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chapter 5 case study answers

chapter 5 case study answers

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Published by: Bidah on Dec 29, 2009
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02/01/2013

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Short case: The Royal Mint

A unique manufacturing operation in the UK is the Royal Mint at Llantrisant in South
Wales. The Royal Mint is designated as an Executive Agency responsible to the Treasury
of HM Government. The Chancellor of the Exchequer is appointed (ex officio) as Master
of the Mint. Its objective is to provide the Government with coinage at a competitive price.
The Royal Mint has the capacity to handle all of the UK business and still be able to bid for
contracts from those countries who do not have their own minting operation. It serves over
60 countries in any one year and produces in excess of three billion coins annually. Its
manufacturing requirement ranges from high volumes of standard coinage to individual
service medals or commemorative coins.
In the UK, the Treasury contracts with the Royal Mint on an annual basis for the likely
requirements for coins in the following 12 months, and the Treasury is also responsible for
decisions on any changes to the coinage. The last coin that was introduced was the new,
smaller 10p coin; this involved an issue of over one billion new coins and the withdrawal of
all the old coins from circulation. This represents one of the largest single projects
undertaken and a massive logistics exercise to coordinate the movement of the coins.
The Mint meets every three months with executives from the UK clearing banks to
discuss their requirements for currency in the shorter term. These estimates are then
updated at weekly planning meetings. The Mint would like to work to a \u2018just-in-time\u2019
schedule, but because of the nature of the product and the implications of the money not
being available, they are obliged to keep a predetermined safety stock to cover any
shortfalls.
As in any manufacturing operation, the unit cost of the product is a critical factor in
measuring performance, and in the case of the Royal Mint, there is a unique cost ceiling,
in that their cost base must always be less than the face value of the coins being
produced. Therefore, this mass manufacturing process must focus on monitoring its
operating costs. The issue of payment for the product is an interesting concept within the
\u2018minting\u2019 industry and in the UK. The clearing banks pay the face value of the coins to the
Treasury and the annual contract agreement with the Royal Mint is based on the Treasury
agreeing to cover a fixed percentage of their fixed costs and the variable cost of each unit
then purchased over the year. The Royal Mint can then invoice the Treasury for the
currency produced.
The coins are costed in terms of pounds per thousand pieces. Of that cost, approximately
40\u201350 per cent comprises the raw material cost, with the next 20\u201340 per cent coming
from the production process which transforms that raw metal into a blank coin. The actual
stamping of the die onto the coin and the simultaneous milling of the edges form an
almost insignificant part of the overall process cost, mainly due to the vast economies of
scale at this stage. The efficiency of the stamping process is nominally determined by the
life expectancy of the die, and the research at the Mint is involved in initiatives to improve
the materials being used in both the coins and dies to extend this period of use. The
coining machines used in the manufacturing process are flexible in that they can run to
produce any of the UK and most overseas coins without long changeover periods, and
orders vary from 1000 million coins for a large country to an order of 5000 for a small
island. The machines are able to operate at speeds of up to 750 coins per minute and
therefore the nature of a 5000 coin run is very costly, but all the same still viable.
One issue has been the threat of the intrinsic raw metal cost exceeding the face value of
the coin: something which has been most prevalent in those countries facing high inflation
and which leads to coinage being withdrawn from circulation by those wishing to capitalize
on the returns available from the base material. In the UK, the smaller denominations
were reaching that point and the Mint had to change the composition of the 2p and 1p
coins to a steel core with an electroplated copper outer layer. This reduced the unit cost of
the coin and also added to its expected lifetime because it used a less expensive base
metal. This new format of coin represents the biggest change in the manufacturing
process of coins to occur over the past few years and the pioneering of the electroplating
technique, whereby a mild steel core is electroplated with copper, nickel or brass, resulted
in a process which will aid the conservation of materials. The reduction in costs is also

being achieved without a noticeable reduction in the recognized value of the coin. Another
consequence of the electroplating procedure is that the coins have magnetic properties
due to the presence of a mild steel core and this has caused initial problems for vending
machine manufacturers.

Questions

1. What is the \u2018concept\u2019 of the Mint\u2019s products?
2. Explain the criteria which the Mint will need to take into account when it designs new coinage.
3. How might the concept of simultaneous design be applied in the design of coinage?

Answer
1. What is the \u2018concept\u2019 of the Mint\u2019s products?

One definition the 'concept' of a product or service is that which identifies its form, function, purpose and benefits. In this case one statement of the concept of coinage might be as follows.

A unit of exchange which is portable, easily recognizable (from), accepted as having its
face value (function), can be used in purchase transactions, some of which might
involve automatic mechanisms (purpose), and is convenient for medium to low-value
transactions (benefits).

2. Explain the criteria which the Mint will need to take into account when it
designs new coinage.

The basic requirement of the coinage system is that it is easy and convenient to use, and
the Mint and Treasury together invest in a considerable level of market research to
assess how easily individuals can distinguish between the coins by feel and appearance,
i.e. it is important that the coins should be distinguishable in the dark and to the blind by
the use of milling on the edge of the coin and a well-defined face print.
In the past some countries have seen high levels of counterfeiting and the Mint has to
build measures into the manufacturing process to ensure that the coins are difficult to
copy and unlikely to be copied with any accuracy.
The implications of introducing new coins in terms of their use and suitability for slot
machines and various vending apparatus is becoming a more relevant issue with the
wider use of such equipment. Any new coinage would have to be suitable for such use.
As in any manufacturing operation, the unit cost of the product is a critical factor in
measuring performance. In the case of the Royal Mint, there is a unique cost ceiling, in
that the cost base must always be less than the face value of the coins being purchased.
In the UK the smaller denominations were reaching that point of imbalance in cost and,
has subsequently, the Mint have changed the composition of the 2p and 1p coins to a
steel core, with an electroplated copper outer. This has radically reduced the unit cost of
the coin and has also added to its expected lifetime by using a more durable and lighter
base metal.
In summary, the Mint has to bear in mind several key design factors when considering
any new currency proposals.
These are as follows:

\u2666Must be suitable for use in vending machines;

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