IE5017: Material Flow Systems
Project Title:
HP Ink Cartridges Manufacturing Plant Relocation
Done By
Chea Wei Qiang (A0191841A)
Cheong Fa Siang (A0114196H)
Koh Wen Ning (A0115675B)
Kam Teck Suan (A0087807R)
Nihil Sasidharan (A0088860R)
Wu Mingjie (A0134903L)
Final Report IE5017
Content page
1.
Introduction
2
1.1 Background
2
1.2 Problem Description
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2. Data Description
3
2.1 Assumptions
3
2.2 Production Workflow Layout
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2.3 Raw Materials
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2.4 Manpower
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2.5 Machine modules and Capacity; Process time, Cost and Market Demand
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3. Calculations and Analysis
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3.1 Design and Analysis of Work Centre Layout
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3.2 Inventory Modelling
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3.3 Economic Order Quantity (EOQ) Analysis
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3.4 Transportation
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4. Recommendations and Discussions
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4.1 Preliminary Analysis and Discussion on Earlier Calculations
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4.2 Improvements
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5. Conclusion
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Appendix I: References
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1. Introduction
1.1 Background
HP inc. is an American Information Technology company which focuses on producing laptops,
printers and ink cartridges. Most of HP inc. manufacturing plants are located in China, Malaysia
and Singapore, with HP Singapore being the headquarters for these production plants in Asia.
Figure 1: HP ink cartridges and printer
HP manufactures sets of Cyan, Magenta, Yellow and Black ink cartridges to be used in a printer
as shown above. Technically and briefly speaking, one of the ways how HP ink cartridges work is
that it uses the mechanism of a spring-bag system, where the inflation and deflation of bags to
work against the springs pushes ink or allows ink to be extracted from an ink supply. Hence, with
the mechanism discussed, the production flow of how ink cartridges are assembled in general will
be discussed in section 2.2.
1.2 Problem Description
Traditionally, developing nations are chosen as one of the sites for manufacturing due to their low
cost of labor, tax, strong logistics infrastructure and low energy cost¹. As such, the HP ink
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cartridges which we will discuss in this project are produced by a manufacturing plant located in
China, Zhuhai (which is outsourced to Flextronics²).
The issue with having our manufacturing plant in China is that, due to US President Donald
Trump’s advocacy on moving manufacturing back to the US so as to bring jobs back there, 25%
tariffs are implemented on a wide range of China imported goods, including ink cartridges³. Hence,
as HP engineers, we have the urgency to re-evaluate the feasibility of moving some of its
production to either Country A or Country B from China to mainly support US market. In this
feasibility study, we will assess various parameters such as the plant capacity and throughput, total
holding and ordering cost, transportation cost as well as the work centre layout.
2. Data Description
For the analysis of our project, the data used in our calculations are broken down into the following
main components - Assumptions; Production workflow; Raw Materials; Manpower; Machine
modules and Capacity; Process time; Cost and Market Demand.
2.1 Assumptions
In this project we are considering 2 countries, Country A and B, a developed country and a
developing country respectively, for the location of our new plant. A developed country offers
skilled and highly qualified and skilled labor, higher quality local suppliers, better logistic
infrastructure. These countries are also able to provide uninterrupted utility supplies. More often,
a developed country also has better IP protections. On the other hand, a developing country could
offer better tax incentive, cheaper labor and lower land value to set up factories. Thus, the choice
of where a manufacturing plant depends, how the company weighs on the pros and cons offered
by a developed nation and developing nation.
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2.2 Production Workflow Layout
Figure 2: Layout of production floor for ink cartridges
Figure 2 shows the layout of how a manufacturing plant in China looks like, based on the
manufacturing process. To provide a brief overview of how an ink cartridge is manufactured, with
the introduction of plastic polypropylene body and lids separately into the production line, the
plastic bodies go through modules to attach the labels, and components such as disk, ball, keeper
and bags. The lids, with their springs attached, meet the plastic bodies at the manual lid and body
merge module, where they subsequently go through a laser module to have them welded together.
Following that, a rubber seal (interconnect between printer and ink cartridge) is attached to the dry
ink cartridge, and it goes through an assembly leak test module to check for any leaks in the dry
body. Lastly, the dry bodies are filled with ink and they go through End-of-Line tests before
shipment.
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2.3 Raw Materials
Figure 3: Related raw material information
For the manufacturing of ink cartridges, we source the raw materials from Malaysia, Singapore,
China, Thailand and US, with varying lead times, holding cost and ordering cost as shown above.
2.4 Manpower
Figure 4: Monthly salary of manufacturing employees
Employees in country A, which are from a developed country, are relatively higher in technical
skills and knowledge than employees in developing country B. Thus, they command a relatively
higher monthly pay.
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2.5 Machine modules and Capacity; Process time, Cost and Market Demand
Figure 5: Country A modules related information
Figure 6: Country B modules related information
Country A and B have the same set of process modules required to manufacture ink cartridges.
With the assumption that Country A has relatively higher educated and skilled workers, the process
time per module is generally shorter compared to Country B. Also, as the production space for
Country B is bigger and cheaper, we are able to hold more process modules in there than Country
A - which would help increase the capacity of the Country’s B manufacturing.
