This PPT is for a case on the above topic and it is basically a summary of case you can solve the case by seeing only it.

1. MICHIGAN
MANUFACTURING
CORPORATION :
THE PONTIAC
PLANT, 1988 CASE
STUDY

2. MMC
HED
The
Pontiac 8 others 1 New
Plant
*The Plants are Specialized by Product lines to minimize fixed investment.

3. HEAVY EQUIPMENT DIVISION
 This division of MMC mainly focused on Transportation Industry.
 Its main components were on- and off- highway axles, brakes ,
Drive train and Suspension components.
 MMC profit had been declining for 3 years, therefore HED is
under pressure to perform well.
 Different plants are fractioned on the basis of complexity.

4. COMPLEXITY
 Complexity of Plant Manager’s Job Depends on the products
produced in the plant.
 3 Levels of complexity is defined in HED-
 Product Line
 Product families
 Product Model

5. PRODUCT LINE
 It is the very important measure of complexity.
 There are three Product Lines in HED :-
 On- Highway Axles (6 Plants)
 Off-Highway Axles (3 Plants)
 Brakes (2 Plants)
The Table of Which is given by (Exhibit 1)

6. PRODUCT FAMILIES
 Different families typically required unique routing while on
product line.
 The Pontiac plant made :-
 most of the Low volume families
 Prototypes for new products
 Replacement parts for the old one.

7. PRODUCT MODEL
 A Product Family can comprise of models up to 20 types.
 They follow same routing but require different tooling or according
to customer’s need.
 Each of the plants has to be stand alone in terms of profitability.
 Major Concern was return on assets employed.

8. HED PLANTS

9. DIVISIONAL MAIN CONCERN
 Managing the Division’s complex set of manufacturing families.
 Whether to sell plant and machinery to customers or keeping the
plant open and transferring in products from saginaw.
 HED’s product line, which expanded inexorably.

10. THE PONTIAC PLANT
 It is the oldest plant of MMC.
 Over the time profitable products were shifted to other dedicated
plants.
 The pontiac plant remained with
 Low volume products- 60% On-Highway and 40% off-Highway
 Replacement parts for all the old one.

11. FINANCIAL STATEMENT OF PONTIAC
PLANT

12. FACTORS CAUSING POOR
PERFORMANCE
 Allen, the newly appointed plant manager, determined some
contributing factors for decreasing performance of plant while she
was division controller for 5 years.
 These are-
o Investment
o Machine Tools
o The Plant
o Labor
o Overhead
o Product Costs

13. INVESTMENT
 The investment and depreciation

14. MACHINE TOOLS
 Variety of machine tools were used.
 Due to antiqueness of tools and low volume per model setup time,
generally ,run 10 times then for a making of part.
 Average age of machine tools at
 Pontiac plant- 33.1 years
 HED- 15.9 years

15. THE PLANT
 A 1986 report had stated-
 Electric system is inadequate.
 The sewer system is springing leaks.
 Plant is below our insurance standards.
 Thus plant needs major improvements increasing overhead cost.

16. LABOR
 Union – UAW, America.
 Machine operators were skilled workers.
 Main problems were-
 Bad labor habits had developed over the years
 Absenteeism and turnover
 Polarization among employee
 Culture and expectations changed
 Wages are higher than new employees.

17. POLARIZATION

18. OVERHEAD
 It is significantly higher than of other plants
 Allen felt the factors are –
 increasing maintenance costs
 Past-service pension ($648,000 expense in 1987)
The previous manager once said “Many of these retired employees had worked
on products that had later transferred to other, yet the pension expense remained
with the pontiac plant.”

19. PRODUCT COSTS
 A uniform product costing system.
 In this system a uniform cost of product is decided irrespective of
plant.
 In this Process all new technology plants are in benefit as cost of
production is less than pontiac plant.

20. THE PONTIAC PLANT STUDY
GROUP
A feasibility study was conducted ,under Allen, to evaluate
alternatives for pontiac. The team put the pontiac plant’s products in
three general groups:
 On-highway axles that are economically worth continuing to
produce.
 Off-highway axles that are worth continuing.
 Both on- and off-highway axles that are not economically justified.

21. STUDY GROUPS

22. It was also realized that the plant’s visible overhead were very very
less compared to the others. But the numbers were against pontiac
and the stay wasn’t justified and some considerations were also to
be made before that,
 Employees.
 Customers.
 Competitors.
 MMC’s situation.
A feasible short term initiative was required to make place more
profitable before making any longer range plans.

23. COMMENTS ABOUT GROUP-1
Price increase of the products 10%
Avg. Direct Labor Saving 5%
Materials Cost Savings 2%
Tooling Cost 8.5 million $
Fully Loading the volume of our underutilised plants for better
advantage of economics of Scale.

24. COMMENTS ABOUT GROUP 2
Direct Labor Savings 6%
Materials Savings 1%
Tooling Cost $5.5 million
Incremental Overhead costs $420k / year/ plant

25. COMMENTS ABOUT GP-3
 The Direct Labor content is too high.
 Volume is just too low.
 Can be produced at any other plant at lower cost than Pontiac.
The Question is : If we drop the axle what do we
do for our customers ?

26. ALTERNATIVE FOR THE PONTIAC
PLANT
 Closing can bring $2 million.
 Employee termination cost $3 million.
 If kept , maintenance would cost $1-2 million/year.
 Remaining time till it falls apart 6-10 years.

27. A NEW PLANT.
 Savings $1.5 m per year based on Pontiac
 Invest in plant and tooling $18.5 million.
 Start up cost $3 million.

28. UAW LETTER TO NOELLE ALLEN
 What is the purpose of the “feasibility studies” of Pontiac Plant ,
what does this study consist of , and will the union be offered the
opportunities to see the results ?
 When and if this study is completed will the union members be
notified of its results and will they have the opportunity to voice
their opinions before any official decisions made about the plant’s
future ?

29. 3 MAJOR ALTERNATIVES IN FRONT OF
ALLEN
 Close the plant as soon as possible and transfer products to the
other plants
 Invest in plant’s tooling as an attempt to develop a viable
operation for at least the next 5-10 years.
 Build a new plant.
What are your suggestions?