sro Executive Sirs Prepared by: Executive Shirt Company Inc. March 22, 2012 Question 1: Compute the following quantities for the current production process as well as for Mike's and Ike’s plans, assuming the plans are implemented as described in the case. Cutting: Time required = (90 mins + 30 mins) / (60 layers x 8 patterns) = 0.25 mins / shirt for 1 cutting machine, (TABLE: CURRENT PRODUCTION PROCESS) Operation:Current Production Process | Regular Shirts Labor Content(mins/shirt) | Number of, Workers | Time required =Labor content / # Workers(mins/worker/shirt) | 1, Make collar | 3.90 [8 | 0.488 | 2. Make cuffs | 2.00 | 4 | 0.500 | 3, Make sleeves | 0.65 |2 | 0.325 | 4. Make front | 2.50 | 6 | 0.410 | 5, Make back | 1.70 | 4 | 0.420 | 6, Join shoulders | 0.66 | 2 | 0.330 | 7. Attach collar | 1.65 | 4 | 0.410 | 8, Attach sleeves | 1.55 | 4| 0.390 | 9. Stitch down sleeves | 0.65 | 2 | 0.320 | 10, Sew side seam | 1.80 | 4 | 0.450 | 11. Attach cuffs | 1.55 | 4 | 0.390 | 12. Hem bottom | 1.70 | 4 | 0.420 | 13. Inspect | 1.50 | 4 | 0.380 | 14, Iron | 1.95 |4| 0.490 | 15, Fold, package | 1.75 | 4 | 0.420 | Current Production Process | Calculation Explanation | Value | a. Actual Cycle Time | = 1 / flow rate |= 1 / (800 shirts / 480 mins) = 1 / 1.667) = 0.60 min/ shirt | b, Manufacturing Lead Time |= WIP / flow rate |= 11,760 / 800 = 14.70 days | c. WIP Inventory |= Total WIP x batch size | = (16 + 144 + 12 + 12 + 12) x 60= 196 x 60 = 11,760 shirts | d, Production Capacity | Bottleneck | = (60 layers x 8 patterns) / 0.500= 960 shirts / day | e. Capacity Utilization | = Flow ratea / Production capacity |= 800 / 960 = 83.33% | £, Direct Labor Content | = Direet labor time / unit= Cutting + Operation process time |= (0.25 mins x 4 machines) + 25.51 mins = 26.51 mins / shirt | g. Direct Labor Utilization | = Labor used / labor availableb | = 21,208 / 30,720 = 69.04% | h, Direct Labor Cost | = Total labor coste / units produced | = $3,072 / 800 shirts = $3,84 / shirt | a Flow rate = 16,000 shirts / 20 working days/month = 800 shirts / day. b Labor used = 800 shirts x 26.51 mins/shirt = 21,208 mins. Labor available = 480 mins/day x 64 workers = 30,720 mins. ¢ Total labor cost = 64 workers x 8 hours x S6/hour = $3,072. The following table represents Mike’s Production Plan: Cutting: Time required for regular shirts = (90 mins + 30 mins) / (60 layers x 8 patterns) = 0.25 mins / shirt for 1 cutting machine. Time required for custom shirts = 2.5 mins / (5 layers x 1 pattern) ~ 0.50 mins / shirt. (TABLE: MIKE’S PRODUCTION PROCESS) hitpahewu term paperwarchouse.compriniExecutve-Shirts/125404 16sro Executive Sirs Mike’s Production Process | Calculation Explanation | Value | a. Actual Cycle Time | = 1 / flow rate |= 1 / (900 shirts / 480 mins) = 0.53 min | b, Manufacturing Lead Time |= WIP / flow rate |= 1,980 / 900 = 2.2 days | c. WIP Inventory |= Total WIP x batch size | = (36 + 288 + 24 + 24 + 24) x 5= 396 mins x 5 batches = 1,980 shirts | d, Production Capacity | Bottleneck | = (60 layers x 8 patterns) / 0.500= 960 shirts / day | . Capacity Utilization | = Flow ratea / Production capacity |= 900 / 960 = 93.75% | f. Direct Labor Content | = Direct labor time / unit = Cutting reg. + cutting custom + operation process time | = 27.57b mins / shirt | g, Direct Labor Utilization | = Labor used / labor availablec | = 24,813 / 31,200 = 