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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
product’s 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.

 The management accounting system of the company failed to provide detailed component and process cost. Causes of the problem Some of the problems identified and the causes are as follows:  Lack of coordination amongst the Sales.  Customers wanted special products for a variety of volumes and there were more new orders for non-standard pumps.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.  The company changed their priorities due to customer pressure and their WIP was high. standard pumps as well as large non-standard pumps which is a cause of Concern. but the value analysis programme of product design had an objective of reducing the costs of ‘Standard Products’ and not the “non-standard” products. Design and Production department in the organization is a cause of concern.  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. Page | 1 .  He was pressurised to reduce costs.  Average six weeks in-progress production time was recorded for small. but lacked support from the Sales and Design department. The engineers applied ‘Blanket’ overhead cost to their main production processes.  Work-in-progress increased by a factor of three and the trend was towards a major cash flow crisis.

Moreover in the present situation it might be more easily accepted by the management. so a separate unit for camshaft production can be done so that there is sufficient assembly floor space for pumps and camshafts. extra labourers need to be hired separately for each of the production unit and requires more time to implement. Solution 2 requires high investment. Page | 2 . Camshaft production had more than doubled since subcontracted work had been undertaken.Decision criteria and alternative solutions  Extra skilled laborers need to be hired for the production of camshafts. as the investment required is relatively less and also less labourers need to be hired.  All the above decisions have to be taken based on the investments/costs involved. Possible Alternative Solutions 1. but it may be fruitful in the long run. The time required to implement is relatively less. Solution 2: To view all the products (camshafts. As we see in the case.  Pros and Cons of the above solutions : Solution 1 is much more cost effective compared to the second one. Camshaft production required skilled labor and workers from the machine floor will not serve this purpose. 2. Solution 1: To hire more specialized laborers for camshaft production. 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. the acceptance by the management and the time required to implement them. had put pressure on the available assembly floor space.  The camshafts and the pump production need to be separated so that more assembly floor space is available and production system becomes more efficient. This in turn. as suggested by the analyst.

This can be done by creating a separate floor where camshafts are produced.  Pick market trends to apply to the forecast.  Reports on previous company activity to help with projecting future production. The production process of camshaft requires highly skilled laborers for best finish and getting a better finished product. implementation and justification The recommended solution would be to go for solution 1 as previously suggested. hence the forecasting can be done quarterly and the production can be tuned accordingly. the company might use this to increase production. The market will play a role in dictating the extent to which customer demand will increase or decrease.  By forecasting the inventory turnover ratio will be better and also WIP will reduce considerably. Also extra machinery can be easily set up if required. If trends indicate that the market for a certain product is about to expand. Projecting for the future requires looking into the past.  Camshaft production unit can be isolated from the pump manufacturing unit. Page | 3 . This can be implemented in the following way:  Special skilled laborers have to be hired for camshaft production. the company might reconsider production needs.  Moving Average method can be used for forecasting.  Forecasting for a shorter period of time is proved to be more efficient. Using trend analysis we can spot the pattern of demand for the pumps. Market trends must work alongside expectations of customer demand. but if trends indicate a decrease in market interest. By doing this more assembly space is created and WIP will also reduce eventually making the production process much more efficient.  The company can also go for certain forecasting techniques which will help them to improve their sales tune their production process accordingly. and companies can utilize previous production results to make forecasts for the future.Recommended solution.

inprogress increased by a factor of three and the trend was towards a major cash flow crisis.  Six weeks in-progress production time was recorded for small. Work.  The value analysis programme of product design had an objective of reducing the costs of ‘Standard Products’ and not the “non-standard” products. Page | 4 . against different order winning criteria and making different and conflicting demands on the same production processes.End-of-case-questions Question 1: Identify the problems faced by the company. each competing in different markets. Due to all the above reasons the production process was inefficient. which may be ineffective because camshaft production requires high level of skilled laborers. standard pumps as well as large non-standard pumps.  Since the camshaft production had doubled. 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.  Failure to recognize that within one factory there were three separate businesses.  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.  There was lack of coordination amongst the Sales. there was a pressure on the available assembly floor space. Design and Production department in the organization.

bottlenecks and all the major process excess.  The analyst also found out that the large 12 inch pumps were given higher priority.  He also found that the standards and specials were costed using the same ‘standard costs’. study the demand trend and coordinate with the sales. which was related to product costs. Page | 5 . 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. 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 general machine shop workers were shifted to camshaft production.Question 2: Is the particular view of the planning analyst justified? Answer: Yes. design and finance team to achieve the best product and meet customer demands more efficiently. Evaluate its benefits to the company and its possible disadvantages.  The analyst was able to identify the major problem. He stated the reason for this is because the management accounting system could not provide detailed component and process costs. Question 3: Demonstrate how the proposal made by the Planning Analyst can be implemented. Many processes used common processes irrespective of the values. and managing them independently.  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. camshaft production had doubled and floor space availability had reduced. 3 production supervisors also need to be hired for each production unit.  Extra workers need to be hired and high investment has to be made.

The implementation if not done correctly can lead to major crisis. Managerial Accounting. It also requires good support from the other teams. Retrieved from http://en. Operations Management. (2013). N. WILEY. R. in the long run this can be fruitful if the planning and implementation is successful. Taylor. (2013). a. References Garisson.wikipedia. The high investment in the new plant has some risk factor involved.  The possible disadvantages for the company are. if the investment doesn’t pay-off. The benefits for the company is. (2013).org/wiki/Moving_average Page | 6 . Wikipedia. There is also enough space for assembly and extra demand during any phase can be met as there are sufficient laborers.