EXECUTIVE SUMMARY

Fredericksburg plant was initially planned to be closed down by GM after a history of exceeding

budget instead saving and United Auto Workers strike took place. But Joe Henrich, a young and

new plant manager, was able to exploit different opportunities and implemented several process

improvements one after the other. With his great interpersonal and leadership skills, he was able

to regain the trust of the union and senior workers started to take part in the process improvement

he implemented. With the Application for QS 9000 and ISO 9000 the plant I taking a huge step

in achieving the center for excellence in GM manufacturing Firm.

By February 1997, the 1500 ton press broke down and the production of TCC, a special

component being delivered to transmission manufacturing of GM is definitely at stake. This

press is the first process in the production and will limit the plant productivity if not addressed

immediately.

After analysis of several options, the team recommends to repair the old press with new parts and

install a new die that will cover 3 activities of the current operation all at the same time. This

recommendation has the highest cost amounting to $592,000 but with savings as high as

$666,000. The expected return of the expenses is 10.68 months. In order to be successful, the

team laid out an implementation plan because an execution without a proper plan is nevertheless

useless especially at a time where every production-hour is critical.

Problems/Key Issues:

February 1997 break-down of the 1500-ton press where the shafts were broken due to excessive

wear over time. Productivity downtime is high and budget attainment of the plant may not be

achieved.

Supporting Arguments:

The 1500 ton press was the first step in the production process and it is the process bottleneck.

By means of bottleneck, it determines the “capacity” of the production. Likewise, this

breakdown will have a big effect on the operation cost because the press had already depreciated

over 18years in the production arena; in short, the useful life is almost at its end, which will only

incur excessive cost for maintenance in the succeeding years.

Alternative Strategies

Option A: Hire skilled tradesmen from outside the company to repair the broken press using its

old parts. It would cost $75,000 for the service fee assuming the Union accepts the solution. It is

the lowest possible cost among the 3 options and would only take one day downtime. However,

the repair cannot guarantee machine reliability. The 1500 ton press almost reached its salvage

value due to excessive wear and tear over time.

Option B: Vendor will repair the press by using new parts as replacement to the old ones. This

will require four days of downtime and will cost $210,000. Additional $2 will be incurred for the

3 processes to be outsourced during downtime to avoid interrupting delivery of TCC’s to GM.

 The expected total cost is $342,000. However, there will be $74,000 savings from eliminating a

job for trouble shooting. (Refer to Appendix 1 for the detailed computation)

Option C: Repair the press with old or new parts and install a more complex new die. The new

die would eliminate another two steps in the process allowing 1500 ton press to accomplish three

steps at once. The new operation would eliminate three operators each shift. However, it needs a

two week downtime and at least three months for the whole new operation to be fully operable.

The old die would remain to operate in case of malfunction of the new die. This option is the

most expensive and ambitious in terms of introducing new operation for the workers but can

deliver savings for long term operations. The total cost for this option is $592,000 for old

equipment to be replaced by new parts or $457,000 for old equipment to be repaired and the

expected wage savings is around $666,000. (Refer to Appendix 1 for the detailed computation)

Recommendation:

Base on the strategies presented, below is the summary of cost and benefit analysis:

Plant is operating at full capacity

Cost Annual
Downtim Machine
Option On- Potential ROI Difference
e (days) Initial Total Reliability
going Savings
A 1 $75,000 0 $75,000 0 Low - $75,000
$210,00 $132,00 $342,00
B 4 $74,000 High 4.62 $268,000
0 0 0
C - new $250,00 $132,00 $592,00 0.89
14 $666,000 High (10.68m ($74,000)
parts 0 0 0 )
C - old $250,00 $132,00 $457,00 0.69 ($209,000
14 $666,000 High
parts 0 0 0 (8.28m) )
All of the three options contained unpredictable risks and are highly dependent on the mode of

implementation. Taking into consideration the current status of the plant, we can say that to

minimize financial loss we should eliminate option A because the press is almost reached its

salvage value. Although it has the lowest cost, investing on this will only mean that there will be

higher maintenance and operation cost for the succeeding breakdowns. Reliability is an issue

when longer-term goals are at hand. On the other side, choosing option B will have a longer
1
return on investment (ROI) . The Fredericksburg plant cannot afford savings from other

improvements to suffice the 4.62 years ROI of the press. Therefore, we choose option 3 where

the old equipment will be replaced by new parts. It may have a higher cost than the counterpart

(replacing with old parts), but since there is only 2 months difference between the two there will

be a great advancement in terms of production capacity if new parts are installed. The return on

investment will happen after 10.68 months from starting day of full operation. In case the new

die will not function as expected, the old press, which will be repaired, will suffice the needed

TCC for daily production.

