Wriston Case Memo

1075 WordsDec 4, 20125 Pages
MEMORANDUM TO: Richard Sullivan, Vice President of HED, Wriston From: FT28312 Subject: Wriston Manufacturing Corporation Case Analysis and Summary Date: January, 1992 Summary The Heavy Equipment division of the Automotive Supplier group of the Wriston Manufacturing Corporation is a large axle and brake manufacturer having three broad product lines which are being manufactured in its nine plants. The Detroit Plant which is the oldest plant of HED has been operating at low profitability level for the past few years. Due to several factors explained in issue analysis, operation of the plant is not…show more content…
Loyalty to company is not necessarily a priority for new workers and polarization I of workforce into two groups adds complexity to the situation. Alternatives Analysis 1) Closing the plant and transferring group 1 to Lancaster, Group 2 to Saginaw and dropping the group 3 may result in net cash out flow of $4Million in the year and NPV of $47 million (refer Appendix2). But complexity costs of handling the low volume products has not been included and specialized flow job in receiving plants would have to be modified to manufacture Detroit products. There are also issues involved with termination of people, public backlash from Detroit community and media and loss of potential sales. 2) Invest in plant tooling – This option has the lowest NPV hence is very unattractive option (Refer Appendix 3).Also this is a short term option and at the end of 5-10 years we have to decide again. 3) Building a new plant- Assuming a 10% after-tax hurdle rate and that the new plant operates for at least 20 years the NPV of this option is highest ($47.10 million). Refer appendix 3.During the period that the new plant is built the groups 1 and 2 can continue to be manufactured in the Detroit plant. The company is committed to its long term employees who may be retired by the end of the Detroit plants operations thus eliminating the necessity for

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