Wriston Manufacturing
MEMORANDUM
TO:
FROM:
SUBJECT:
DATE:
RICHARD SULLIVAN
76220136
WRISTON MANUFACTURING CORPORATION
3RD FEBRUARY, 2014
Overview
Wriston Manufacturing Corporation (WMC), a multi-billion dollar corporation with products targeted at North American transportation industry, had seen a decline in sales over the last three years and as a result under-performing plants of Heavy Equipment
Division (HED) such as Detroit and Lima were coming under increased scrutiny on their future financial viability. This memo will address some of the key issues responsible for the declining performance, analyze potential alternatives and make recommendations.
Issues at Detroit Plant
Declining Financial Performance: Based on Exhibit 3, between the year 1988 to 1991,
Detroit plant had a negative contribution of over $7 million to HED. Over the years, growth and high volume products were transferred out of Detroit plant. An old facility and the complexities in manufacturing a huge range of products had resulted in increased
Fixed and Variable manufacturing overheads resulting in losses.
Variability Leading to Operational Inefficiencies: Based on Exhibit 2A, Detroit plant manufactured 20 different product families along with replacement parts and special order items, which was far more than any other plant. High variability due to multiple process flows coupled with small batch sizes increased flow time and decreased throughput. Corporate Investment Strategy: Every plant was looked at as an individual profit center.
WMC’s strategy was to invest in plants with high Return on Assets (ROA’s) and used a
10% after tax hurdle rate to evaluate investment options. This accounting technique was a major reason for Detroit’s downfall. Average age of machine tools at Detroit plant was
33.1 years compared to HED’s 15.9 years.
2
Human Resources: Detroit plant had a lot of skilled workers with history of long service employment. The newer and younger workers
TO:
FROM:
SUBJECT:
DATE:
RICHARD SULLIVAN
76220136
WRISTON MANUFACTURING CORPORATION
3RD FEBRUARY, 2014
Overview
Wriston Manufacturing Corporation (WMC), a multi-billion dollar corporation with products targeted at North American transportation industry, had seen a decline in sales over the last three years and as a result under-performing plants of Heavy Equipment
Division (HED) such as Detroit and Lima were coming under increased scrutiny on their future financial viability. This memo will address some of the key issues responsible for the declining performance, analyze potential alternatives and make recommendations.
Issues at Detroit Plant
Declining Financial Performance: Based on Exhibit 3, between the year 1988 to 1991,
Detroit plant had a negative contribution of over $7 million to HED. Over the years, growth and high volume products were transferred out of Detroit plant. An old facility and the complexities in manufacturing a huge range of products had resulted in increased
Fixed and Variable manufacturing overheads resulting in losses.
Variability Leading to Operational Inefficiencies: Based on Exhibit 2A, Detroit plant manufactured 20 different product families along with replacement parts and special order items, which was far more than any other plant. High variability due to multiple process flows coupled with small batch sizes increased flow time and decreased throughput. Corporate Investment Strategy: Every plant was looked at as an individual profit center.
WMC’s strategy was to invest in plants with high Return on Assets (ROA’s) and used a
10% after tax hurdle rate to evaluate investment options. This accounting technique was a major reason for Detroit’s downfall. Average age of machine tools at Detroit plant was
33.1 years compared to HED’s 15.9 years.
2
Human Resources: Detroit plant had a lot of skilled workers with history of long service employment. The newer and younger workers