Wriston Case Memo Essay Example

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 WIPE (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 ND 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 Heed'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 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 enplaned 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. Product will transfer through several different processes even through buildings before being finished, which drives up the lead time, WIPE 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 or 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 2), the NP can be 19. 84 for continues 20 years.

But it is Just an expedient which will bring with it negative effects: where shall e relocate these 'chicken ribs' neither profitable nor eliminable (we cannot encourage our customers turn to our competitors); our obligation to employees especially those with service years as long as decades; media pressure which may produce another sensationalist news of 'Social Responsibility Deficiency It seems to be more cost-effective to set up a new plant, compared to the NP of investment in old facility and retooling (Exhibit 3& Exhibit 4). But we should consider a lot before making the decision, whether we should sell all the old machines, if not what ill be the impact on cost?

If we construct new plant and purchase all new machines the depreciation will be much higher in addition to initial investment. We should simulate different scenarios and make detailed financial analysis. In my point of view, a more comprehensive solution should be investing in plant tooling though it may not sound economically via the simple analysis of NP (Exhibit 4). But we could put into Detroit plant the following improvements simultaneously to assure the feasibility: 1) We should not simply evaluate Detroit via ROI, especially the use of he current uniform costing system, Detroit works like

a R&D department rather than a flow-shop plant.

Therefore we should allocate partial development cost and overhead to those beneficial plants which can reduce its burden by 20% at least. 2) We need to make an investment of retooling and machines to reduce the maintenance and repair costs while increasing average throughput and lower the artificially high overheads. 3) The layout and processes of Detroit plant need to be optimized per the Job-shop model of low-volume and high diversification products. We can set up print-size flow within each building for products which fall in to congener manufacturing processes to eliminate unnecessary transferring, energy waste and lowering the in-line inventory. ) We need to redefine the Detroit plant, to convert it from the obsolete plant only for trial-run production to R&D/ Technology Center, to convince employees of prospect of their employer and future career. Redesign the compensation package to involve more long-term incentives and performance based variable parts (evaluate based on efficiency, quality and attendance) in addition to wages, to increase the employees' loyalty and confidence. Provide welfare similar to the other plants like cafeterias to nourish sense of community and belonging. In short, considering the unique position of Detroit Plant we should provide a sustainable solution to invest and optimize instead of giving it up.