Custom Vans, Inc. Case Study

CHAPTER 1

INTRODUCTION

Rationale

        Tony Rizzo, owner of Custom Vans, Inc., who has specializes in converting standard vans into campers was able to expand his small operation in Gary, Indiana and other major outlets like Chicago, Milwaukee, Minneapolis and Detroit.

Innovation was the major factor in Tony’s success in converting a small van shop into one of the largest and most profitable custom van operations in the Midwest. Tony seemed to have a special ability to design and develop unique features and devices that were always in high demand by van owners. An example was Shower-Rific, which was developed by Tony only six months after Custom Vans, Inc., was started. These small showers were completely self-contained, and they could be placed in almost any type of van and in a number of different locations within a van. Shower-Rific was made of fiberglass and contained towel racks, built-in soap and shampoo holders, and a unique plastic door. Each Shower-Rific took 2 gallons of fiberglass and 3 hours of labor to manufacture.

As the demand was increasing, Tony Rizzo consulted his lawyer and banker and they concluded that he should open two new manufacturing plants to satisfy the demand of each branches of the Custom Vans, Inc., but there are three options where to open the two manufacturing plant. The three options are at Detroit, Michigan; Rockford, Illinois; or Madison, Wisconsin.

This study was made to help Tony Rizzo and the four managers of each branch of Custom Vans, Inc. to decide on where to open the two new manufacturing plants, which can minimize their cost.

Objectives

This study identifies what would be the best place to locate the two new manufacturing plants. Another objective is to identify what is the total minimize cost using specific approaches specifically using the Northwest Corner Method.

Scope and Limitations

This study covers about the best decision for Tony to locate his two new manufacturing plant that could cost them less transaction cost and at the same time can meet the needs of their major outlets.

The study is limited only to Tony Rizzo and to the four managers that are deciding where to put the new manufacturing plant, it is either at Detroit, Michigan; Rockford, Illinois; or Madison, Wisconsin.

CHAPTER 2

METHODOLOGY

Collection of Data

All the related data were attained from the available sources that were given. In this research Tony Rizzo provided the transportation cost per unit in each branches that the managers would pay in delivering the each Shower-Rific unit. These quantitative data were provided to help Tony Rizzo decide where to build the two new manufacturing plants.[pic 1]

Method of Analysis

Using the Northwest Corner Method

[pic 11]

Cell Cost:

A1: 200 (10)               = 2,000

A3: 100 (40)               = 4,000

B2: 50 (30)                 = 1,500

B4: 100 (15)               = 1,500[pic 12]

        TOTAL COST              $9,000

Considering Detroit and Madison

[pic 13][pic 14][pic 15][pic 16][pic 17][pic 18][pic 19][pic 20][pic 21][pic 22]

[pic 33]

Cell cost: