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P O LYT E C H N I C U N I V E R S I T Y O F T H E P H I L I P P I N E S

ANALYSIS OF PRODUCTION POLICIES FOR


WEATHERBURN AIRCRAFT ENGINE COMPANY

A Case Study Analysis


Presented to the Graduate School
Polytechnic University of the Philippines

In Partial Fulfillment of the Requirements of the Degree Masters in Business


Administration with specialization in Financial Management
(Managerial Economics)

By

MICHELLE C. MATUBIS
2016
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P O LYT E C H N I C U N I V E R S I T Y O F T H E P H I L I P P I N E S

I.

CASE INTRODUCTION

In June 2000, the Weatherburn Aircraft Engine Company received an order for
ten spare ring gears from Sierra Airlines. The ring gear was the largest and the most
expensive of the gears in the system which drives the propeller.
The Weatherburn Company carried in stock part No. 31573, the gear blanks from
which the ring gears would be made. The gear blank was a standard size used in
many airlines. The number of teeth, however, was non-standard. When Sierra
Airlines had bought the airplanes in which gears were used, its management had
decided that flying requirements peculiar to the airline necessitated a gear ratio
slightly higher than the standard and Weatherburn had designed a special gear train
accordingly. No other airlines used this ratio and Sierra was on the point of
converting its fleet of aircraft to jet operations. Upon inquiry, the production manager
of Weatherburn Company learned that the lot of ten ring gears would almost
certainly last until Sierras current aircraft had been entirely replaced.
The gear blanks cost Weatherburn about $50 each to make. The first step in the
machining process was hobbing. Setup for the operation was very expensive,
costing about $500 but the direct cost of hobbing an extra gear was negligible so
long as the machines capacity of 25 gears at one time was not exceeded. After
hobbing, each gear was individually subjected to a series of drilling, grinding and
finishing operations. The total cost of which was $90 per gear. In addition, there was
a setup cost of $250 associated with these operations. The machined gears were
then heat treated at a cost of about $10 per gear after which they were subjected to
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P O LYT E C H N I C U N I V E R S I T Y O F T H E P H I L I P P I N E S
a hardness test, the cost of which is negligible.
After hobbing and before the remaining operations, the gears were subjected to a
100% inspection. In the past, an average of 4% of all hobbed gears failed to pass
this inspection and had to be scrapped. The heat treating operation was much more
difficult to control. The test for hardness had rigid specifications and the
Weatherburn Company had had considerable difficulty in meeting standards on this
type of gear in the past; only 80% of the gears had proved acceptable.

II.

RESEARCHERS POINT OF VIEW

III.

STATEMENT OF THE PROBLEM


This case study was conducted to ascertain the most favorable policy the

Weatherburn Aircraft Engine Company should conduct in order for them to meet the
order of ring gears of Sierra Airlines in a most cost-effective method.
Specifically, this study sought to answer the following questions:
1. How many gear blanks are needed to deliver the order of he spare ring gears
from Sierra Airlines?
2. What are the possible production costs of creating the ring gears for the order
of Sierra Airlines to determine the most economical policy to be implemented?

IV.

AREAS OF CONSIDERATION

a. Strengths
- Weatherburn Company already carries stock part no. 31573, the gear blanks
from which the ring gears would be made.
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-

Weatherburn Company subjects their products to 100% inspection.


The direct cost of hobbing an extra ger was negligible so long as the
machines capacity of 25 gears at one time was not exceeded.

b. Weaknesses
- In the past, an average of 4% of all hobbed gears failed to pass the inspection
and these are scrapped.
- Difficulty encountered from heat treating operation and test for hardness.
- Only 80% of the gears had proved to be acceptable.
c. Opportunities
- The lot of ten ring gears would almost certainly last until Sierras current
aircraft had been entirely replaced.
- Weatherburn had designed a special gear train to meet the requirements
specific to Sierras.
d. Threats
- No other airlines used the specific ratio of gear peculiar to Sierra.
- Sierra was on the point of converting its fleet of aircraft to jet operations.
V.

ALTERNATIVE COURSES OF ACTION