Giant Motor Company Case

Topics: Costs, Manufacturing, Theory of Constraints Pages: 5 (855 words) Published: December 14, 2014

EXECUTIVE SUMMARY
The purpose of this analysis is to maximize profit of Giant Motor Company which has 3 lines of products and offers 3 brands of cars namely Lyra, Libra and Hydra which corresponds to subcompact car class, sporty car class, and luxury car class respectively. Currently the company has 3 manufacturing plants and each of them is dedicated to a specific product line. For future planning, the company has an option of retooling its manufacturing capacity which would bring a major expense to company but would increase its production efficiency and capacity significantly. The retooling option includes shut down of existing Lyra and Libra manufacturing facilities which are only dedicated to respective models and opening of new Lyra facility which is able to manufacture both Lyra and Libra and Libra facility which is able to manufacture all 3 models. The analysis is performed by given plant characteristic (production capacity and associated fixed costs) for existing facilities and planned facilities, profit margins given by car lines depending on manufacturing plant, demand for 3 different car models, and demand diversion amount associated with unsatisfactory demand for each model. A rigorous analysis by Microsoft Excel with Solver Add-in indicated that Giant Motor Company needs to implement the renovation plan and shut down its existing manufacturing facilities. From first plant, the company should produce 1.400.000 units of Lyra and 100.000 units of Libra and from second plant, the company should produce 1.000.000 units of Libra and 800.000 units of Hydra. Based on this production plan, the company shall achieve maximum total profit of 4.040.000 USD. MODELLING

Assumptions and Limitations
a) Production capacity given for facilities are constant since all factors that would lag production are ignored (physical and human factors). b) Demand projection prepared by Giant Motor Company is consistent and true c) No switching time is required from old facilities to new facilities thus manufacturing is not interrupted. d) There are no increases in utility costs thus fixed manufacturing overhead is constant so the fixed costs associated with manufacturing facility. e) Demand diversion for each car model is constant and does not change with demand trends. Decision Variables

Plant characteristic in terms of production capacity, associated fixed costs and profit margins for 3 different models according to which facility they are manufactured are given below;

Plant Characteristics

Lyra
Libra
Hydra
New Lyra
New Libra
Capacity (in 1000's)
1000
800
900
1600
1800
Fixed Cost (in $millions)
2000
2000
2600
3400
3700
Profit Margin by Car Line (in 1000's)
Lyra
2
0
0
2,5
2,3
Libra
0
3
0
3
3,5
Hydra
0
0
5
0
4,8

New plants that could be opened in retooling option have higher capacity than present ones and production lines in new facilities could be dedicated to different products. However due to additional renovation cost fixed costs, which will be amortized over a long period of time, of new facilities are higher than current ones. Profit margin for each models at planned facilities would also decreased compared to existing facilities as new facilities would able to operate at more than one car line. The company assumed that short-term forecasts are reliable thus performed its demand projection based on these figures and conclude units below for each model. Demand for GMC Cars (in 1000's)

Lyra
1400
Libra
1100
Hydra
800

Demand diversion matrix which is constructed from demand diversion percentage for unsatisfactory demand Deman Diversion Matrix
 
Lyra
Libra
Hydra
Lyra
NA
30%
5%
Libra
0%
NA
10%
Hydra
0%
0%
NA

Decision variables are;
a) PLyra; units of cars (in 1000s) produced in the Lyra plant b) PLibra; units of cars (in 1000s) produced in the Libra plant c) PHydra; units of cars (in 1000s) produced in the Hydra plant d) PNewLyra_Lyra; units of Lyra...
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