The effect of materials handling methods on unit costs in synthetic resin manufacturing

Abstract

The objective of the research is to examine the use of bulk materials handling methods, and the effects that the new methods have on the manufacturing cost of manufacturing synthetic resins used for surface coatings.

Section 1 explores the background to the research and quantifies and identifies the problems faced by companies during the current economic and trading conditions. It discusses the problems of the acceptance of change by both management and workforce and looks at the implications of the new Environmental Protection Act (1992) with the concomitant effect on plant operating procedures. Advance Manufacturing Technology (A.M.T.) provides ways to improve plant efficiency and the various techniques such as Manufacturing Resource Planning (MRPII), Total Quality Management (TQM), Just in Time (J.I.T.) and Computer Integrated Manufacture (C.I.M.) These are discussed briefly.

Section 2 commences the build up of the conceptual framework within which the research will be carried out. Proposals are made for the formulation of Corporate Strategy and the decision making process to undertake capital investment appraisal. Discussions on the basic principles of evaluation leads to the assessment of the methods such as ARR, IRR, NPV and payback available to the decision makers for project appraisal. Risk and uncertainty are introduced at this stage. Finally Sensitivity Analysis, Simulation and Decision Tree Analysis complete the techniques available to examine the effects of uncertainty.

Section 3 continues the conceptual build up by considering Portfolio Theory and the Capital Asset Pricing Model (CAPM). The relationship between CAPM and company beta is discussed as is the effect of diversification on the unsystematic risk and the effect of the relationship between beta and the systematic risk. Gearing is shown to have a significant effect. Cost of capital and the weighted average cost of capital (WACC) are also discussed and formula produced for their deviation.

Section 4 applies the theory into practical research with the type of project, capital cost, physical evaluation and financial appraisal resulting in IRR and NPV values being determined for each project. The cost of capital is calculated at approximately 11 V* and at this rate, two of the three projects are acceptable. Sensitivity analysis shows that the most sensitive factors are raw material costs, manufacturing costs and sales price.

The final Section 5 concludes that the appraisal methods used do allow for successful project appraisal and shows that the improved handling methods
proposed do produce a reduction in manufacturing costs.

Date of Award	Jan 1993
Original language	English
Awarding Institution	Gwent College of Higher Education