Question: Which product line would you choose as a focus for the plant$$s improvement efforts, oil pans or torque converters? Why? Please defend with metrics given in the business case $($below$)$ to support your answer.

Business Case: Acme Transmission Parts

You have recently been hired as the new plant manager of a major facility for Acme Transmission Parts, Inc. This site, a Tier $2$ supplier which makes oil pans and torque converters for transmission plants, is struggling to meet its on$-$time delivery targets and is facing tough competition that is looking to win over Acme$$s major contracts. Expedites in the supply chain are common and costs are out of control.

Acme also has a poor credit rating and investor confidence is low. Subsequently, there is no capital available for equipment and technology upgrades. Acme uses variable costing and each plant has its own Profit and Loss $($P&L$)$ Statement. Figure $1$ and Table $1$ provide some information about the plant.

Sales

Annual Revenue from Torque Converters $(195,000$ units$)$: $ $11,700$

Annual Revenue from Oil Pans $(810,000$ units$)$: $ $8,100$

Total Annual Revenue : $ $19,800$

Variable Expenses

Variable Cost of Goods Sold:

Beginning Inventory of Torque Converters: $$45$

Beginning Inventory of Oil Pans: $$31$

Total Beginning Inventory: $$76$

Add Variable COGS from Torque Converters: $$9,380$

Add Variable COGS from Oil Pans: $$5,143$

Goods Available for Sale: $ $14,599$

Less Ending Inventory of Torque Converters: $$49$

Less Ending Inventory of Oil Pans: $$41$

Variable Cost of Goods Sold: $$14,509$

Labor Rate Variance: $$176$

Labor Efficiency Variance: $$353$

Materials Price Variance: $$328$

Materials Quantity Variance: $$517$

Variable Selling and Administrative Expenses $($$$2/$ Torque Converter and $$1/$ Oil Pan$)$: $$1,200$ $$17,084$

Contribution Margin: $$2,716$

Fixed Expenses

Fixed Manufacturing Overhead: $$3,000$

Fixed Selling and Administrative Expenses: $$400$ $$3,400$

Net Operating Income: $-$$$684$

Net Margin: $-3\mathrm{.}45\%$

Figure $1$: Profit and Loss Statement for Acme Toledo Plant $$ End of Year $0($All figures in $$000)$

Table $1$: Key Operating Metrics for Acme Toledo Plant

Metric Value

Lost Work Day Rate $($lost workdays $/200,000$ hrs worked$)4$

Incident Rate $($recordable injuries $/200,000$ hrs worked$)10\mathrm{.}5$

Customer Return Rate for Torque Converters $0\mathrm{.}50\%$

Customer Return Rate for Oil Pans $0\mathrm{.}15\%$

Overall Return Rate $($Weighted by Sales $ Volume$)0\mathrm{.}36\%$

Overall Quality Yield $($RTY$)$ for Torque Converters $95\mathrm{.}30\%$

Overall Quality Yield $($RTY$)$ for Oil Pans $99\mathrm{.}20\%$

Scrap $ Torque Converters at Standard Cost $($$$000)$ $ $485\mathrm{.}6$

Scrap $ Oil Pans at Standard Cost $($$$000)$ $ $48\mathrm{.}8$

On$-$Time Delivery for Torque Converters $($Goal of $5$ business days order to ship$)60\%$

On$-$Time Delivery for Oil Pans $($Goal of $2$ business days order to ship$)82\%$

Overall On$-$Time Delivery $($Weighted by Sales $ Volume$)69\%$

Overtime $($OT$)$ Hours Worked to Straight Time $($ST$)$ Hours Worked Ratio $0\mathrm{.}42$

Temp Worker Hours to Permanent Worker Hours Ratio $($Temps for all absence coverage$)0\mathrm{.}1$

Business Days per Year $250$

The company$$s new CEO is big on lean and expects SQDC priorities to be followed. Your boss, the VP of Operations, has requested that your plant the following in the next $5$ years:

$(1)$ Safety:ImproveallSafetyMetricsby$80\%$

$(2)$ Quality: Reduce Overall Return Rate to $<0\mathrm{.}20\%$ for all products

$(3)$ Delivery:ImproveOverallOn$-$TimeDelivery$($OTD$)$to$>95\%$forallproducts $(4)$ Cost:NetMarginof$>5\%$

The company is looking to consolidate operations and your boss has also indicated that if breakthrough improvement is not reached in the $1$st year of your tenure, the plant will likely be slated for closure. However, if the plant meets or exceeds these expectations, business will be transferred into the plant.

Direct Reports to the Plant Manager:

Dale: Operations Manager

Bob: Engineering Manager

Barb: Production & Inventory Control Manager Joe: Quality Manager

Jeanne: Safety Manager

Facts on Torque Converters:

Basic Components per Unit: $5($Turbine$,$ Impeller, Reactor, Damper, Shell$)$

Models: $2(9$ and $10)$

Purchased Materials: Steel $(3$ gauges$),$ Reactors, Dampers, Friction Plates, Hubs, Studs Weighted Average Standard Variable Cost per Unit: $$48\mathrm{.}10$

Facts on Oil Pans:

Basic Components per Unit: $1$

Purchased Materials: Steel $(1$ gauge$)$

Models: $3$

Weighted Average Standard Variable Cost per Unit: $$6\mathrm{.}35$