Implementation

The current month is February 1997, they still have 4 months before the accreditation. By the

time June has come, the operation should be fully operable as well as processes are already in

place and documented.

The installation of the new die and the repair of the old press with new parts will take at least 3

months to be fully operable and of course is expected to have a higher capacity. Before the

installation of the new die, the old press must be repaired first with new parts. Four days is

expected for the downtime but with one day WIP, 3 days of inventory will be outsourced. After

the repair, the new die will then be installed for about 2 weeks and within this duration, the

production will depend on the repaired press output. Trainings must be done for the workers who

will be retained in the operation during the installation of new die because 3 activities are

expected to be done all at the same time by the new die, thus, new process operation will soon

govern. Reassignment of work, reorientation of job description and other related activities should

be done ahead. By the time the new die is ready for full operation, workers who will be involved

in the new operation are also ready. Since there is uncertainty whether the new die will function

as expected, the repaired press can always suffice the needed TCC for daily production. The

good thing about the repaired press is that it will last longer and has higher reliability than just

repairing it with old parts.

Going back to Joe’s vision for the company, we can say that the best strategy to withstand the

challenges of the plant continually is to maintain the pace of slowly adapting the new culture of

continuous improvement. This culture must be embedded in Fredericksburg plant and the

management had been highly effective in doing this. The opportunity to improve and qualify for

the QS9000 and ISO9000 certifications will come smoothly as they continue to solve issues and

find ways to have a more friendlier and competent culture.

Appendix

Option B:
Cost to repair with new parts $210,000
Cost for outsourcing $2/TCC
Number of TCC needed per day 22,000 units
Number of days to be sufficed with outsourced TCC: 3 days Note: 4 days downtime; 1 day WIP
Per year average base wages $42,000 Note: Overtime are eliminated
Benefit Cost $32,000

Cost during downtime

= 22,000 (Number of TCC produced) * $2 (TCC additional cost) * 3days (Number of days downtime)
= $132,000

Total Cost
= $210,000 (Cost to repair with new parts) + $132,000 (Cost during downtime)
= $342,000

Annual Potential Savings

= $42,000(Per year average base wages) + $32,000 (Benefit Cost)
= $74,000

Return on investment
= $342,000(Total Cost) / $74,000 (Annual Potential Savings)
= 4.62 years

Option C:
Cost to repair with new parts $250,000
Cost to repair with old parts $210,000
Cost for outsourcing $2/TCC
Number of TCC needed per day 22,000 units
Number of days to be sufficed with outsourced TCC: 3 days Note: 4 days downtime; 1 day WIP
Per year average base wages $42,000 Note: Overtime are eliminated
Benefit Cost $32,000
Number of shifts 3 shifts
Number of workers per shift to be omitted 3 workers

New Parts:
Cost during downtime
= 22,000 (Number of TCC produced) * $2 (TCC additional cost) * 3days (Number of days downtime)
= $132,000

Total Cost
= $250,000 (Cost for new die) +$132,000 (Cost during downtime) + $210,000 (cost to repair with new parts)
= $592,000

Annual Potential Savings

= $42,000(Per year average base wages) + $32,000 (Benefit Cost) * 3 (number of shifts) * 3 (workers to be omitted per shift)
= $666,000

Return on investment
= $592,000(Total Cost) / $666,000 (Annual Potential Savings)
= 0.89 years or 10.68 months

Old Parts:
Cost during downtime
= 22,000 (Number of TCC produced) * $2 (TCC additional cost) * 3days (Number of days downtime)
= $132,000

Total Cost
= $250,000 (Cost for new die) +$132,000 (Cost during downtime) + $75,000 (cost to repair with old parts)
= $457,000

Annual Potential Savings

= $42,000(Per year average base wages) + $32,000 (Benefit Cost) * 3 (number of shifts) * 3 (workers per shift to be omitted)
= $666,000

Return on investment
= $457,000(Total Cost) / $666,000 (Annual Potential Savings)
= 0.69 years or 8.28 months

Reference:
1
computation used only depends on the available data