Albatross Anchor Unit 3 - Part 3 - Costs Essay Example
My name is Aiden and KU Consulting has asked me to prepare a bid on the consulting job with Albatross Anchor - Albatross Anchor Unit 3 introduction. With the information provided to me I am able to go through and analyze the operation as it is running and suggest how to improve the operations to be more competitive with the other anchor manufactures and to increase profits for the company, Albatross has been in business since 1976 with four family members. It has grown to employee one hundred and thirty people. The location of the manufacture is located in a rural suburb it is on twelve acres in Small-town, USA.
Based on the information presented in the scenario/case study discuss Albatross Anchor’s competitiveness in relation to (please address all items in the below list and provide support for your conclusions): 1. Cost
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A) Cost of Production
Due to operations inefficiencies the productions cost is much more than that of their competitor’s Cost of productions is calculated by what it takes to produce the products and what the output is. The cost of labor hours, machines hours, cost of materials and the cost of energy used to produce the units. Albatross Anchors is showing a cost disadvantage compared to the competition as far as the production cost goes due to the ability to only manufacturing one style of anchor at a time. The space is limiting the manufacture to produce mass quantity of products at a time. b) Economies of Scale in material purchasing cost.
Economics of Scale is when it costs less per unit to produce high levels of output (Taylor, Russell 2010, pp 160). If Albatross Anchors were able to produce more anchors at a time to be able to spread the fixed cost over a larger number of units and production or operating costs do not increase with linearly with output levels. The cost of material would also be
discounted if they would buy in quantity. The cost of labor would also decrease as the operating efficiency increase as workers gain experience.
c) Cost of Raw Materials Sitting Idle in the Warehouse:
The cost of raw materials that are sitting idle in the warehouse should be used with in a acceptable amount of time for the materials to be used. The material on hand at all time is a way of saving money. When materials have to be purchased at the last minute can cost more due to the supply and demand of the raw material. Purchasing materials in bulk is almost always at a discounted price. The only problem is the space to store the items needs to be big enough to get around the area for the different products with a forklift to be able to bring in the large bags and to maneuver around without creating waste by damaging the bags. Storage rooms also need to be waterproof and dry of humidity so that the materials do not get ruined. d) Finished goods sitting idle in the warehouse
. The anchors would be ok to sit in a warehouse until they are shipped out since Albatross Anchor’s is a wholesale the potential for large order is good if there was enough space to be able to store the finished products and the material to manufacture the products at a larger quantity than one at a time. Space is money and to have the anchors sitting in the warehouse could also be money that needs to make for the production of the products that are taking up space. Sustainability meeting the present needs without compromising the ability of future generations to meet their needs (Taylor, Russell 210, pp. 425). This is a cost effective way of being able to have last minute orders to be filled right away without making any one wait 2. Speed of manufacturing process from order to finished product. Is three to four week for exceptionally large order? Albatross Anchors produced two different types of anchors and in multiple sizes due to limited space of manufacturing both types of anchors are sharing the same manufacturing area. The delay time for production is 36 hours so that the manufacturing area can be switched from the bell anchor to the snag hook anchor. Albatross Anchors usually do small batch production order due to plant antiquation and safety issues. With the limited manufacturing area and warehouse space the limited space to store raw materials is costing the company more money to
produce the anchors. The time frame of production of order is very important to the retailers the less time to produce the more units can be produced to increase the production and bring down the cost of production. Speed in production is the new competitive edge in production as quick as the order is placed by the customer; the customer is expecting the manufacture to have it delivered to them. The way a manufacturing company can meet the challenge of speed by employing the tools and techniques that produce speed in design production and delivery tools like rapid prototyping, concurrent engineering, simulation and 3D modeling, build to order through lean and agile manufacturing, Six Sigma, outsourcing, third party logistics, cross docking. Companies must use them efficiently and effectively in order to gain a competitive advantage (Tompkins, 2002). The company must make technology changes it is the way of the future. Must understand the process of satisfying the customer and using effective communication in order to achieve and maintain speed, and continue through the supply chain to the customer and the supply chain to the suppliers with continuous flow of communication. 3. Flexibility in filling order(s)
The goal is to design a product that is easily and economically manufactured. The importance of designing for manufacturing is underlined by the fact and about 70% of manufacturing costs of a product (Wyks, 1998). There are only two different styles of anchors that are manufactured but they come in different sizes. There is not too much flexibility in fill the orders due to the manufacturing workspace. It takes 36 hours for the manufacturing workspace to bring in the other style. Since the bell anchor is manufactured primarily through a foundry process in which ore is transformed into a liquid state and then poured into molds as part of the production process. The snag hook anchor is fabricated through the bending and welding of iron rods and flat iron into a hook design. The flexibility of filling orders right away is a disadvantage for Albatross Anchor. 4. Technology
Technology decisions involve large sums of money and can have tremendous impact on the cost, speed, quality, and flexibility of operations. Most importantly they define the future capabilities of a firm and the stage for competitive interactions. A manager’s ability to ask questions and
understand the basic thrust of proposed technology is invaluable in making wise technology choices (Taylor, Russell. 2010, pp. 245). The financial justification of technology upgrading Albatross Anchors use of technology will have a significant effect on the future profitability. This would be considered a capital investment which would require the funds now but with the expectations of returns over some future time period. Deciding when to upgrade to a new technology often depends on the competitive environment and with the decline in profits of Albatross Anchors around 35% is a reason for them to start thinking about the upgrade to new technology. Investment in technology can be very risky, but not investing in new technology is also risky. (Taylor & Russell 2010. pp 246) 5. Capacity and facilities
