Strategy for Detroit Plants

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Case Study Memorandum

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Subject: Strategy for Detroit plant

Executive Summary

To develop a strategy for WMC’s Detroit plant that is no longer viable because of underinvestment, labor issues and product-process mismatch. This has lead to negative return on assets, high burden rate (6.00) and low sales figures. The report investigates the issues causing the situation. A recommendation to address the Detroit plant will be made based on the findings.

Issue Analysis

Detroit Plant Environment

Detroit’s production is unique when compared to other Wriston plants. Runs are typically low volume, involve higher set up time than run time and vary significantly due to the sheer volume of different product lines, families and models. Traditionally Capital investment has lagged in Detroit and the equipment is out dated and inefficient resulting in higher maintenance costs. Built in an ad-hoc manner, the layout of the Detroit plant is piecemeal; production typically required complex flows. Thus, the environment has contributed to poorly motivated workforce. Bad labor habits are rampant including high absenteeism on weekdays and high turnover.

Financial Practices

WMC’s accounting practices incorrectly attribute fixed manufacturing costs to the three Detroit groups in a proportional manner, leading to Group 3’s lack of profitability. Discontinuation of Group 3 pushes a greater percentage of the fixed costs to the other groups impacting their ability to be profitable. Additionally, WMC does not consider the degree to which production at the Detroit plant contributes to the operations and profitability of the other plants. Presently, each plant is accounted for individually. WMC should reevaluate and consider the...

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Appendix 1 Detroit Burden Rates

Detroit Burden Rates Group 1 Group2 Group3

Variable Burden Rate 2.12 2.13 2.128

Total Burden Rate 8.596 7.139 4.653

Appendix 2 ROA% Vs Burden Rate

Plant ROA% Burden Rate

Sandusky, Ohio 29 3.58

Essex, Canada 18 5.3

Detroit, Michigan -7 6

Saginaw, Michigan (2) 48 4.1

Lima, Ohio (1) -12 5.05

Lebanon, Pennsylvania 37 2.64

Tiffin, Ohio 30 3.5

Fremont, Ohio 36 3.65

Lancaster, Ohio NA NA

Maysville, Kentucky 26 2.35

1. The company should assess the processes of the Lima plant to better understand, and then implement improvements, to address the negative ROA and low sales of that plant.

2. As Saginaw plant handles 10 product families and 110 product models, introduction of Flexible manufacturing system will be beneficial there. This will address the high variability and reduce the overhead costs.

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