GM Powetrain
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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 TCCs 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
Option
Downtime (days)
Annual Potential Savings
Machine Reliability
Difference
Initial
On-going
Total
$75,000
$75,000
$75,000
$210,000
$132,000
$342,000
$74,000
$268,000
C – new parts
$250,000
$132,000
$592,000
$666,000
(10.68m)
($74,000)
C – old parts
$250,000
$132,000
$457,000
$666,000
(8.28m)
($209,000)
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 return on investment (ROI) 1 . 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.