Case 112: The United LN Plant Scraps

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Case 11-2 The United L/N Plant (Scraps Defects)

• Sarah Lehman
• Joseph Bao

Stanley Chan Stanley Htun
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Background

• Libby-Owens-Ford Parent Company
• Major Producer of Glass Products
• Two subsidiaries

• 2. United L/N
• Glass Fabrication Plant
• Strategic Business Unit

• 1. Rossford Plant
• Produces Raw Float Glass
• Standard Cost Center

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Fabrication Process

• 2. United L/N
• Fabrication process is in-line, automated, and
  computerized
• Just-In-Time and Pull Method
• No idle WIP inventory
• Human intervention for maintenance and repair
  only

• 1. Rossford Plant
• Each fabrication process treated as individual
  cost center
• Each department has a WIP inventory
• All processes require human intervention
• Separate departments

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Product Costing System

• 2. United L/N
• One large pool of costs

• 1. Rossford Plant
• Separate cost pools

• Cut and Trim
• Edged
• Shaped
• Inspect, packaging, shipping

Cut and Trim
Edging
Shaping
Inspection, packaging, and shipping
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Problems at United L/N

• Inefficient furnace operation
• Furnace operation led to gaps and increased scarp
• Problems at the cutting and edging process led to
  downtime at the furnace operation Lost
  productivity
• Decreased plant yield due to scrap

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Q1 Who gets charged for Scrap?

• United L/N
• The problem with scrap is caused by imperfections
  in the raw glass from Rossford rather than the
  process
• Therefore scrap variance should be charged to
  Rossford

• Rossford Plant
• Charge-back maybe inappropriate
• - Or -
• Charge-back maybe too high

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Q1 United L/N Compromise

• Modify Scrap Costing System
• Track Separately Scrapped Materials, and Scrapped
  Overhead
• Charge back Rossford for Scrapped Glass Material
  (if glass is defective)
• Charge Scrapped Overhead to United L/N Scrap
  Variance Account

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Q2 How could management determine the specific
causes of defects in the scrapped units?

• Temporary Program Thorough inspections for a
  limited time
• After, AQL Inspections / Monitoring throughout
  the process
• Results Short-term, the fully automated plant
  will be run as a more traditional plant
  carrying work in progress, having some buffer.

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Q3 What could be done to solve the problems with
the furnace inefficiency and ineffectiveness?

• Inspections before glass is loaded for cutting
• Keep some buffer stockpile in front of the
  furnace
• Efficiencies will go down, but will hopefully be
  offset by the savings

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Questions?