wriston case LMS
Wriston Manufacturing
S. Chopra/Operations/Strategy
1
Wriston Manufacturing
Burden Rates (total overhead cost / direct labor cost)
7
6
5
4
3
2
1
0
Sanduski
Detroit
Lima
Lebanon
Saginaw
Essex
Tiffin
Freemont
Tiffin
Freemont
Maysville
Free capacity and Throughput
160
140
120
100
80
60
40
20
0
Sanduski
S. Chopra/Operations/Strategy
Detroit
Lima
Lebanon
Saginaw
Essex
Maysville
2
Wriston Manufacturing Corp:
OH Burden rates: Economies of Scale?
Sales vs. burden
7
Detroit
(20, 34.8)
6
Essex
Lima (4, 22.6)
(4, 12)
5
Saginaw
(10, 94.2)
Sandusky
(5, 66.8)
Burden
4
Tiffin
(6, 91.6)
3
Lebenon
(2, 72.6)
2
Fremont
(10, 158)
Maysville
(2, 110)
1
0
0
20
S. Chopra/Operations/Strategy
40
60
80
100
Sales
120
140
160
3
180
Wriston Manufacturing Corporation
Exp. Burden = 4.37658 - 0.01730*Sales + 0.13084 # Families
(R. Sq. = .82, p-value = 1.29% {families}, 0.95%{Sales}).
Wriston Manufacturing Corporation
If Detroit production is moved to Maysville
– Families = 22, Sales = 144.8
Implied burden rate at Maysville = 4.75 (at 100% effectiveness) or 4.75/1.17 = 4.06 (at 117% effectiveness)
Burden rate on 20 families from Detroit would decline but burden rate on the two families at Mayville (representing
$110 million in sales) would increase significantly
S. Chopra/Operations/Strategy
5
Wriston Manufacturing Takeaways
Required capabilities change with market segment and product life cycle. As a result firm may need to develop conflicting capabilities
Key drivers of overhead include variety and scale.
Overhead per unit increases with variety and decrease with scale.
Focused factories, each focused on a single capability, handle conflicting capabilities better than a single factory trying to provide all capabilities
S. Chopra/Operations/Strategy
6
S. Chopra/Operations/Strategy
1
Wriston Manufacturing
Burden Rates (total overhead cost / direct labor cost)
7
6
5
4
3
2
1
0
Sanduski
Detroit
Lima
Lebanon
Saginaw
Essex
Tiffin
Freemont
Tiffin
Freemont
Maysville
Free capacity and Throughput
160
140
120
100
80
60
40
20
0
Sanduski
S. Chopra/Operations/Strategy
Detroit
Lima
Lebanon
Saginaw
Essex
Maysville
2
Wriston Manufacturing Corp:
OH Burden rates: Economies of Scale?
Sales vs. burden
7
Detroit
(20, 34.8)
6
Essex
Lima (4, 22.6)
(4, 12)
5
Saginaw
(10, 94.2)
Sandusky
(5, 66.8)
Burden
4
Tiffin
(6, 91.6)
3
Lebenon
(2, 72.6)
2
Fremont
(10, 158)
Maysville
(2, 110)
1
0
0
20
S. Chopra/Operations/Strategy
40
60
80
100
Sales
120
140
160
3
180
Wriston Manufacturing Corporation
Exp. Burden = 4.37658 - 0.01730*Sales + 0.13084 # Families
(R. Sq. = .82, p-value = 1.29% {families}, 0.95%{Sales}).
Wriston Manufacturing Corporation
If Detroit production is moved to Maysville
– Families = 22, Sales = 144.8
Implied burden rate at Maysville = 4.75 (at 100% effectiveness) or 4.75/1.17 = 4.06 (at 117% effectiveness)
Burden rate on 20 families from Detroit would decline but burden rate on the two families at Mayville (representing
$110 million in sales) would increase significantly
S. Chopra/Operations/Strategy
5
Wriston Manufacturing Takeaways
Required capabilities change with market segment and product life cycle. As a result firm may need to develop conflicting capabilities
Key drivers of overhead include variety and scale.
Overhead per unit increases with variety and decrease with scale.
Focused factories, each focused on a single capability, handle conflicting capabilities better than a single factory trying to provide all capabilities
S. Chopra/Operations/Strategy
6