For the exclusive use of T. Dartanto, 2022.

W16786

AMERICAN AUTOMOBILES LIMITED: PRODUCTION PLANNING

Ajith Kumar, Soumitra Chakraborty, and Ankit Dhaka wrote this case solely to provide material for class discussion. The authors do
not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names
and other identifying information to protect confidentiality.

This publication may not be transmitted, photocopied, digitized, or otherwise reproduced in any form or by any means without the
permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights
organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western
University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e) cases@ivey.ca; www.iveycases.com.

Copyright © 2016, Richard Ivey School of Business Foundation Version: 2018-12-04

It was a bright morning in mid-April 2015. Waking up, the first thing that Michael Adams remembered was
the production planning and control (PPC) meeting to be held later in the day at American Automobiles
Limited (AAL). Adams had recently been promoted to section manager and was looking after production
planning in the stamping department, also known as the stamping shop. He reported to Chris Davis, the
functional head, who was new to the stamping shop. Davis had been transferred there from the weld shop
just two months prior.

“In PPC meetings, they do not usually call someone at my level, so it must be something serious,” Adams
thought. The agenda was to discuss capacity constraints that became evident from the increased demand
forecast for the upcoming months. The meeting would be chaired by the director of production. All
divisional and functional heads would attend and contribute to the discussions.

Adams recollected a conversation he had had with Davis the previous day:

Davis: Adams, have we calculated the load per press for the next month?

Adams: Yeah. There is pretty much no change in this month’s plan.

Davis: Sounds good. We need to explain the calculations in tomorrow’s PPC meeting. Management
has certain queries regarding stamping shop planning. Please take a print of your workings, and
also paste them into a Powerpoint presentation. Hmm . . . can you join the meeting?

ABOUT AAL

AAL was a significant participant in the North American car manufacturing industry. The company focused
on three criteria: product quality, safety, and cost. AAL’s technical distinctiveness was represented by its
ability to pack power and performance into a compact, lightweight engine, made well for city conditions.
The company also recognized that employees were its prime strength and adopted norms such as wearing
uniforms of the same colour and quality of fabric and having lunch together in the same canteen regardless

This document is authorized for use only by Teguh Dartanto in 2022.

 For the exclusive use of T. Dartanto, 2022.

Page 2 9B16D022

of their level in the hierarchy. Employees would solve operational problems as a team with a strong culture
of on-the-job training, quality circles, and continuous improvement. This culture pervaded AAL.

AAL devoted itself to building value through continuous improvement by following the Plan-Do-Check-
Act (PDCA) cycle, made popular by Edwards Deming. The concept of PDCA was instituted across all
functions and levels.

AAL’s facility, located south of Detroit, Michigan, consisted of three vehicle plants (Plants A, B, and C),
each having a weld shop, a paint shop, and an assembly shop. Plant A also had a stamping shop.

THE STAMPING SHOP

The stamping shop consisted of six press machines, numbered according to their age in the plant: M1, M2,
M3, M4, M5, and M6. M1 was the oldest and M6, the youngest. The stamping shop was AAL’s largest
department. It supplied stamped body panels to all three plants of the Michigan facility, some other AAL
plants, and some of AAL’s joint ventures. Thus, the stamping shop’s resources were used widely.

The different sections inside the stamping shop were: a) quality, b) die maintenance, c) safety, d) production
planning, e) shift operation control, and f) budgetary control. Each section was headed by a section manager,
who reported to the functional head.

THE STAMPING PROCESS

Stamping was a batch production process. Steel coils were procured from multiple vendors, both domestic
and abroad. The coils were then cut to exact sizes in a shearing operation. During shearing, a steel coil was
fed in at one side of the shearing machine and a shearing blade (for straight cut) or shearing die (for
contoured cut) moved up and down to shear the coil to the desired size. The resulting output was known as
a “flat product blank.”