Capacity planning establishes the overall level of productive resources for a firm Albatross Anchors is not operating at its best level. The best operating level for a facility is the percent of capacity utilization that minimizes average unit cost. For an industry with and 80% average utilization would have a 20% capacity cushion for unexpected surges in demand or temporary work stoppages. Albatross is running at about 60% utilization and 40% capacity cushion due to the redesigning the manufacturing area that takes up to 36 hours to change to manufacture the second design. The transformation of the work area is costly in production and labor. Facility layout that Albatross Anchor’s has is not affected when designing the layout for the manufacture to minimize movement and material handling cost. The decisions layout involves many objectives that need to be considered for this manufacture: is to utilize space and labor efficiently and communication between the worker, managers and the customers. The layout should also be so that movement and wasted time on getting raw material is kept to a minimum keeping all materials close to the work area, leaving enough room for a forklift to bring in materials for the molds. Incorporate safety and security measures promote product and service quality. Provide a visual control of all activities and maintaining proper maintenance. Providing flexibility to adapt to changing the work area for the different types of anchors produced and increase capacity. The layout decisions affect quality and competitiveness. (Taylor & Russell 2010, pp. 261). In designing a process layout for the anchor manufacturing is to
minimize material handling costs the two techniques used to design process layouts block diagramming and relationship diagramming which are based on logic and visual representation of data. The problem with a mixed model manufacturing is the difficulty in responding to changes in the orders that it receives. The first change is to reduce the time needed to change over the line to produce the different models. The most efficient way will be to train the workers to perform a variety of task allowing them to work at a more than just in one workstation. Use of standard components is less expensive than custom-made items. The high availability of these components reduces product lead times. Also the reliability factors are well ascertained. The use of standard components refers to the production pressure to the supplier, relieving in part the manufacture’s concerns of meeting production schedules (Wysk, 1998) 6. Service to customers
The type of customer service that the Albatross Anchors provides to the marine wholesalers is to be within a timeliness manner. If the wholesaler needs a product with in a certain time frame than the manufacture needs to have it delivered in a reasonable time. To have the order complete when it is delivered, this will cut cost in transportation of wrong orders and needing to be replaced or having to ship the correct order at a later date. Courtesy to the wholesalers when they are placing orders and asking about the products that Albatross Anchors is manufacturing every call could be a potential long term customer. To make Albatross accessible by the internet phone to have personal customer service for every inquiry that is made by the company. Accuracy in the invoices and charges that are made to the customers and responsiveness to all problems and to answer all questions and ability to have an order delivered to the wholesaler. Question Two
There are many ways that mushroom/bell anchors may be manufactured. Albatross Anchor is considering two new manufacturing processes (Process A and Process B) to reduce costs. Analysis of the information below will help determine which process has the lowest breakeven point (this validates the process is more cost effective). For each process the following fixed costs and variable costs are identified below: Anchor and Process
Sale price per anchor
Total Fixed cost
Variable cost per anchor
Based on the information in the table above complete the table below:
Anchor and Process
(a) Fixed costs per anchor
(b) The total number of anchors to attain
break–even point for Process A and Process B
(c) Based on your calculations which Process (A or B) that you would recommend for adoption (you can select only one). Please make sure to explain how you arrived at your conclusion. Based on my calculations and the break-even point of each equation, total revenue = total cost, and to get to the answer of each we need to find the number of units that are needed. To find the units will also give us our fixed cost per unit. To come to this conclusion 650,000 (fixed total cost) divide by the sum of 45.00 – 36.00 (price – variable cost per unit) is going to give me 72,222 rounded off to 72,000 units to break even, When the Fixed cost was 950,000 the number of units came out to be 63,291 rounded to 63,000 units. To find the
fixed cost per unit: 650,000 / 63,000 = 9.03 per unit and 950,000 / 63,000 = 15.08. To select which process I would adopt would have to be process B. If we are going to produce below 49,000 anchors per year than process would be the one to go with, but since Albatross Anchors is going to produce more than 45,000 anchors per year we will go with process B. Process A break-even point is 2,590,000 and process B is 1,890,000 which is going to a much larger profit at a faster rate. Conclusion
The goal for running Albatross Anchor’s is to be able to be competitive with the other anchor manufactures. The design for manufacturing and design for assembly are the integration of product design and process planning into one common activity. The goal is to design a company that is profitable and economically. The manufacturing of the anchors in fact that about 70% of manufacturing cost of a product which is cost of materials, processing and assembly, are determined by design decisions. With production decisions which are process planning or machine tool selection are responsible for about 20%. Manufacturing and service systems are arrangements of facilities, equipment and people to produce goods and services under controlled conditions. Manufacturing systems produce products in large volumes. The machinery and plant have finite capacity and contribute fixed costs that must be covered by the products produced Variable costs are added as labor, raw material and other components. Value will take place during the production process for the product. Cost of output relative to the cost of input can be measured as the actual cost of productivity and volume. The quality in customer service by providing the customer with what they order with no mix ups, being available for questions and inquires to offer education of the product and to get the order out when promised. Never over promise and do not set expectations higher than you’re able to provide. Under estimate your abilities.
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