Wriston Case Memo

Topics: Axle, Cost accounting, Plant Pages: 5 (1328 words) Published: September 9, 2013
To: Richard Sullivan
From: im26412
Subject: Proposal for Detroit Plant
Date: May 26th, 2012
Background and Issues
Detroit Plant, serves as the first plant of HED division within Wriston Group, which almost all division products could trace their roots from, cannot achieve an acceptable level of profitability for years even we raise the prices or cut wages. The morale of Detroit is poor and it has been plagued by problems such as absenteeism and high turnover rate. Additionally there is coming the pressure of unionization by UAW which may aggravate our burden of employment obligation when Detroit Plant will be sold out. After 6 months’ study, the force proposed 3 optional proposals for Detroit Plant: a) close the plant as soon as possible; b) invest in plant tooling and make operational optimization; c) build a new plant to replace it.

Analysis & Comments
Detroit Plant belongs to HED division, a large manufacturer within the Wriston Corporation, mainly produce axles (high-way, off-highway, front or rear) and brakes. HED totally consists of 10 plants which are for different products, process or markets (Exhibit 1):

All mature and mass-produced products have been transferred out (managers decided to transfer out profitable products, because they believe it is more lucrative to produce them in modern plants), Detroit plant has been left with residue of low-volume products and replacement parts for Tiffin, Fremont and Maysville. Obviously Detroit plant is a typical job shop which required higher task variety, labor skill, tooling set up time and unit cost. Detroit plant used to take the most complicated product missions (20 product families and 120 models) per the complexity criteria: product line, product families and product model by Wriston, while the product costing system it adopted is the same as that of other flow-shop plants: Product Cost = materials cost + direct labor + variable overhead Considering the low-volume production of Job shop, Detroit plant either has a higher material purchasing expenditure because of losing scale economics or higher WIP (work in process) inventory; Owing to the low-volume and high diversification of products made in Detroit, it usually takes 10 times the run time for a batch of parts, which leverage the consumption of energy, standard labor hours and unit labor cost; the maintenance and repair expenses of Detroit plant are extremely high which account for continued higher overhead. Because of Detroit plant’s lack of investment (the machines are all timeworn with the average age of 33.1 years, more than twice the average of HED’s 15.9 years; the investment to Detroit plant has been less than 50% of its fixed assets depreciation since 1985). On account of Detroit’s lack of profitability, it cannot compete effectively for those corporate investments and then increase its return on assets. The buildings of Detroit plant was cobbled by 12 buildings in a piecemeal and unplanned fashion with inadequate electrical system, leak water system, constricted space and substandard sprinkler systems; the machines were flexibly grouped by the machining department. Detroit plant improperly designed its layout per flow shop, i.e. a product will transfer through several different processes even through buildings before being finished, which drives up the lead time, WIP inventory, and unit cost (including transferring). Though operators in Detroit plant obtain relatively higher skill/proficiency and perform longer service years, they show bad habits and poor morale, because of the ‘long-term neglect’ by management team. Absenteeism and turnover are problems that are steadily deteriorating because of the offsetting by age split (above 50 against below 30) and new trends in culture and value (the younger operators are less loyal and devoted). As a result, scrap, rework and training costs increased correspondingly.

Proposals and Recommendations
Sold out maybe sound economically (Exhibit...
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