A flat product blank was then fed to a stamping press, which morphed the product blank into a car body
panel by applying pressure. This action was called a “stamping shot” or simply “shot.” Dies were used in
press machines during shots. Separate dies were used for different parts. A die was loaded onto a machine
for stamping a particular part and removed only after a pre-decided number of pieces of that part (also
known as the “lot size”) had been stamped. Removing a die and loading the next one was known as
“changeover.” The changeover time varied with the tonnage of the machine (see Exhibit 1).

The average cost per shot varied between machines. There was also a constant “shift cost” for operating a
machine in a shift (see Exhibit 1). The shift cost was the total common costs of operating a machine for a
shift, which included the labour, electricity, and so on, independent of the volume of production. Hence, the
shift cost was fixed for a given machine in a shift. The shot cost came from the marginal electricity, oil, and
other inputs used in executing a shot (stamping). Its value was constant per shot for a given machine, implying
that the total shot cost on a machine varied linearly with the number of shots executed on that machine.

Lot sizes were driven by two factors: the space available for storing the parts and the number of parts that
could be kept on a single pallet. Pallets were used not only to keep the parts but also to transfer them from
one place to another. A typical lot size was 2.5 days of inventory. After stamping, the panels moved to the
weld shop (see Exhibit 2).

This document is authorized for use only by Teguh Dartanto in 2022.

 For the exclusive use of T. Dartanto, 2022.

Page 3 9B16D022

THE PPC MEETING

The PPC department was responsible for planning the production of vehicles in all plants in accordance
with the demand presented by marketing. A typical PPC meeting aimed to synchronize the capacity
requirements of the near future (one month) between the plants (see Exhibit 3).

Davis and Adams presented the part-machine allocations and capacity calculations made for the coming
month (see Exhibit 4). The director of production expressed a concern:

I appreciate the efforts you are exerting to achieve a sound plan. Much of your planning, however,
relies on experience and intuition. This is actually good, but it can sometimes lead to personal
biases. I would like you to develop an objective and scientific process that will work in tandem
with intuition. Please focus on lowering the cost of production as much as possible, but without
any compromise on quality.

THE COMPLEXITY

Intuitive, judgment-based allocation of parts to presses was customary. It was known in the stamping shop as
a job that required good understanding and skill. A senior-level associate who reported to Adams did the
allocations by an iterative process. Now, inspired by the challenge posed by the director of production, Davis
and Adams occupied themselves with pursuing a scientific method to optimize the cost of production.

Both knew that not all parts could interchangeably be produced in any of the press machines. A flexibility-
hurdle matrix showed, per machine, the number of parts of a given model that could be stamped only on
that machine (see Exhibit 5). It was also not common to shift a part from one machine to another. Such
activity was done only when there was a capacity constraint. Shifting, when necessary, needed to follow a
certain process (see Exhibit 6).

Adams and Davis set to work. To create the plan, they would need to discuss the feasibility of their
mathematical model, its implementation with smooth and uninterrupted operation, actual cost savings that
would be realized, and the impact of the change on the mindset of the people involved.

Ajith Kumar is a professor at XLRI-Xavier School of Management in

Jamshedpur, India. Soumitra Chakraborty and Ankit Dhaka are alumni
of XLRI-Xavier School of Management and are industry professionals.

This document is authorized for use only by Teguh Dartanto in 2022.

 For the exclusive use of T. Dartanto, 2022.

Page 4 9B16D022

EXHIBIT 1: AVERAGE CHANGEOVER TIME IN PRESS MACHINES

Changeover Shift cost Shot cost

Press
time (sec) (US$) (US$)

M1 1,125 15.00 0.29

M2 4,500 15.00 0.65

M3 1,425 15.00 0.52

M4 1,075 15.00 0.39

M5 1,075 15.00 0.39

M6 1,500 15.00 0.58

Source: Created by the authors.

EXHIBIT 2: THE STAMPING PROCESS

Steel coil from Flat product

supplier blank Body panel

SHEARING STAMPING

Source: Created by the authors.

This document is authorized for use only by Teguh Dartanto in 2022.

