Managing Operations is Sound Prioritization:
The Mexicana Wire Works Case

A case report presented to the faculty of the

Master of Business Administration

Far Eastern University

In partial fulfilment of the requirements

In Quantitative Analysis

Submitted To:

Professor Willy Cuason

Submitted By:

Jeancy Dela Rosa
Joan Eclipse
Gerra Lanuza
Mark Nimeno
Timmyleh Pocong
Jerome Tumambing

June 03, 2014

I. Case Background

Mexicana Wire Winding, Inc. is a subsidiary of Westover Wire Works based in Texas which is a medium-sized producer of wire windings of electrical transformers. Ron Garcia is the new management trainee, who studied operations management in his MBA program but lacks any technical knowledge about the manufacturing process. He is tasked to help the company in solving the increase in booking orders for April.There will be new equipments coming in the next several months but these won‘t help them fill the April orders. (Render & Stair, 2012)

To better understand the case the group researched on the sequence on how to produce wire windings as discussed in the case:

1. “Wire Winding- the metalworking process used to reduce the cross-section of a wire by pulling the wire through a single, or series of, drawing die(s). There are many applications for wire drawing, including electrical wiring, cables, tension-loaded structural components, springs, paper clips, spokes for wheels, and stringed musical instruments. Although similar in process, drawing is different from extrusion, because in drawing the wire is pulled, rather than pushed, through the die. Drawing is usually performed at room temperature, thus classified as a cold working process, but it may be performed at elevated temperatures for large wires to reduce forces

2. Wire Extrusion- the process used to create objects of a fixed cross-sectional profile. A material is pushed or drawn through a die of the desired cross-section. The two main advantages of this process over other manufacturing processes are its ability to create very complex cross-sections, and to work materials that are brittle, because the material only encounters compressive and shear stresses. It also forms finished parts with an excellent surface finish

3. Wire Winding- simply the process of accumulating wire on a package or spool to facilitate the packaging process

4. Inspection is, most generally, an organized examination or formal evaluation exercise. In engineering activities inspection involves the measurements, tests, and gauges applied to certain characteristics with regard to an object or activity. The results are usually compared to specified requirements and standards for determining whether the item or activity is in line with these targets. Inspections are usually non-destructive

5. Packaging is the technology of enclosing or protecting products for distribution, storage, sale, and use” (Wikipedia, 2012)

II. Statement of the Problem

Mexicana Wire works is booking more orders than they can fill. How can Mexicana’s profits look as good as possible in April? Which orders to run and which to back order?

III. Answers to Case Questions

1. What recommendation should Ron Garcia make, with what justification? Provide a detailed analysis with charts, graphs, and computer printouts included

Based on the given constraints, we recommend that Mexicana Wire Works, Inc. should manufacture 1,100 units of W00075C, 250 units of W0033C and 600 units of W0007X, with these number of units they can maximize profits to $59,900.

The group used the QM Software for windows to get the answers above. Here are the actual results of running the data given in the case.

|Mexicana Wire | | | | | | |
|Works | | | | | | |
| | | | | | | |
|W0033C |80.00 |25.00 |7.50 |17.50 |50.00 |30.00 |
|W0005X |130.00 |35.00 |10.50 |24.50 |70.00 |60.00 |
|W0007X |175.00 |75.00 |11.25 |63.75 |150.00 |25.00 |
|Total | | | | | |$ 149.00 |

It should be noted that the Present Situation data is used by the group as the base case of this section. The total profit per unit is USD 149.00

Scenario 1: All departments will render overtime to accommodate all orders for the month of April.

| |SP/u |Material |Labor |Overhead |Total Cost |Profit/u |
|W0033C |80.00 |25.00 |22.50 |17.50 |65.00 |15.00 |
|W0005X |130.00 |35.00 |31.50 |24.50 |91.00 |39.00 |
|W0007X |175.00 |75.00 |33.75 |63.75 |172.50 |2.50 |
|Total | | | | | |$ 70.70 |

In this scenario, it should be noted that the group assumed that labor cost will be tripled per Mexican Labor Law and that overhead cost is retained/fixed. The resulting profit per unit is USD 70.70.