79.53% | h, Direct Labor Cost | = Total labor costd / units produced | = $3,120 / 900 shirts = $3.47 / shirt | a Flow rate = (16,000 reg, shirts + 2,000 custom shirts) / 20 working days/month = 900 shirts / day. b Direct labor content for mike = weighted average of custom labor content + regular labor content. Custom labor content = 26.52 + (2.5/5) = 26.01 Regular labor content ~ 25.51 + [(1.5 x 8 patterns x 5 shirts) + 30] / (8 x 5) = 25.51 + 2.25 mins = 27.76 mins. Weighted average = (26.01 x 100 + 27.76 x 800) / 900 = (2,601 + 22,208) / 900 = 27.57. ¢ Labor used = 900 shirts x 27.57 mins/shirt = 24,813 mins. Labor available = 480 mins/day x 65 workers = 31,200 mins. d Total labor cost ~ 65 workers x 8 hours x S6/hour ~ $3,072. (TABLE: IKE’S PRODUCTION PROCESS) Operation: Ike’s Production Process | Labor ContentREGULAR shirts(mins/shirt) | Number of Workersfor REGULARShirts | Time required for REGULARShirts(mins/worker/shirt) | Time required for CUSTOM Shirts(mins/worker/shirt) | 1, Make collar |3.90 |7| = 3.9/7.0 = 0.557 |= 3.9/1 =3.90| 2. Make cuffs | 2.00 | 3 | 0.667 | 2.00 | 3, Make sleeves | 0.65 | 1 | 0.650 | 0.65 | 4, Make front | 2.50 | 5 | 0.500 | 2.50 | 5, Make back | 1.70 | 3 | 0.567 | 1.70 | 6, Join shoulders | 0.66 | 1 | 0.660 | 0.66 | 7. Attach collar | 1.65 | 3 | 0.550 | 1.65 | 8, Attach sleeves | 1.55 | 30.517] 1.55 | 9. Stitch down sleeves | 0.65 | 1 | 0.650 | 0.65 | 10, Sew side seam | 1,80 | I | 0.600 | 1.80 | 11, Attach cuffs | 1.55 |3| 0.517] 1.55 | 12, Hem bottom | 1.70 | 3 | 0.567 | 1.70] 13. Inspect | 1.50 |3 | 0.500 | 1.50| 14, Iron | 1.95 [3 | 0.650 | 1.95 | 15. Fold, package | 1.75 | 3 | 0.583 | 1.75 | Cutting: Time required for custom shirts = 2.5 mins / (5 layers x 1 pattern) = 0.50 mins / shirt. Tke’s Production Process for CUSTOM Shirts | Calculation Explanation | Value | a. Actual Cycle Time | = 1 / flow rate |= 1 / (100 shirts / 480 mins) = 4.80 mins | b. Manufacturing Lead Time | = WIP / flow rate | = 50 / 100 = 0.50 days | c. WIP Inventory | = Cutting + Other operations | = (3 shirts x 15 workers) + 5 shirts from cutting = 50 shirts | 4d, Production Capacity | Bottleneck | = (60 layers x 8 patterns) / 3.90= 123 shirts / day | e. Capacity Utilization | = Flow ratea / Production capacity |= 100 / 123 = 81.30% | £, Direct Labor Content | = Direet labor time / unit = Cutting reg. + cutting custom + operation process time | = 0,50 + 25.51 mins = 26.01 mins / shirt | g. Direct Labor Utilization | = Labor used / labor availableb |= 2,601 / 7,680 = 33.87% | hitpahewu term paperwarchouse.compriniExecutve-Shirts/125404 26sirwaots Exeative Shits h, Direct Labor Cost | = Total labor coste / units produced | = $768 / 100 shirts = $7.68 / shirt | a Flow rate = (2,000 custom shirts) / 20 working days/month = 100 shirts / day. b Labor used = 100 shirts x 26.01 mins/shirt = 2,601 mins. Labor available = 480 mins/day x 16 workers = 7,680 mins, ¢ Total labor cost = 16 workers x 8 hours x $6/hour = $768 Ike’s Production Process for REGULAR Shirts | Calculation Explanation | Value | a, Actual Cycle Time | = 1 / flow rate |= 1 / (720/480) = 1 / 1.50= 0.667 mins | b, Manufacturing Lead Time |= WIP / flow rate |= 9,060 / 800 = 11.33 days | ¢. WIP Inventory |= Total WIP x batch size | = (16 + 108 + 9 + 9 + 9) x 60 shirts= 9,060 shirts | d, Production Capacity | Bottleneck | = (60 layers x 8 patterns) / 0.667= 720 shirts / day | e. Capacity Utilization | = Flow ratea / Production capacity |= 800 /720 = 111% | £, Direct Labor Content | = Direct labor time / unit= Cutting reg. + operation process time |= 1.0 + 25.51 mins = 26.51 mins / shirt | g. Direct Labor Utilization | = Labor used / labor availableb | ~ 21,208 / 26,460 ~ 80.15% | 1h. Direct Labor Cost | = Total labor coste / units produced | = $2,793 / 800 shirts = $3.49 / shirt | a Flow rate = min {capacity, demand} = min {720, 800} = 720 shirts/day. Demand = 16,000 custom shirts / 20 working days/month = 800 shirts / day. b Labor used = 800 shirts x 26.51 mins/shirt = 21,208 mins. Overtime labor used ~ 80 x 0.67 mins /shirt = 53.36 mins ~ 0.89 hours (approx. 1 hour), Total hours worked = 8 reg. hours + 0.89 overtime hours = 8.89 hours (approx. 9 hours. i.e. 540 mins.) Labor available = (540 min/day x 49 workers) =26,460 min ¢ Total labor cost = [49 workers x 8 hours x $6/hour] + [49 workers x I hour x $9/hour] = $2,352 + $441 = $2,793 Note for part b: for the manufacturing lead-time, the company will produce 800-shirt per day demand even though the process is capacity-constrained (at 720 shirts/day). ‘The extra demand will be met through overtime work. (TABLE: SUMMARY OF ALL PRODUCTION PLANS) Quantity | Current Process (REGULAR shirts) | Mike’s plan (REGULAR & CUSTOM shirts) | Ike’s plan (REGULAR Shirts) | Ike’s plan (CUSTOM shirts) | a. Actual Cycle Time | 0.60 min/shirt | 0.53 min/shirt | 0.667 min/shirt | 4.8 min/shirt | b, Manufacturing Lead Time | 14,7 days | 2.2 days | 11.33 days | 0.5 days | c. WIP Inventory | 11,760 shirts | 1,980 shirts | 9,060 shirts | 50 shirts | d, Production Capacity | 960 shirts/day | 960 shirts/day | 720 shirts/day | 123 shirts/day | e. Capacity Utilization | 83.33% | 93.75% | 111% | 81.3% | £, Direct Labor Content | 26.51 min/shirt |27.57 min/shirt | 26.51 min/shirt | 26.01 min/shirt | g. Direct Labor Utilization | 69.04% | 79.53 % | 80.15 % | 33.87% | h, Direct Labor Cost | $3.84/shirt | $3.47/shirt | $3.49/shirt | $7.68/shirt | Question 2: Compare the two plans, in terms of both regular shirt production and custom-shirt production. Based on your analysis, what is your recommendation for Dwight Collier? With respect to actual flow time, Mike’s plan produces at a much faster rate than Tke’s for both regular and custom shirts. The lower MLT for Mike’s plan shows shorter delivery to customers. In terms of inventory, it can be seen that Ike’s plan hold significantly larger inventory and its production capacity only reaches (720 + 123 = 843 shirts/day) as opposed to Mike’s 960 shirts/day. Mike’s plan increases the efficiency of both capacity and labor utilization in the factory (absorbing excess capacity and increasing efficiency from 83.33% to 93.75% as well as improving labor efficiency by 8.87%). Ike over-utilizes capacity in his regular shirt production line and severely under-utilizes capacity in his custom shirts production line. As a result, Ike has to pay the workers overtime on the regular shirt line while the workers on the custom shirt line are frequently starved and sitting idle. hitpahewu term paperwarchouse.compriniExecutve-Shirts/125404 26sro Executive Sirs (TABLE: COST COMPARISON) | Mike’s Plan | Ike’s Plan | | Regular Shirts | Custom Shirts | Regular Shirts | Custom Shits | ‘Number of shirts (manufactured / month) | 