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Figure 7: Demand forecast for ink cartridges
The next one year of demand is forecast, for all 4 colors of ink cartridges to be shipped from the
new plant is shown above. They sum up to 2850000 units.
3. Calculations and Analysis
3.1 Design and Analysis of Work Centre Layout
Sustainable manufacturers have the objective of producing high quality products at the lowest
possible price. Many factors affect the finished-goods prices. The first step to decrease the price is
to find the costs and losses in the factory. One of the main factors influencing costs is poor facility
design which in this case, specifically means a poor production layout in the factory.
It is important that the facilities are managed properly in order to attain the above mentioned
objective. Based on the operation workflow for ink cartridges production, 13 sections will be
considered. The size and the number of machines; and the adequate area required around them
should be determined. Sufficient space for aisles’ width is to be provided in the factory. The
required area for each section was calculated and presented in Figure 8.
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Figure 8: List of sections and required space
Graph Based Theory (GBT) is a powerful tool that enables facility planners to design the layout
or compare the efficiency between each layout. This algorithm is adjacency-based and the
distances between sections/departments are not considered. GBT technique uses the Relationship
Chart - REL Chart in figure 9 to find the most important adjacency between sections and to
determine the priority of selecting sections.
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Figure 9: REL Chart and Adjacency Value
Production layouts of Country A and B were shown in Figure 10, respectively. With the
assumption that the plant size in Country A is smaller than in Country B due to expensive land
cost, the production layout will be different. But the size of each section / module is the same in
both countries. Efficiency Rate (ER) method was selected to calculate the level of efficiency for
the different layouts generated. ER is the sum of relationship score for all departments in the layout
divided by the sum of the expected relationship for all departments. The formula to calculate the
ER is as follows:
ER =
∑
𝐷𝑒𝑝𝑎𝑟𝑡𝑚𝑒𝑛𝑡 𝐴𝑑𝑗𝑎𝑐𝑒𝑛𝑐𝑦 𝑆𝑐𝑜𝑟𝑒
∑
𝑇𝑜𝑡𝑎𝑙 𝑅𝑒𝑙𝑎𝑡𝑖𝑜𝑛𝑠ℎ𝑖𝑝 𝑆𝑐𝑜𝑟𝑒
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Figure 10: Production Layout of Country A (Left) and Country B (Right)
Based on the adjacency value in REL Chart, the Efficiency Rate of both layouts were calculated
and tabulated in Figure 11. Relationship score was based on the flow of materials and the
importance of adjacency between sections/departments. Layout in Country A is observed to have
a higher ER of 83.55% which indicates that the plant layout provides an efficient workflow and a
sustainable layout. Moreover, the walking distance from one section to another in Country A’s
layout is shorter compared to Country B’s layout. This can shorten the process time of ink cartridge
manufacturing.
No.
Plant in Country
Calculation
ER
1
A
193 / 231
83.55 %
2
B
142 / 231
61.47 %
Figure 11: Calculated ER for each layout
Obtaining a good layout at the time of installation instead of poor layout will save a lot of capital
investment and production lost. Poor layout requires subsequent rearranging which is timeconsuming and costly.
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3.2 Inventory Modelling
Other factors to consider when choosing the location of the plant are their capacities and
throughput. Once these parameters are known, we will be able to determine the amount of output
a plant can produce per given time.
Assuming that each of the processes/modules are started immediately upon completion of the
previous process/module (hence zero transition time), the calculations of the capacity and
throughput for Country A and B are tabulated in the tables below.
Figure 12: Country A Modules, process time, capacity and throughput
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Figure 13: Country B Modules, process time, capacity and throughput
From the calculations, it can be seen that the process bottleneck in both countries occurs at the
final stage which is the end of line testers. This is due to the fact that this process takes a
significantly longer time to complete compared to the other process. It can also be noted that
overall, Country B has a higher throughput than Country A.
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3.3 Economic Order Quantity (EOQ) Analysis
For our case study, we will be analyzing the EOQ model for both Country A and B. The following
are our assumptions
1.
Uniform demand over time – Annual demand will be 2 850 000 ink cartridges
2.
Constant unit cost of each material
3.
Constant ordering cost
4.
Replenishment lead time fixed
5.
No Shortage allowed (no stockout) – All demand must be supplied from stock
6.
Since both annual demand and replenishment time are known with certainty (Fixed
lead time and Annual Demand), safety stocks will not be included in the calculation.
Our objective is to minimize total cost which consists of both ordering cost and holding cost.
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Figure 14: Holding and ordering cost for Country A and B
Comparing Country A and B, with a fixed annual demand, Country B will be the better candidate
as it has lower cost. As Country B is a developing country, both material holding cost per unit per
year and fixed order cost is lower by approximately 33% and 30% respectively as compared to
Country A. In conclusion, the annual total production cost of Country B is 32% much lower than
Country A, resulting in the cost saving of $22 368.65 annually.