Scenario 2: Hire former workers on a contractual basis for the drawing department

|SP/u |Material |Labor |Additional Labor Cost |Overhead |Total Cost |Profit/u | |W0075C |$100.00 |$ 33.00 |$ 9.90 |$ 2.48 |$ 23.10 |$ 68.48 |$ 31.53 | |W0033C |80.00 |25.00 |7.50 |2.50 |17.50 |52.50 |27.50 | |W0005X |130.00 |35.00 |10.50 |- |24.50 |70.00 |60.00 | |W0007X |175.00 |75.00 |11.25 |2.81 |63.75 |152.81 |22.19 | |Total | | | | | | |$141.21 | | For scenario 2, it should be noted that the group assumed that overhead cost is retained/fixed. The only difference of this model is additional labor cost which is computed as the proportion of the drawing bill of labor to the total bill of labor multiplied by the per unit labor cost. The resulting profit per unit is USD 141.21.

Scenario 3: Subcontract product W0033C & W0005X

|SP/u |Material |Labor |Subcontract Cost (80% of reg. hourly labor rate) |Overhead |Total Cost |Profit | |W0075C |$100.00 |$ 33.00 |$ 9.90 |$ - |$ 23.10 |$ 66.00 |$ 34.00 | |W0033C |80.00 |25.00 |- |6.00 |- |31.00 |49.00 | |W0005X |130.00 |35.00 |- |8.40 |- |43.40 |86.60 | |W0007X |175.00 |75.00 |11.25 | |63.75 |150.00 |25.00 | |Total | | | | | | |$194.60 | | For scenario 3, it should be noted that the group assumed that the production of W0033C and W0005X will be subcontracted to a third party. With this, labor cost and overhead cost will only be applied to W0075C and W0007X the product lines which are in demand in April. The group assumed that cost of subcontracting is 80% of the regular labor cost. The resulting profit per unit is USD 194.60.

Summary of all Scenarios

Product |SP/u |Present Scenario |Scenario 1 |Scenario 2 |Scenario 3 | | | |Total Cost |Profit/u |Total Cost |Profit |Total Cost |Profit |Total Cost |Profit | |W0075C |$100.00 |$ 66.00 |$ 34.00 |$ 85.80 |$ 14.20 |$ 68.48 |$ 31.53 |$ 66.00 |$ 34.00 | |W0033C |80.00 |50.00 |30.00 |65.00 |15.00 |52.50 |27.50 |31.00 |49.00 | |W0005X |130.00 |70.00 |60.00 |91.00 |39.00 |70.00 |60.00 |43.40 |86.60 | |W0007X |175.00 |150.00 |25.00 |172.50 |2.50 |152.81 |22.19 |150.00 |25.00 | |Total | |$ 336.00 |$ 149.00 |$414.30 |$ 70.70 |$343.79 |$ 141.21 |$290.40 |$194.60 | |

Graphical Representation

The graph shows that in terms of total cost per unit, Scenario 3, which is to subcontract, has the lowest financial effect to the company. Likewise, in terms of the bottom line of the Mexicana Wire Works Co., Scenario 3 produced the highest value.

2. Discuss the Plant Layout

The Plant Layout is retained so as not to incur additional cost in a total overhaul of the floor plan. It should be emphasized, however, that drawing, winding, extrusion, inspection and packaging are sequentially situated to save time and resources in the transportation of work in process goods from one department to another. The group also deliberately increased the space for the rework department to give priority of transforming defective products to be quality ready. Consequently, the group deliberately decreased the space for the rejected product storage because bulk of products for disposal is foreseen to be recycled or sold.

IV. Recommendation and Implementation

• Maintain status quo.

No additional workers will be hired. There will be changes in the layout of the plant, giving bigger space for the Rework Department.

• Subcontract

There will be a party hired by Mexicana to produce the product a service level agreement to assure that the subcontractors will be fully obligated with the terms of the company.

Bibliography

Render, B., & Stair, R. M. (2012). Quantitative Analysis. New Jersey: Prentice Hall.

Wikipedia. (2012). Retrieved June 01, 2014, from Wikipedia: www.wikipedia.org