Use of Sensitivity Analysis a Decision Support System in Automotive Painting Technology Investment

Background/Objective: This paper presents a study on the use of Sensitivity Analysis (SA) approach to support a decision-making in capital investment and secondary tools Value Added and Value Engineering (VA/VE) to optimize the capital investment in automotive painting technology. Methods/Analysis: First, the investment requirement in new painting technology is identified. Using the in-house company limitation and regulation, the requirement is then simplified in order to ease the further process in investment calculation. The sensitivity analysis is then being used to analyze the financial investment calculation to help the company’s top management making decision. The VA/VE then will be used to reduce further the equipment and building cost. Findings: The value engineering methodology carried out by Small Group Activities (SGA) reduced the cost while maintaining the same intended output. From the calculation result, it is found that the sensitivity analysis is effectively support and help the decision making process considerably. Applications/ Improvements: Sensitivity analysis provides several alternatives to the company to consider financial investment options. *Author for correspondence


Introduction
National Automotive Policy stated by year 2020, the automotive industry will provide 550,000 employment opportunities with involvement of 430 local vendors. In NAP 2014 1 , government has given special emphasis on export of local production cars and increase localization of automotive component. With the annual export target of 250,000 units, the quality of painting job in the manufacturing process must be at global standard and able to withstand the extended warranty of minimum 5 years. Today, the car-manufacturing trend focuses on the carmakers have raised car body material standard and paint quality specification which local companies in Malaysia are not able to undertake. Mercedes Benz confirmed that the aluminum body of its cars requires special processes that force the company to desire auto motive painting process from overseas. The process of automotive painting is important to provide corrosion protection, mechanical protection, such as scratch, atmospheric and weather protection, and aesthetical appearance 2 . Due to this extreme standard, European car assemblers i.e. BMW, Mercedes Benz, Citroen and Peugeot in Malaysia have imported painted body shells from their origin plant in Europe According to Howard and Miemczyk 3 , the biggest bottleneck in automotive production is in the paint shop process. As such, the selections of process and technology level are crucial to determine the level of quality, environment, and safety to workforce. All these aspects will directly give an impact to initial capital investment of the company. Companies in Malaysia need to determine the amount of investment to be put forth in enabling them to opt for the acceptable level of technology according to their business needs. Thus, Sensitivity Analysis (SA) will act as the important tool that is to be used to stimulate the financial ratio for the company and shareholders to make a complex decision 4 . This work proves that SA is the financial tool to support management decision on capital investment and the secondary tools VA/VE to optimize the investment.

Research Procedures
To achieve this objective, identification of new paint technology (challenger technology) was performed. This was done through establishing Small Group Activities (SGA) such as inviting senior engineers in the plant and the experts in automotive painting technology. The second step is to conduct financial feasibility study. In this step, all information to perform feasibility study has been collected. These include, among others, the market and volume of cars, all cost involved, method of depreciation,

Objectives
Concept / Theory/ Model Finally, is to recommend competitive alternative of painting technology (Challenger technology). On this step, feasibility study alone is not sufficient to justify the best alternative to be selected. Further analysis using Value Analysis and Value Engineering was implemented to further justify the selection. In short, Table 1 summarizes the objectives and procedures to achieve these research objectives.

Data Collection Method
The data collection method in this study is done based on the qualitative and quantitative consideration. The qualitative data is obtained from two different ways. The first way is by benchmarking several automotive manufacturers in the world. The second way is by conducting direct interviews with the employers, company policy makers and from observations conducted in the selected departments in the related companies. Meanwhile the quantitative data is derived from the specific equation, quotations calculation underlined in the handbook 6 .

Assumptions
Besides the computation of the feasibility study, which is, based on most probable performing volume, the assumptions of others contribution cost are derived from previous year/quarter of financial statement. For the assumptions to be used, project manager must agree with the costing details and usually based on existing accounting data. The common assumptions that are used in this research are as follows: i. Volume of the market is based on input from customers.
ii. Investment is based on approximate quotation from suppliers.
iii. Selling price is a fixed price given by the users with 1% annual reduction.
iv. Cost of administration and operation are based on current cost of paint shop.
v. Depreciation is based on straight-line method.

Results and Discussion
Paint shop is relatively not as stable as other stages in automotive operations 7 . In the batch production operation, flexible manufacturing system approach contributes to the increase of the quality 8 .

Level of Technology Identification
The painting application is a hazardous and taxing job. Critical criteria shall be considered among others are safety, quality, cost, delivery, environment and morale. Workers can be exposed to unsafe Volatile Organic Compound (VOCs), isocyanides and carcinogens. Widespread is ocyanate exposure can even occur when the spray painters are wearing protective gloves 9 .
Knowing the above condition, safety and morale of workforce who are working in the paint shop are a concern to the employer and union association. Once the criteria are satisfied to the minimum requirements as prescribed by the government regulations, then deeper assessment will be carried out. Quality is often measured by appearance. Paint thickness varies due to applying material inconsistently, overspray and equipment default. Over spray will cost additional 15% consumables material and need to be reworked. The most common reason for using robot is to reduce labor requirement, reduce cost via material reduction & space requirement and improve repeatability of the process. Table 2

Feasibility Studies Results
The feasibility study started with the evaluation and volume projection of the market demand. It is then fol- Based on the most probable sales volume, gross profit, finance cost, and investments, the computation of the feasibility study can be performed. Table 4

Value Engineering for Equipment
This type of value engineering involves three options,

Value Engineering for Building
The second step of value engineering is on the factory floor cost which involves the relay-out floor footing foundation requirement according to machineries specification. Other working areas and utilities room can be set at lower tonnage requirement. Figure 2 illustrates the cost reduction activities. Safety factor is considered for equipment installation.

VAVE No. 1
This first way of value engineering involves activities such as the change of pilling work from hydraulic injection to

VAVE No. 2
The second way for value engineering for building is restudying and specifying actual loading requirement of specific machines. It involves the following activities: a. Reduce structure to support mezzanine floor.

During machines installation, large machines
can be skid mounted on temporary beams and 1-inch-thick plate to spread out the loads.
Correspondingly, a specified travelling speed of the truck loaded with equipment should be controlled to avoid dynamic deflection of the supporting structure 12 b. Reduce structure to support mezzanine floor. Change structural I beam to truss structure.

VAVE No. 3
The third way of VA/VE on building is derived as: a. Reroute primary and secondary utilities for M&E services. Change 2604 meters length of copper cable to Aluminum material. Thus, reduce the purchase cost of cable and ease of installation.
b. Change the proposed roof material from lysaght to cycle wool composite insulated material. The insulated material compose in three layers will reduce the complexity of roof installation and materials price. This reduces the layout of material and installation time.
Based on the VAVE proposals, the investment for the project has therefore been revised as shown in the Table 5.  Table 6.
The economic analysis based on NPV, IRR and Payback Period has been performed to gauge the feasibility of the project based on the revised investment aided by the VA/VE.  The result is shown in Table 7.
The Table 7 showed the most probable volume condition; all three economic measurement terms are in line with company financial guideline. Even at the worst volume condition, the payback period is still within the model used and internal rate of return met the financial guidelines. Overall, the evaluation of the capital investment of RM 185,282,500 for the agreed level of technology is with much improved safety and environment control, and is within the group financial guidelines.

Conclusion
The financial sensitivity analysis is an evaluation tool to analyze the financial potential of a proposed project. It is based on extensive financial investigation and research to support the process of decision-making. Thus, experimentation on the detailed simulations on the multi variable input such as sales of the car, manufacturing cost, time to deliver has been the way to guide the company and shareholder to make sound decision making.