Wriston Manufacturing Corporation

Topics: Net present value, Manufacturing, Investment Pages: 6 (1512 words) Published: September 6, 2010
Wriston’s Detroit plant is no longer a viable operation due to long-term capital underinvestment and product-process mismatch. It is recommended that the plant be phased out of operations over a five-year period with production and staff gradually shifted to a new plant to be built in the Detroit area. Further, it is also recommended that division accounting procedures and evaluation mechanisms be modified to allocate revenues/costs allowing for the synergistic benefits of Detroit’s products, and to recognize inherent manufacturing complexities, respectively. Issues Detroit’s production is unique when compared to other Wriston plants. Runs are typically lowvolume, involve significant set-up time, and vary significantly due to the sheer volume of different products lines, families and models. It is notable that the Detroit plant is the only plant manufacturing all three product lines: brakes, off-highway and on-highway axles; all other plants produce only a single product line. As seen by its area in Figure 1, manufacturing in Detroit is significantly more complex than other plant. Also notable in this figure are Detroit’s low return and relatively low sales figures. Capital investment has lagged in Detroit and the equipment is out-dated and inefficient. The general work environment is poor, with leaking pipes and old fixtures. Built in an ad-hoc manner, the layout of the Detroit plant is piecemeal; production typically requires complex flows


through dedicated machining areas scattered about various buildings. Both the environment, and other factors seem to contribute to a poorly motivated workforce. Analysis If used prescriptively, Figure 1 would suggest Detroit and its products be divested, though Wriston’s study group report suggests some products may be profitable if transferred to alternate plants. Shown in Table 2 though, the burden rate for each of these potentially ‘profitable’ groups is well above normal, apparently reflecting the complexity and variability inherent in Detroit’s assigned products. Variability, coupled with low volume, suggests the need for a flexible manufacturing system (FMS); the Detroit shop is instead closer to a flow shop configuration. This represents a productprocess mismatch. As the majority of the division’s plants are also flow shops, it seems at best uncertain whether any of Detroit’s products could be better-produced at other plants; any product transfers would almost certainly inflate the receiving plant’s burden rates. The possible exception to this is the Fremont plant which has some experience and technology dealing with lower volume runs and product variety. Unfortunately, they are close to capacity. The true value of Detroit’s products (to the division) must also be considered. Each plant is currently accounted for on a standalone basis, but Detroit’s many low-volume products are in large part supplementary (e.g. replacement parts) to other plant’s high-volume products. While these products are necessary to enable high-volume product sales, they are not necessarily sufficiently profitable to justify their standalone existence. So too, Wriston’s commitment to provide replacement parts seems indicative of the market’s valuation of such and their needed production, even if not directly profitable. Then internal performance measures and accounting


systems should allocate a portion of other plant product revenues to Detroit in recognition of their synergistic contributions to those products sale. Aside from the depressing plant state, the demoralized workforce at Detroit can be explained by their long-term underperformer attribution. This negative feedback, coupled with a lack of situational control (inefficiencies relate to process primarily) destroys their intrinsic motivation. So too, the commitment of workers to a single machine minimizes flexibility and skill variations, both otherwise motivating factors. Local workforce expectations are diminished when successful...
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