Case Study
Mexicana Wire Works
Ron Garcia felt good about his first week as a management trainee at
Mexicana Wire Winding, Inc. He had not yet developed any technical
knowledge about the manufacturing process, but he had toured the entire
facility, located in the suburbs of Mexico City, and had met many people in
various areas of the operation.
Mexicana, a subsidiary of Westover Wire Works, a Texas firm, is a
medium-sized producer of wire windings used in making electrical
transformers. Carlos Alverez, the production control manager, described the
windings to Garcia as being of standardized design. Garcia’s tour of the
plant, laid out by process type (see Figure 7.20), followed the manufacturing
sequence for the windings: drawing, extrusion, winding, inspection, and
packaging. After inspection, good product is packaged and sent to finished
product storage; defective product is stored separately until it can be
reworked.
On March 8, Vivian Espania, Mexicana’s general manager, stopped by
Garcia’s office and asked him to attend a staff meeting at 1:00 P.M.
“Let’s get started with the business at hand,” Vivian said, opening the
meeting. “You all have met Ron Garcia, our new management trainee. Ron
studied operations management in his MBA program in southern California,
so I think he is competent to help us with a problem we have been discussing
for a long time without resolution. I’m sure that each of you on my staff will
give Ron your full cooperation.”
Vivian turned to José Arroyo, production control manager. “José, why
don’t you describe the problem we are facing?”
“Well,” José said, “business is very good right now. We are booking
more orders than we can fill. We will have some new equipment on line
within the next several months, which will take care of our capacity
problems, but that won’t help us in April. I have located some retired
employees who used to work in the drawing department, and I am planning
to bring them in as temporary employees in April to increase capacity there.
Because we are planning to refinance some of our long-term debt, Vivian
wants our profits to look as good as possible in April. I’m having a hard time
figuring out which orders to run and which to back order so that I can make
the bottom line look as good as possible. Can you help me with this?”
Garcia was surprised and apprehensive to receive such an important,
high-profile assignment so early in his career. Recovering quickly, he said,
“Give me your data and let me work with it for a day or two.”
April Orders
Product W0075C 1,400 units
Product W0033C 250 units
Product W0005X 1,510 units
Product W0007X 1,116 units
Note: Vivian Espania has given her word to a key customer that we will manufacture 600
units of product W007X and 150 units of product W0075C for him during April.
Figure 7.20
Mexicana Wire Winding, Inc.
Wire Finished
Office
Drawing Product
Storage
R
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w
o
r
k
D
e
p
a
r
t
m
e
n
t
Receivin Packagin
g and g
Raw
Winding Rejected
Material
Product
Storage Extrusion
Storage
Inspection
Standard Cost
Product Material Labor Overhead Selling Price
W0075C $33.00 $9.90 $23.10 $100.00
W0033C 25.00 7.50 17.50 80.00
W0005X 35.00 10.50 24.50 130.00
W0007X 75.00 11.25 63.75 175.00
Selected Operating Data
Average output per month = 2,400 units
Average machine utilization = 63%
Average percentage of production set to rework department = 5% (mostly
from Winding Department)
Average no. of rejected units awaiting rework = 850 (mostly from Winding
Department)
Plant Capacity (Hours)
Drawing Extrusion Winding Packaging
4,000 4,200 2,000 2,300
Note: Inspection capacity is not a problem; we can work overtime, as necessary, to
accommodate any schedule.
Bill of Labor (Hours/Unit)
Product Drawing Extrusion Winding Packaging
W0075C 1.0 1.0 1.0 1.0
W0033C 2.0 1.0 3.0 0.0
W0005X 0.0 4.0 0.0 3.0
W0007X 1.0 1.0 0.0 2.0
Discussion Questions
1. What recommendations should Ron Garcia make, with what
justification?
2. What is the Maximum profit?
Hints:
Objective function: Max profit=34 w75c + 30 W33C + . . . . .
Subject to: 1 W75C<=1,400
....
1 w75C + 2 W33C + 0 W5X + 1 W7X <=4,000
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There are 10 Constraints.