16,000 | 2,000 | 16,000 | 2,000 | Cost / Shirt |-|-|=[-] Raw Material | $7.00 | $7.70a | $7.00 | $7.70a | Total Labor (Direct + Indirect) | $4.13d | $4.13d | $4.70b | $8.34 | Other Indirect Cost | $4.50 | $4.50 | $4.50 | $4.50 | Total Manufacturing Cost | $15.63 | $16.33 | $16.20 | $20.54 | Wholesale Price (WS) | $25.00 | $35.00a | $25.00 | $35.00a | Retail Price (R) | $50.00 | $70.00 | $50.00 | $70.00 | Total Profit / Unit (WS+R) | $43.74 | $72.34 | $42.60 | $63.92 | Total Monthly Profite (WS+R) | $699,840 | $144,680 | $681,600 | $127,840 | aRaw material costs are 10% more expensive for customized shirts. Therefore, $7.00 x 1.10 = $7.70. Wholesale price for custom shirts has a premium price of $10 and retail has a $20 premium over standardized shirts. Therefore, the wholesale price increases from $25 to $35 and the retail price increases from $50 to $70. bOvertime cost calculation: [53.33 mins x ($9/hour / 60)] = approx. 1 hour x $9/hour = $9.00, Overtime wages / shirt = [$9.00/worker/day x 49 workers] / 800 shirts = $0.55 / shirt. Total labor = direct + indirect = $3.49 + $0.66 + $0.55 = $4.70. cExample of profit calculation Mike: Wholesale profit (per shirt) = Wholesale price $25.00 - $15.63 = $9.37 profit / regular shirt. tal manufacturing cost Mike: Retail profit (per shirt) = Retail price - Total manufacturing cost = $50.00 - $15.63 = $34.37 profit / regular shirt, Mike: Profit / shirt = $9.37 + $34.37 = $43 4, Total profit for Mike’s regular shirts = $43.74 x 16,000 reg. shirts = $699,840 profit dTotal Labor Cost calculation: Total labor cost = direct + indirect costs Total labor costs = $3.84 + indirect = $4.50 (ref. exhibit 4) to find indirect cost. Indirect cost = $0.66. Therefore, total labor cost for Mike’s regular & custom shirts = $3.47 + $0.66 = $4.13. Conclusion: Following the above analysis, it can be seen that Mike’s plan is the better plan because it yields a higher profit for both the regular and custom shirts without implying any additional or overtime costs. However, a remaining concern with his plan is the issue of transportation. Question 3: In Mike’s mixed production plan, show that the new cutting machine can do all the cutting work, thereby making it possible to discard the old machine. Yet Mike chose to keep both machines. Was he right? Argue. If we replace the old cutting machine by the ne -utting machine, we would have a production hitpahewu term paperwarchouse.compriniExecutve-Shirts/125404sro Executive Sirs capacity of 960 shirts/day. Since demand is 900 shirts/day, then definitely the new cutting machine can do the work. Below are the advantages and disadvantages of this replacement ‘Advantages | New Cutting Machine (Producing Reg. + Custom) | Mike’s Old Process (Old machine + ‘New machine) | Direct Labor Content | 26.01 mins / shirt | 27.57 mins / shirt | Direct Labor Utilization | 79.94%a | 79.53% | Direct Labor Cost | $3.25b / shirt | $3.47 / shirt | Disadvantages | - | - | Extra Costs Incurred | $362c | $0 | a Direct labor utilization = (900 x 26.01) / (61 workers x 480 mins/day) = 79.94% b Direct labor cost = (61 workers x 8 hours x $6/hour) / 900 = $3.25 / shirt. 