec.) Confusion on new work procedures if not properly orientedd.) idling of additional workers

Consequence of choice ( additional machine and equipment):a.) Maintenance cost of the additional overhead crane and forkliftb.) Additional training to current employees

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VI.) Develop/ Design Improvement:

By using cost benefit analysis the researchers came to see the different cost of each

alternative and their corresponding effects and estimated benefit. According to the analysis

the researchers made choice of alternative C or the additional crane and forklift.

The cost of the said alternative is totaled to the amount of 1,265,000, and

composed of a over head crane ( PHP 300,000) that functions as to move extremely heavy or

bulky loads through the overhead space in a facility, instead of through aisles or on the floor,

an overhead crane (also called an industrial crane, crane, or overhead traveling crane is a

machine that lifts, lowers and moves a load horizontally. Overhead cranes have high lifting

capabilities for load movement. Fork lift ( PHP 825,000) They are used for loading and

unloading trucks and for transporting goods. Forklifts come in many different styles and sizes

to suit particular lifting operations. They range from small, pedestrian-operated machines to

heavy-duty, driver-operated trucks. Some are compact in order to fit through narrow aisles.

The researchers identified this machines as a vital part of the warehouse process of the

company since this machines is responsible of proper lifting and placing of the products.

Preventive mats (PHP 140,000) which will prevent the steel from touching the ground,

reducing the probabilityy of rusting. The estimated benefit or the chance that the choice can

offer to the company is 35% that amounted to PHP3,545,379reduction on waste cost.

Same results showed in the alternative scoring model where the researcher is tasked

to compute for the total weighted score, by multiplying the score of a alternative with the

criteria weight. The result of the said model is the same with the cost benefit analysis arriving

with additional equipment and machines as the choice with the score of 3.4.

Since the the said company has employees knowledgeable enough to operate

the machines selected, the proposed solution is a proper or additional operator in order to

fully utilize the said machines. Proper man power allocation and operator are need to fully

utilized the productivity of using this machines.

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VII.) System Implementation and Evaluation:

The researchers analyze and came up with the proper man power requirement

need to optimally operate the warehouse process of the company with the additional

equipments.

current:

As we can see from the current man power requirement the company only has one

crane operator and forklift in zone 1 to 4.

proposed:

The researchers man power requirement schedule for power steel with the

additional over head crane and forklift. this could be the key to achieve the estimated

51.8% reduction on waste products.

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Sample Computation:

current waste cost = 20.32%

waste percentage from deformed products = 10,129,653

by properly applying chosen alternative with estimated benefit of 35% (PHP3,545,379)

waste cost from deformed products - estimated benefit of alternative

= 10,129,653-3,545,379

=6,584,275

*the waste cost from deformed products will reduce from 70% to 48%

Total Computation:

% of waste cost if the chosen alternative is properly implemented

Proposed:

Waste cost= 13,758,338.57-3,545,379

=Php10212959

Waste Cost Percentage= (10,212,959/67,695,353.24 ) *100

=15%

With this computation we are able to prove that with the chosen alternative we willbe able to reduce the current waste cost from 20.32% to 15%. By the computationprovided we can easily see that the objective is already achieved but, their inventorysystem can also be a big help in preventing the waste costs.

Waste Cost produced by Missing items minus Proposed Benefits of installing anew system will give us the waste cost that will remain after applying the alternative.

=3,628,685-362,869=3,265,817

*from 26% waste cost by missing items is reduced to 24% a total of 2% reduction

If this alternative will be implemented together with the additional machines andequipments the total waste cost would be Php9,850,091.36 resulting to a 0.45%reduction in waste cost percentage which will be 14.55%.

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Step-by-Step Implementation

Management

should

authorized a

new standard

plan that to

be followed

by employees

Provide right

amount of

budget for

hiring of

employees

and

additional

machines

Search for

qualified/fit

employees

for every job

description

that will be

assigned

Assign thequalified

employees to

the new

machines that

to be fill up

Observe theflow of work

for a year and

compare it if

the workflow

improved

If it issuccessful try

to provide

some cost

reduction to

lessen the

expenses of

hiring and

buying ofmachines

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Step by step implementation:

1. Purchase of the ordered equipment (overhead crane and forklift)

2. Proper placement/installation of overhead crane and forklift in designated zone

3. Proper orientation of employees on proper use and maintenance of the equipments,proper

material handling to avoid deformation

4. Analyze and came up with the proper man power requirement need to optimally operate

the warehouse process of the company with the additional equipments.

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VII.) Conclusion:

Based on the analysis of the available information and using different IE-EMG

tools researchers found out that Power steel a retailer of steel products experienced a

waste cost of 20.32% amounting to 13,758,338.57 last jan 2014 - march 2015. Caused

by the identified core problems about the huge amount of defects that they are currently

experiencing. Using the data & observation available to the researchers, they were able

to get the root cause of the problem, which is the improper stocking of their products.

The researchers also observed that a percentage of their waste cost comes from

improper inventory and listing of defected products.

With all the data and observed problems in mind, the researchers came up with 3

alternatives. The first alternative is installation of a new inventory system (SAP) to help

manage the their current inventory. The second alternative is to implement a new work

standard that could help the company to grow by training their employees to do their job

properly and to make sure that they know their responsibilities. The third and last

alternative is to add additional equipment that will particularly protect the products from

defects like rusting or deformations. The best alternative based on the results of thet l i th thi d lt ti hi h i t dd i t B l i thi lt ti