Case Analysis: Arben Manufacturing

Arben Manufacturing was founded by Mel and Hanna Faranado in the year of 1990. This
company started soon after the use of vehicles proliferated in the national capital region of the
Philippines. They started as a small local business in Quezon City. Hanna managed the shop here in the
Philippines and checked the overall performance of each worker and of each machine. While Mel
bought the raw materials used in muffler-making in Tokyo, Japan, packaged them and sent them here
via commercial cargo ships. They started with manufacturing regular mufflers; the difference in each line
of muffler was incumbent on which vehicle it was to be assembled on, but they were still basically the
same.

Soon people flocked to NCR in search of jobs and a better life; population grew at an exponential rate
and so did the number of people who used cars. More cars meant more customers, and demand pushed
them to widen manufacturing services to even more types of mufflers. Such expansion pushed Hanna to
hire more workers as necessary due to the increased number of mufflers manufactured. They were one
of the promising manufacturers of performance exhaust systems, mufflers, exhaust kits, racing mufflers,
stainless steel mufflers, and exhaust accessories for cars, muscle cars, trucks, diesel trucks, SUV's,
motorhomes, ATVs and most vehicles and their main expertise lay in muffler-manufacturing.

Factory supply
supplier supply

Twin stack Capper Inspection

Lockseamers area
market

flanger Gut
stuffer

In manufacturing mufflers, the Arben Manufacturing followed this procedure: The mufflers are primarily
fabricated from stainless and aluminum coated steel. Sheets of aluminum are taken from the factory
supply where Mel sends the raw material from Tokyo and are fed into the twin stack sheet feed. These
sheets are cut into size by the sheet feed. From the sheet feed, the cut sheets are transported to the
lockseamer. The lockseamer rolls the cut aluminum sheets. There are a handful of these in the plant.
The lockseamer is the body maker. In this step, varieties of mufflers can be made by selecting the proper
lockseamer or a combination (lockseamer 1 then proceeds to lockseamer 2) depending on the
specifications. This proceeds to the flanger located in the QC department, on the other side of the plant.
The flanger will check the noise and vibrations the body of a muffler can handle. This is then slid into the
walking beam which transports it to the gut stuffer. The gut stuffer inserts the cylinders and the inside
parts of the muffler. Once it is all assembled, it is placed on the conveyer belt to transport it to the
capper station. This is auto fed into the cap spinner and the cap spinners affix the cap into the body. This
will be check at the inspection area near the flanger for its tuning and other conformation of variety
specification. The process is makes large quantities of finished good per unit

In the year of 2000, customization of vehicles popularized in the West, as proven by the fashionable hit
television series “Pimp My Ride”. Economy rose, and as globalization moved onwards, people in the
Philippines yearned for more selections and for more individuality –customization was the new fad that
rocked markets. People wanted to show others who they were in the way they dressed, acted and even
in the simple things they own, such as the casings of their cell phones and in their other personal
belongings. And soon, manufacturing of the Arben Manufacturing Company widened to include muffler
customization.

The trend shifted more towards self-expression caused their business to boom in the year of 2004.
Arben Manufacturing became known for specializing in customized mufflers. They shipped there
finished products off to big car customization companies in Metro Manila, Cebu and Davao, and they
also became the muffler suppliers for Isuzu Philippines.

Arben expanded and opened their production line; catalytic converters, chrome stainless tips,
glasspacks, prebent tubing, straight tubing, and other hardware are included. One of their major
products was the Stainless Steel Performance Muffler which was designed to provide an added
performance gain while also providing each vehicle with a distinguishable style and look necessary to set
it apart from the crowd mufflers. In manufacturing these mufflers, these are fabricated in accordance
with customers’ specifications, which tend to be very exacting in demands for dimensional accuracy and
gas tightness.

They were also known for customized mufflers. Complete product selection includes original
Replacement; a choice between Premium, Saver and Turbo; an all aluminized exterior; a rigid
construction due to having all components spot-welded; a double wrap construction to ensure quality;

AKDQ aluminized necks; hangers, brackets and spouts where needed; and a free choice between Ten
O.E. style cross-sectional sizes. Since self-expression abounded in the country and even in the market
itself, demand for multi-variety products with different design specifications grew, but the demand for
each design was in low quantities. Demand of consumers was well spread among all of Arben’s different
product lines.

Mel continued to bulk buy the raw materials from Tokyo and to send them from there to
Philippines. Hanna still continued to oversee the production of mufflers in the plant, though she has
hired workers to do the work themselves and supervisors to oversee the work processes and ensure
that everything worked accordingly. She has also hired people to cater to customers in the satellite
shops around Metro Manila.

As their business expanded through the years, Hanna bought more equipment and machinery
and hired more workers to fill in the new positions. Everybody in Arben worked eight hours a day, and
six days a week. Each worker specialized in a special machine and there were also ‘transporters’, or
workers who transported the materials from one workplace to another for the manufacturing process.
The transportation of materials in the manufacturing process was, when accumulated in per year
analysis, accounted for a costly amount of time. Machines were classified and where put together
according to use (e.g. cutters on this side, rollers on that side, sheets of metal pile in the next
warehouse, etc). The demand of the customers shifting from one variety to another, the company has
been increasing storage of both finished and work-in-process materials. The company’s action when
demands are shifting to different varieties is to pause current type of variety production and proceed in
producing to the in demand variety. The switch of production based on variety consumes valuable time.

Everything still went well, everyone enjoyed reasonable pay and the company as a whole continued to
progress. Until 2007 hit: the great economic recession. The financial crisis of 2007 (and ongoing till now)
has been called by leading economists the worst financial crisis since the one related to the Great
Depression of the 1930s. It contributed to the failure of key businesses, declines in consumer wealth
estimated in the trillions of U.S. dollars, substantial financial commitments incurred by governments,
and a significant decline in economic activity.

Low demand denoted lower profit. Profit decreased everywhere and that implied that consumers had a
tighter budget than compared before, and thus they spent less on luxury goods. Overall demand for cars
declined. Car customization was badly affected by the economic recession since it was more of a luxury
good than a need. Since mufflers and other car accessories are a complementary good of cars, and
demand for cars went down, the demand for Arben’s products also sharply declined. Arben
Manufacturing is one of the companies who were hit by the great financial crisis.

Arben currently faces dilemmas on certain decisions regarding cost reduction in order to save their
company from going bankrupt. Due to the decreased demand, Arben has been lying low on profit, and
due to decreased profit, Mel has a reduced capability in buying the raw materials. Lower profit meant a
tighter budget and Hanna has been recently contemplating on whether to reduce the number of
workers or not. Decreased demand meant that quantities were ordered in a wide range of products but
in smaller quantities than before. Decreased demand also meant that the finished products in their
inventory would have to wait for a longer time in the inventory before being ordered for by the
consumer.

As of now, Arben Manufacturing is still catering to demands of their products. Demands are in smaller
quantities than compared before, and the demand is spread over to most of their products. Their
manufacturing process worked the same as before. They are hoping to be able to reduce costs in order
to increase profit. They wouldn’t want to fire their workers; if possible, that would only be the last resort
to solving their current financial problem