Overview
Stitch Professional is a company which will meet your requirements and will make everything on time. Our company started operating past in almost 20 years ago. During those years we worked as a dense team which achieved personal goals and met almost every customer’s requirements and needs. There was a downs and ups but we stayed strong, and evaluated every step with a maximum seriousness. As we started to operate, our machine started to generate constant profits and expanded the company almost twice during the first 3 years of our operations. Machine is our main profit generator, so we kept maintaining it all the scheduled times, but as we know, nothing is eternal, so it depreciated every year more and more.
During the last 20 years this sewing machine created a great profit for our company, but it started to break more usual during the last years and create delays for productions and lines for customers.
As operations manager I have to take an action to resolve the problem with maximum efficiency and minimum error. During las weeks I came up with two scenarios of keeping our company alive and continue to operate, which are:
1. Overhaul of machine and continue to work with it for more 5 years
2. To get a new machine, which will generate more profit and will be able to produce higher quality products.
This proposal is meant for director of the Financial Department of our company. Response and action is needed immediately, because future revenues are at risk. This proposal will give you the full view of both scenarios and future revenues that we are going to face. If any questions occur, please feel free to ask me, so I can answer you with the full potential.
Problem Analysis
During last three years we experienced usual ups and unusual downs in our production. Especially last month our machine declined to work two times, so we had to postpone production and scheduled outsourcing for some of the customers. We hired a team of mechanics to fix and lubricate the machine which took 5 days for every time machine stopped. Fixing it and parts that was needed for it costed us $67,000. According to this data, action required immediately. Proposal Specifics
According to situation there is two most efficient ways to resolve the problem and to keep the production on the same level. Which are:
• Overhaul the current machine and continue to work with it.
• Buy a new machine
Current change will prevent our company from production interruptions for old machine, and to increase the quality and quantity of production per month for a new machine.
If we decide to fix the old machine, we will need to take the following actions:
• To stop production for 20-25 days
• To make contracts with other companies for outsourcing
• To order parts for old machine
For buying a new machine we have to take following actions:
• Stop production for 25-30 days.
• Make contracts for outsourcing for installation period.
• Training employees for 5 days.
Deciding which way to go will help us some additional information about machines. For old machine:
• Will depreciate in 10 years with a 0 salvage value
• Will need some additional inspections and more usual maintenances
• According to opinion of specialists that already checked machine, output will slightly decrease in quality
For new machine:
• Will depreciate in 20 years with a $100,000 salvage value
• Won’t need any inspections and maintenances for the first 5 years
• Warranty covers 10 years for parts and labor
• Ability to get full coverage insurance for 10 years
• Will slightly increase the quality and number of outputs per month will increase for 10%
The following information shows us both benefits and weak parts of the options, so there is no wrong decision, both are efficient and profitable.

The Budget

Old Machine Approximate Costs
Years 2016 2017 2018 2019 2020 2021 2022 2023
Overhaul $250,000 $0 $0 $0 $0 $0 $0 $0
Tools And parts $35,000 $0 $0 $0 $0 $0 $0 $0
Fixed cost $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 $20,000
Insurance $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000
Maintenances $0 $7,000 $7,000 $7,000 $7,000 $7,000 $7,000 $7,000
Total $315,000 $37,000 $37,000 $37,000 $37,000 $37,000 $37,000 $37,000

New Machine Approximate Costs
Years 2016 2017 2018 2019 2020 2021 2022 2023
Machine $500,000 $0 $0 $0 $0 $0 $0 $0
Installation $40,000 $0 $0 $0 $0 $0 $0 $0
Fixed cost $18,000 $18,000 $18,000 $18,000 $18,000 $18,000 $18,000 $18,000
Insurance $6,000 $6,000 $6,000 $6,000 $6,000 $6,000 $6,000 $6,000
Maintenances $0 $0 $0 $0 $0 $7,000 $7,000 $7,000 Total $564,000 $24,000 $24,000 $24,000 $24,000 $31,000 $31,000 $31,000

According to the calculations that provided above we can see that its cheaper to fix the old machine now than to buy a new but if we continue to look to the future we can see that Our costs are less with a new machine. Also we should not forget about ability of a new machine to produce 10% more monthly than the old machine. As an Operations Manager I highly recommend to go with buying a new machine, because it will generate more profit in the future and will expand our company faster.

Conclusion
This proposal contains all the information about our situation and actions that we should take. Our company needs to buy a new machine instead of fixing the old, because costs are too high for a maintenance and possible errors. Overall our decisions is to change the machine and buy a new one, its ability to produce more and better quality final product will return the invested capital after three years. As an Operations Manager I recommend to buy and install the new machine and get on a new level of production.