3.4 Transportation
Assumptions:
1. Developed country A is located in Europe (German);
2. Developing country B is located in South America (Brazil)
3. Existing production will be shared with new production plant. eg. China's production plant,
producing 8 million ink cartridges annually, will shift some production to the new plant.
For HP, we split the global market into 6 regions, Asia-Pacific, Europe, North America, South
America, Africa and Middle East with an estimated total annual demand of 15 750 000 units.
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Currently, there are 4 production plants (Singapore, China, Ireland, Canada) of the company to
supply these regions’ demand. Since we decided to build a new production plant, a transportation
cost analysis should be conducted to optimize supply allocation compared to existing
manufacturing capabilities with Country A and Country B respectively.
The estimated
transportation cost, region demand and factory capacity is shown in the figure below.
Figure 15:Transportation cost, region demand and factory capacity
To optimize the transportation cost for both case, Excel solver is used, by applying the following
constraints:
1. Total supply of each factory is equal or less than its capacity.
2. Demand of each market should be satisfying, total supply from each factory is equal to the
demand of the market.
3. Make solutions to non-negative integers.
In Country A case, the optimal allocation is shown in the following table with annual transportation
cost of $26 720 750
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Figure 17: Country B transportation cost
In Country B case, the optimal allocation is shown in the following table with annual transportation
cost of $18 729 750.
Figure 17: Country B transportation cost
Consider a 20-years period and assume there is no depreciation and interest rate, the total cost
difference would be: ($26,720,750-$18,729,750) × 20 = $159,820,000
This is a significant number that demonstrates Plant B is a better location to build a new factory
in terms of transportation cost.
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4. Recommendations and Discussions
4.1 Preliminary Analysis and Discussion on Earlier Calculations
Comparing the earlier calculations, the observation is that Country B is the better choice for
relocation as it has higher throughput, lower annual holding and ordering cost as well as lower
transportation cost. From the summary table below, it can be seen that the total annual cost for
relocating to Country A is $26 791 342.50 with a throughput of 0.2 while Country B has a total
annual cost of $18 777 974 with a throughput of 0.3.
Figure 18: Counter A and B Comparison
As a result, the total savings for relocating to Country B compared to Country A is $8,013,369/year
and its throughput is also higher by 0.1.
From a qualitative perspective, the disadvantages for relocating to country B includes having
longer lead time and quality of products may also be highly variable due to the difference in the
skill levels between the Countries. However these problems can be mitigated by having a higher
reordering points and a good quality management system with incoming and outgoing inspections
in place respectively. As such the recommendation is to relocate to Country B
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4.2 Improvements
In an earlier calculation, it was assumed that each of the processes/modules are started immediately
upon completion of the previous process/module (zero transition time). In reality, the team is aware
that this will not always be the case. As such an analysis of the work centre was carried out to
determine the ER of each plant. From this calculation it can be seen that Country A has a more
efficient layout with ER of 83.55% compared to Country B with ER of 61.47%.
Other limitations and mitigations of our discussions include, for EOQ calculations, although
country B has longer lead time, higher reordering points will help to mitigate. Secondly, as country
B is from a developing country, the quality of ink cartridges might vary more, and this can be
mitigated by having a good quality control with incoming and outgoing inspections. Lastly, in the
real world context, demand is often unpredictable. To solve this, having a close long-term
relationship with suppliers and sharing information (demand forecast/production schedule) with
them will come a long way. Using end customer orders to forecast quantity needed will help
manufacturers to make sound plans, benefiting both parties.
5. Conclusion
In conclusion, the motivation behind our project is because of the ongoing US tariff on Made-inChina products and potential additional tariffs in the future. With that in mind, we need to assess
the impact to the flow of our ink cartridges manufactured in China with urgency. We addressed
the issue by exploring the option to set up a new manufacturing line between a developed and
developing country to mainly support US market, with the following main points. Firstly, how the
design and analysis of work center layout can affect the manufacturability output of ink cartridges,
which results in the failure to optimize initial capital investment. Secondly, with the space
available in both countries, we calculated, in theory, the output using throughput and the capacity
of the machines. Thirdly, the EOQ analysis shows which of the two countries has a higher cost of
production, specifically holding and ordering costs of raw materials. Lastly, we address the
strategic location of both countries in theory, compared to existing manufacturing capability, to
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determine which country will have a higher transport cost to satisfy global demand for ink
cartridges. Hence, with all the analysis, we propose to reroute some of the production capacity
from China plant to new ink cartridge manufacturing to country B.
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Appendix I: References
1. Rapoza, K. (2019, September 3). Why American Companies Choose China Over
Everyone Else. Retrieved from https://www.forbes.com/sites/kenrapoza/2019/09/03/whyamerican-companies-choose-china-over-everyone-else/#2a2b758a71de
2. HP inc. (2019, July). HP Supplier list. Retrieved from
http://h20195.www2.hp.com/v2/getpdf.aspx/c03728062.pdf
3. Blakeslee, M. (2019, August 7). Trump's Tariffs Target Cartridges and Components.
Retrieved from https://www.rtmworld.com/news/trumps-tariffs-target-cartridges-andcomponents/
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