Case Study- High Performance Pumps

Group number: 1, Section A

Submitted by:
Ashish Mishra

13013

Kavita Mary Thomas

13027

N Shushma

13036

Prashanti Mullagolla

13041

Shonit Mittal

13048

Vivek Narayanan

13061

Submitted to: Dr. R. Jagadeesh

Submitted on: 21-Oct-2013

Executive Summary
A small business manufactures high performance pumps for off-highway equipment. The
products included small and large pumps and camshafts. Initially the production process
was cost effective but over a period of time as production increased the profitability
slumped. The problems stated by the production manager were that there was inadequate
support from the sales and design department. The production also was disrupted. The
business analyst who was newly hired identified that there is no sufficient assembly floor
space and the product costs were not reported correctly. He suggested to the Managing
Director to view the 3 products as 3 different business and create a new plant where each
products production is managed independently. The recommended plan of action would
be to separate the camshaft production separately from the pumps, and also hire skilled
labourers for camshaft production with some extra investment which could be fruitful for
the company in the future. Also certain forecasting methods can be used to track demand
and tune the production process accordingly.

Statement of the problem

Some of the problems faced by the production manager as seen in the case are as follows:

During the 6 year period the camshaft production had increased by 4 times but the profits had
slumped.

Work-in-progress increased by a factor of three and the trend was towards a major cash flow
crisis.

He was pressurised to reduce costs, but lacked support from the Sales and Design department.

Causes of the problem

Some of the problems identified and the causes are as follows:

Lack of coordination amongst the Sales, Design and Production department in the organization
is a cause of concern.

Customers wanted special products for a variety of volumes and there were more new orders
for non-standard pumps, but the value analysis programme of product design had an objective
of reducing the costs of Standard Products and not the non-standard products.

Production had been disrupted through both the value analysis exercise and the increased
number of set-ups to cope with the variety increase and volume drop.

The management accounting system of the company failed to provide detailed component and
process cost. The engineers applied Blanket overhead cost to their main production processes.

Average six weeks in-progress production time was recorded for small, standard pumps as well
as large non-standard pumps which is a cause of Concern.

The company changed their priorities due to customer pressure and their WIP was high.

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Decision criteria and alternative solutions

Extra skilled laborers need to be hired for the production of camshafts.

The camshafts and the pump production need to be separated so that more assembly floor space
is available and production system becomes more efficient.

All the above decisions have to be taken based on the investments/costs involved, the
acceptance by the management and the time required to implement them.
Possible Alternative Solutions

1. Solution 1: To hire more specialized laborers for camshaft production. Camshaft production
required skilled labor and workers from the machine floor will not serve this purpose.
As we see in the case, Camshaft production had more than doubled since subcontracted work
had been undertaken. This in turn, had put pressure on the available assembly floor space, so a
separate unit for camshaft production can be done so that there is sufficient assembly floor
space for pumps and camshafts.
2. Solution 2: To view all the products (camshafts, small and large pumps) as a separate business
and make each of their production process an autonomous unit by physically separating each
of them by building walls, as suggested by the analyst.

Pros and Cons of the above solutions :

Solution 1 is much more cost effective compared to the second one, as the investment required
is relatively less and also less labourers need to be hired. The time required to implement is
relatively less. Moreover in the present situation it might be more easily accepted by the
management.
Solution 2 requires high investment, extra labourers need to be hired separately for each of the
production unit and requires more time to implement, but it may be fruitful in the long run.

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Recommended solution, implementation and justification

The recommended solution would be to go for solution 1 as previously suggested. This can be
implemented in the following way:

Special skilled laborers have to be hired for camshaft production. The production process of
camshaft requires highly skilled laborers for best finish and getting a better finished product.

Camshaft production unit can be isolated from the pump manufacturing unit. This can be done
by creating a separate floor where camshafts are produced. By doing this more assembly space
is created and WIP will also reduce eventually making the production process much more
efficient. Also extra machinery can be easily set up if required.

The company can also go for certain forecasting techniques which will help them to improve
their sales tune their production process accordingly.

Moving Average method can be used for forecasting. Using trend analysis we can spot the
pattern of demand for the pumps.

Reports on previous company activity to help with projecting future production. Projecting
for the future requires looking into the past, and companies can utilize previous production
results to make forecasts for the future.

Forecasting for a shorter period of time is proved to be more efficient, hence the forecasting
can be done quarterly and the production can be tuned accordingly.

Pick market trends to apply to the forecast. Market trends must work alongside expectations
of customer demand. The market will play a role in dictating the extent to which customer
demand will increase or decrease. If trends indicate that the market for a certain product is
about to expand, the company might use this to increase production, but if trends indicate a
decrease in market interest, the company might reconsider production needs.

By forecasting the inventory turnover ratio will be better and also WIP will reduce
considerably.
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End-of-case-questions
Question 1: Identify the problems faced by the company.
Answer: Some of the problems faced by the company are as follows:

The camshaft production had increased by 4 times but the profits had slumped. Work- inprogress increased by a factor of three and the trend was towards a major cash flow crisis.

There was lack of coordination amongst the Sales, Design and Production department in the
organization.

The value analysis programme of product design had an objective of reducing the costs of
Standard Products and not the non-standard products.

Six weeks in-progress production time was recorded for small, standard pumps as well as large
non-standard pumps.

The management accounting system of the company failed to provide detailed component and
process cost.

The labor from the general machine shop were shifted to the camshaft production unit, which
may be ineffective because camshaft production requires high level of skilled laborers.

Since the camshaft production had doubled, there was a pressure on the available assembly
floor space.

Failure to recognize that within one factory there were three separate businesses, each
competing in different markets, against different order winning criteria and making different
and conflicting demands on the same production processes.

Due to all the above reasons the production process was inefficient.

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Question 2: Is the particular view of the planning analyst justified?

Answer: Yes, the particular view of the planning analyst is justified through the following
points:

The shop-floor supervisors gave him a lot of respect and coordinated with him to identify the
problems, bottlenecks and all the major process excess.

The analyst was able to identify the major problem, which was related to product costs. Many
processes used common processes irrespective of the values. He stated the reason for this is
because the management accounting system could not provide detailed component and process
costs.

He also found that the standards and specials were costed using the same standard costs.

The analyst also found out that the large 12 inch pumps were given higher priority, camshaft
production had doubled and floor space availability had reduced, and general machine shop
workers were shifted to camshaft production.

Keeping in mind all the above points the analyst suggested to separate the three business and
to rearrange the production on to an autonomous product basis.

Question 3: Demonstrate how the proposal made by the Planning Analyst can be implemented.
Evaluate its benefits to the company and its possible disadvantages.
Answer: The implementation process can be done in the following way:

The production process of the products have to be separated by producing them in individual
floors, and managing them independently.

Extra workers need to be hired and high investment has to be made. 3 production supervisors
also need to be hired for each production unit, study the demand trend and coordinate with the
sales, design and finance team to achieve the best product and meet customer demands more
efficiently.
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The benefits for the company is, in the long run this can be fruitful if the planning and
implementation is successful. It also requires good support from the other teams. There is also
enough space for assembly and extra demand during any phase can be met as there are
sufficient laborers.

The possible disadvantages for the company are, if the investment doesnt pay-off. The high
investment in the new plant has some risk factor involved. The implementation if not done
correctly can lead to major crisis.

References
Garisson, N. (2013). Managerial Accounting.
Taylor, R. a. (2013). Operations Management. WILEY.
Wikipedia. (2013). Retrieved from http://en.wikipedia.org/wiki/Moving_average

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