Please help me with this case study to find the root cause of the problem and how lean principles could help this manufacturing company. Thanks.

Sue, I just got the fourth quarter inventory reports. When we standardized those end shields last September you told me that it would cut both our manufacturing costs and our inventories. Manufacturing costs are down all right, although not as much as I would like, but our inventory has gone up. It costs us 25 per cent to keep that stuff around for a year you know, Sue and the warehouse guys are really crapped for space. I want you to look into it and let me know what is going on and what we should do about by Monday. I leave on Tuesday and wont be back until early February. Sue Reynolds, plant manager at the McLeods motors factory in Chilliwack, British Columbia put down the phone and thought back to the decision implemented four months earlier in September and to which john Ingram vice president has referred. In its plant McLeod made over 40 models of electronic motors ranging from one quarter to 10 horsepower. The plant was divided into three parts. The plant is divided into three parts. One half is for production; the other half is divided into a small office, and a Warehouse used to store raw materials, work in progress, and finished goods inventories and supplies. Production was in small batches. The production area of the plant was laid out by process that is the machines were grouped together by function into departments (drilling, milling, turning, assembly etc.) The plant operated five 8 hour days per week. The company had a number of customers in the OEM market, who used the motors as components in larger products, and also in the replacement market. Naturally, McLeods product mix changed over time as its OEM customers phased products in and out and made annual supply decisions. In general, however the size of the OEM was well known in advance through the annual order process and was fairly easy to forecast beyond that. In contrast, the replacement market was less stable and harder to forecast, especially for relatively short time periods. McLeod has recently experienced a welcome sales boom which was affecting all areas of the company. Warehouse space was scarce and the machines were usually busy. Consequently, company personnel would be certain to question any change that would make the machines out of circulations. As a start to the bidding process for new contracts, the company calculated the direct costs of its products, added overhead based on direct labor hours (at 300 percent) and added a 20percent profit margin. The recent sales boom had led to profits which management considered to be decent for a change, but the business tended to be boom or bust. In addition, labor negotiations, the management thought might be difficult, were scheduled to begin within a few months. Consequently, control of costs was important to the company. The BN-88-55 End shield During the previous a McLeod engineer had suggested the company could reduce the number of different end shields it made and used as motor components from 36 to about 5 by making minor modifications. Sue Reynolds decided to propose a test with BN-88-55, a new end shield for the shaft end of some motors. It would replace 15 others in one motor product line accounting for about 20 percent of McLeods sales. She expected that this move would allow longer production runs, lower inventories, and better service to and by manufacturers, wholesalers, retailers and repair shops that used and carried McLeod products. The BN-88-55 was machined from an aluminum die casting came complete with several indentations and holes, including one to accommodate the shaft, and a hardened steel ring, in the center which acted as a bearing housing. BN-88-55s inner surface had various ribs to add strength, particularly around the holes and indentations. McLeod had to tread (tap) eight of the holes (two sizes) and finish the surfaces in contact with the bearings and the frame and the convex face which abutted on machines using the motors. When finished BN-88-55 was bowl shaped (16.6 cm in diameter, 4.8 cm deep, and 0.5 cm thick) and weighed about 800 grams. Because of its functions almost all of the BN-88-55 were sold as part of completer motors to either the OEM replacement market. Each BN-88-55 casting cost $5.28 (net of recovered scrap) and took a total of 3.1 minutes ($0.77) of direct labor time to process. With the added overhead allocation of $2.31, the total cost of the BN-88-55 was $8.36... McLeod sold them for $10 to replacement markets customers but, as noted above usually sold them in completed motor s priced at $150 to $300. The production line All production in plant was in lots; parts were carried in standard bins forklifts. The standard bins held maximum of 1248 BN-88-55. Demand for the 15 end shield replaced by BN-88-55had totaled 2500 units a week, ranging from 58 to 375 per week with an average of 165. BN-88-55 was very similar to 15 end shields it replaced and their production required the same basic steps. The differences were in the structural features of the casting, particularly hole size and location. Before production of BN-88-55 had begun, the end shields had been made in batches of about 2 weeks demand. Although there had been some variation between products, the direct labor processing time for the 15 original end shields had also averaged 3.1 minutes. Each machine had only space for only 2 bins near it. On one side was a supply bin from which the worker took parts as or she worked on a batch; on the other was a receiving bin into which the worker placed completed parts. Although the batches could not be divided (that is, only a single machine could work on a given batch any one time) if necessary, more than one machine in a department could be scheduled for BN-88-55 production simultaneously. For each operation the inventory in a supply bin slowly decreased as in a receiving bin slowly decreased as work on the batch progressed. Each of the production operations (milling, drilling etc.) involved in a small number of steps (locating a piece in the supply bin, picking it up, inspecting, aligning it, activating the machine, inspecting the part and placing it in the reviving bin). When working on a batch, a production worker carried out these steps on each part of the batch. After the worker finished the batch, he informed the supervisor, the supervisor informed the production control department, and the production control department issued a move order. Subsequently, a martial handler moved the full receiving bin to a WIP storage area in the warehouse, a material handler brought a new supply bin of parts, and the two person set crew set the machine up to do the next operations. A material handler later removed the full receiving bin to the next operation in the sequence where it then became a supply bin for the next stage. After this series of activities had been completed, production could continue. It took only 10 minutes to move a batch to or from the warehouse and about 30 minutes on average to set up and test a machine. However, based on their experience, the production control staff knew that on average, a batch spent a total of 17 working days between operations, three working days in the warehouse between each pair of operations, and an additional working day for each operation waiting while the material handling and set-up personnel became available and completed their work and moving between the work centers and the warehouse. After McLeods executive committee approved sue Reynolds proposal, the engineering and production control staff drew up manufacturing plans for BN-88-55. The company would require about 2500 BN-88-55 per week to meet motor assembly and replacement part demand. This demand was the same as the total for the 15 end shields it replaced. BN-88-55 would require 5 separate operations normally performed in the sequence in the picture. Although tapping had to precede turning, the two tapping operations and or the two turning operations could be interchanged. The production control staff decide on a lot size of 1248 to maximum run length using full standard bins. Assuming a 40-hour week, an output of 2500 units per week requires 62.5 units per hour on the average, or just under 20 hours per work center for each batch of 1248. McLeod could vary the output rate by assigning 2 machines and or workers in a department to work more than one batch at a time. However, because of each dept. also worked on jobs for other motor lines and for other parts of motors in addition to end shields, it was extremely unlikely that all of a department capacity would be working on BN-88-55 at any one time.

My question is: how much is McLeod spending on WIP inventory of the new end shield each year (total not per unit).