Wriston Manufacturing Corporation

1481 words 6 pages
MEMORANDUM
TO: Richard Sullivan
FROM:
SUBJECT: Wriston Manufacturing Corporation
DATE: June 9, 2011

Wriston Manufacturing Corporation (WMC) is faced with a Detroit plant that is no longer viable because of underinvestment, labour issues, and product-process mismatch. This has lead to low sales figures, low return, and high burden rates (as calculated by the company). The issues at the Detroit plant will be reviewed and options will be presented. A recommendation to address the Detroit plant will be be made based on this review.

Issues: Investment in the Detroit plant has lagged significantly from other plants in the corporation. As a result, the infrastructure and machinery is outdated, haphazard, and inefficient.
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Recommendation: Despite an intermediate NPV, WMC should strongly consider the construction of a new Detroit plant based on a flexible manufacturing system to continue to produce low volume product lines. Additionally, WMC should reevaluate its accounting practices to better match revenue streams to production costs. The company should also assess the processes of the Lima plant to better understand, and then implement improvements, to address the negative ROA and low capacity of that plant.
Word Count: 999 Appendix 1 – Financial Options (NPV Assumes 10% Discount Rate)
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Detroit Plant Closure
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Sale of Old Plant: $4,000,000
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Employee Termination Cost: ($6,000,000)
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Group 1 Transfer Tooling Cost: ($17,000,000)
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Group 2 Transfer Tooling Cost: ($8,000,000)
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Group 3 Transfer Tooling Cost: None as product is dropped
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Total One Time Cost of Closure: ($27,000,000)

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