 For the exclusive use of T. Dartanto, 2022.

Page 5 9B16D022

EXHIBIT 3: MASTER PRODUCTION SCHEDULE FOR THE FIRST TWO WEEKS OF JULY 2015

Day
Fort-
Model night
1 2 3 45 6 7 8 9 10 11 12 13 14 15
1
Total
VM1002 53 53 59 53 52 53 53 53 429
VM1011 55 55 55 55 55 55 55 53 438
VM1030 79 79 79 80 79 79 79 79 633
VM2011 38 39 40 35 40 40 40 40 312
VM1333 35 30 30 26 30 30 35 35 251
VM1153 66 67 67 57 67 67 67 67 525
VM1043 9 9 9 9 9 9 10 10 74
VM2341 71 71 71 71 71 71 71 71 568

Source: Created by the authors.

This document is authorized for use only by Teguh Dartanto in 2022.

 Page 6 9B16D022

EXHIBIT 4: PART-MACHINE ALLOCATION AND CALCULATION OF DAILY CAPACITY REQUIREMENTS

M1 M2 M3 M4 M5 M6
Average
Total
Model Daily Total Total Total Total Total Total
Parts a Parts Parts Parts Parts Parts Parts
Demand Shots b Shots Shots Shots Shots Shots

VM1002 53 20 7 371 2 106 6 318 2 106 3 159 0 0

VM1011 55 25 7 385 4 220 3 165 3 165 5 275 3 165

VM1030 79 24 3 237 6 474 2 158 10 790 0 0 3 237

VM2011 39 23 7 273 4 156 4 156 3 117 2 78 3 117

VM1333 31 20 8 248 4 124 2 62 0 0 3 93 3 93

VM1153 65 24 6 390 4 260 7 455 2 130 2 130 3 195

VM1043 9 2 0 0 0 0 2 18 0 0 0 0 0 0

VM2341 71 22 1 71 3 213 2 142 13 923 0 0 3 213

MR128374 c 136 2 1 136 1 136 0 0 0 0 0 0 0 0

MR128361 c 7 1 0 0 1 7 0 0 0 0 0 0 0 0

Total 545 163 40 2111 29 1696 28 1474 33 2231 15 735 18 1020

Average shots per minute d 2.53 4.93 3.25 4.03 3.72 2.73
e
Minimum number of shifts needed 3 3 2 2 1 2

Notes:

This document is authorized for use only by Teguh Dartanto in 2022.

a.
b.
c. Vehicles made in other plants of AAL.
d. Average shots per minute was a measure of the productivity of a press. Data of the last three months were taken. This did not include the part changeover times.
e. 60 7.5 . A maximum of 3 shifts was possible per
day for any press.

Source: Created by the authors.

For the exclusive use of T. Dartanto, 2022.
 For the exclusive use of T. Dartanto, 2022.

Page 7 9B16D022

EXHIBIT 5: FLEXIBILITY HURDLE MATRIX

Machine Capacity*

Model M1 M2 M3 M4 M5 M6

VM1002 0 0 6 0 0 0
VM1011 0 0 3 0 0 3
VM1030 0 0 0 0 0 3
VM2011 0 0 4 0 0 3
VM1333 0 0 2 0 0 3
VM1153 0 0 2 0 0 3
VM1043 0 0 0 0 0 0
VM2341 0 0 2 0 0 3
MR128374 0 1 0 0 0 0
MR128361 0 1 0 0 0 0

Note: * Number of parts per model that can be stamped on each machine
Source: Created by the authors.

EXHIBIT 6: PROCESS FLOW DIAGRAM: PART SHIFTING FROM ONE PRESS TO ANOTHER

Trials on Press
Inter-press Machine Fabrication of Special
Machines for Quality
Die Transfer Transfer Attachments
and Productivity

Transfer Transfer
Attachment Attachment

Part

Source: Created by the authors.

This document is authorized for use only by Teguh Dartanto in 2022.