Dazz Manufacturing Company

While maintaining Lean manufacturing standards, the plant manager for the Clarksburg, Virginia, location of a manufacturer of coated abrasives must evaluate a capital investment of $8 million. The investment would reduce labor needs and provide reduced setups. A discounted cash flow analysis must be performed to analyze the investment. Relevant costs and valuation of production flexibility are key issues.This case is taught jointly in two of Darden's first-year courses, Financial Management and Policies and Operations. Excerpt UVA-OM-1503 Aug. 27, 2013 DAZZ MANUFACTURING COMPANY Dorothy Hoffman, plant manager for the Clarksburg, Virginia, location of DAZZ Manufacturing Company, angrily tossed the monthly shipping report back onto her desk and swore under her breath. The Clarksburg plant had again failed to improve its dismal performance meeting shipping dates. Only 60% of its June shipments had met the well-established four-week service standard of the coated-abrasives industry. Hoffman knew that prompt customer service was necessary to maintain DAZZ's competitive position in the industry, but so far, she had seen little improvement in this aspect of the plant's performance. Hoffman was considering the possibility of replacing some of the plant's equipment and revising the production schedule in hopes of more closely meeting her customer-service targets. An investment of $ 8 million would provide a significant reduction in setup times for a major portion of DAZZ's production process. Hoffman believed in lean thinking, the latest management philosophy, but knew the board of directors would need more than just her faith that the lean investment was worthwhile. What Hoffman needed was hard-number justification. Company Background DAZZ was a leading producer of abrasives, including such products as sandpaper and grinding wheels. Industrial firms were the company's primary market. DAZZ had four manufacturing plants in the midsouthern and southeastern United States. DAZZ's Clarksburg plant produced all the company's coated-abrasive products—a line consisting of approximately 5,000 finished items in numerous grades, shapes, and sizes. The Clarksburg plant had $ 126.5 million in annual sales, giving it an 18% share of the U.S. coated-abrasives market and making DAZZ the third-largest of the four major domestic producers. In recent years, DAZZ had achieved a 28% gross margin and 8% operating margin on sales of its coated-abrasive products. . . .