Wriston Case Memo
MEMORANDUM
TO: Richard Sullivan, Vice President of HED, Wriston
From: FT28312
Subject: Wriston Manufacturing Corporation Case Analysis and Summary
Date: January, 1992
Summary
The Heavy Equipment division of the Automotive Supplier group of the Wriston Manufacturing Corporation is a large axle and brake manufacturer having three broad product lines which are being manufactured in its nine plants. The Detroit Plant which is the oldest plant of HED has been operating at low profitability level for the past few years. Due to several factors explained in issue analysis, operation of the plant is not considered viable over a long term and hence a decision needs to be made about the future of the plant. The options are: * Close down the plant and transfer the products to other plants. * Invest in plant tooling so that the plant could be operated profitably for the next 5- 10 year period and then decide its fate. * Build a new plant to accommodate some or all of the Detroit plant products
Issues Analysis
Finance and accounting:
Over the years as the profitable products were transferred from the Detroit plants to other newer plants which specialized in individual product lines the plant has been left with a residue of low –volume products. Due to the complexity in production of a large family of products (20), the Burden rate at Detroit is higher leading to low ROA. Management decision to allot capital investment in proportion to ROA has resulted in lagged capital investment in the plant. The conditions of machining tools at the plant reflect lack of investment and average age of machining tool is higher than the overall average age (33.1 Vs 15.9 years).The accounting methods adopted in the company do not recognize revenue on the replacement parts manufactured by Detroit plant whereas the costs involved are
TO: Richard Sullivan, Vice President of HED, Wriston
From: FT28312
Subject: Wriston Manufacturing Corporation Case Analysis and Summary
Date: January, 1992
Summary
The Heavy Equipment division of the Automotive Supplier group of the Wriston Manufacturing Corporation is a large axle and brake manufacturer having three broad product lines which are being manufactured in its nine plants. The Detroit Plant which is the oldest plant of HED has been operating at low profitability level for the past few years. Due to several factors explained in issue analysis, operation of the plant is not considered viable over a long term and hence a decision needs to be made about the future of the plant. The options are: * Close down the plant and transfer the products to other plants. * Invest in plant tooling so that the plant could be operated profitably for the next 5- 10 year period and then decide its fate. * Build a new plant to accommodate some or all of the Detroit plant products
Issues Analysis
Finance and accounting:
Over the years as the profitable products were transferred from the Detroit plants to other newer plants which specialized in individual product lines the plant has been left with a residue of low –volume products. Due to the complexity in production of a large family of products (20), the Burden rate at Detroit is higher leading to low ROA. Management decision to allot capital investment in proportion to ROA has resulted in lagged capital investment in the plant. The conditions of machining tools at the plant reflect lack of investment and average age of machining tool is higher than the overall average age (33.1 Vs 15.9 years).The accounting methods adopted in the company do not recognize revenue on the replacement parts manufactured by Detroit plant whereas the costs involved are