61 workers are used because we only need 1 worker to operate the new cutting machine, therefore eliminating 3 workers from the original 64-worker process. ¢ Replacing the old machine results in an additional cost of $560 - $198 = $362. Material costs will be raised by 10% due to the new cutting machine. Therefore, since 800 regular shirts will be cut by the new machine, the cost will increase by a total of 800 x $7.00 x 10% = $560. It must be noted that the new cutting machine in Mike’s old process has already produced the remaining 100 shirts. Although we are saving a total of $3.47 ~ $3.25 = $0.22/shirt x 900 shirts = $198, Mike will end up paying $560 - $198 = $362. To conclude, Mike was right in deciding to keep both cutting machines. This way he avoids paying $362 and also reduces setup time (setup time for 60 batches < setup time for 5 batches). Question 4: Suggest possible improvements to Mike’s plan and to Ike’s plan and then decide which plan you would pursue. There are several recommendations for improvement that could be made to Mike and Ike’s proposed production plans, as follows: Suggested Improvements for Mike’s Plan * The capacity utilization of Mike’s plan can be further improved. Processing custom shirts in bigger batches (of size 60) of shirts may decrease setup cost and increases the process capacity. Furthermore, increasing the batch size will decrease the workload on the 4 material handlers. This may, consequently, boost profitability while meeting demand. * Another improvement for Mike’s plan may involve increasing the process’s bottleneck capacity in an effort to meet future increases in demand. The current capacity of the bottleneck is 960, which is only slightly higher than the current demand (900). In the event that demand increases higher than that, Mike's plan may face bottleneck issues and therefore increasing its capacity now can improve this for future business purposes. Suggested Improvements for Ike’s Plan hitpahewu term paperwarchouse.compriniExecutve-Shirts/125404sirwaots Exeative Shits * Ike’s production plan can be improved by increasing its direct labor utilization for the custom shirt line, which is currently highly under-utilized at 33.87%, Ike’s current plan is resulting is high wastage of resources in terms of labor because of the way it has 1 worker assigned to each of its process steps. The reallocation of workers to combined operations may reduce this wastage and improve efficiency in its direct labor utilization, illustrated below: (2,3), (4,5), (6,7,8,9), (10,11), (12,13), (14,15) Grouping the workers to work at multiple processes, instead of the current 1-worker-to-1-process- step, would require a total of 8 workers instead of 12, which would be a sufficient number to satisfy producing the demanded 100 shirts in 480 minutes. The remaining 4 workers could be reallocated to the regular-line production in order to reduce its use of overtime. This would reduce the direct labor cost to about half its current cost and would help reduce the issue of overly priced custom-made shirts. * Another improvement to Ike’s production plan would be to increase its bottleneck capacity in producing regular shirts because Ike’s current production capacity is 720 shirts / day whereas its demand is 800 shirts. It is forced to meet the demand and hire workers overtime. By tackling its issue of bottleneck capacity, it would better meet its demand quantity of 800 shirts without working its staff overtime, thus reducing overtime costs as well. hitpahewu term paperwarchouse.compriniExecutve-Shirts/125404