This Study Resource Was: Executive Shirt Company Inc

Executive Shirt Company Inc.
Group 3
Roll Number Name Email ID
1511011 Ashwin S Kalkar ashwin.kalkar15@iimb.ernet.in
1511033 Nandita Bhaskaran nandita.bhaskaran15@iimb.ernet.in
1511040 Praveen Jujjuvarapu praveen.jujjuvarapu15@iimb.ernet.i
n
1511046 Rose Ketty Tete rose.tete15@iimb.ernet.in
1511049 Sagnik Choudhury sagnik.choudhury15@iimb.ernet.in
Case Situation
In the case, ESC's General Manager Dwight Collier is planning to expand the company's shirt
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making business to custom-sized dress shirt. To incorporate the production of custom-made
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shirts in the existing process, he has asked two of his managers to come up with plans.
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Mike's plan: Change in the batch size and follow the same production line
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o Eight batches of regular shirts with 5 shirts in each batch
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o One batch contains 5 custom shirts
Ike's plan: Have separate production lines for regular and custom shirts
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o Eight batches of regular shirts with 60 shirts in each batch

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o One batch contains 1 custom shirt

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Fig. Current process for regular shirts

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Question 1
Compute the following quantities1, assuming Mike’s and Ike’s plans are implemented
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Current Mike’s Plan Ike’s Plan Ike’s Plan

Process
Regular Regular & Regular Custom
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Shirts Custom Shirts Shirts Shirts

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Actual Cycle Time (min./shirt) 0.60 0.53 0.67 4.80

Bottleneck Time 0.50 0.50 0.67 3.90
Manufacturing Lead Time 14.70 2.20 12.65 0.50
(days)
WIP Inventory (shirts) 11,760 1,980 9,060 50
Production Capacity 960 960 720 123
(shirts/day)
Capacity Utilization 83.33% 93.75% 111.11% 81.25%
Direct Labour Content 26.51 26.45 26.51 26.01
1 The above mentioned quantities are explained in the appendix and the calculations are provided in the excel
attachment in the Appendix
(min./shirt)
Direct Labour Utilization 69.04% 76.31% 83.36% 33.87%
Direct Labour Cost ($/shirt) 3.84 3.47 3.71 7.68
Question 2
Compare the two plans based on regular and custom shirt production.
Efficiency in terms of costs
Cost Current Mike's Method Ike's Method

Comparison Process
Regular Shirts Custom Shirts
Labour Cost $3,264 $3,312 $2,970 $768
Labour Costs:
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Old Process: (64 + 4) * 6 * 8 = $3264 per day
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Mike's Method: (65 + 4) * 6 * 8 = $3312 per day
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Ike's Method:
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Regular Shirts: 53*((6*8) + (9*((800-720)*0.67/60))) = $2970 per day
Custom Shirts: 16 * 6 * 8 = $768 per day
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Total: $2970 + $768 = $3738 per day

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Cost Structure2:
Regular Shirts Custom Shirts
($ per Shirt) Current Mike's Ike's Mike's Ike's
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Process Method Method Method Method

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Raw materials $7.00 $7.00 $7.00 $7.70 $7.70

Direct Labour $3.84 $3.47 $3.71 $3.47 $7.68
Indirect Labour $0.66 $0.66 $0.66 $0.66 $0.66
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Other Indirect Costs $4.50 $4.50 $4.50 $4.50 $4.50

Total Manufacturing $16.00 $15.63 $15.87 $16.33 $20.54
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Cost
Wholesale Price $25.00 $25.00 $25.00 $35.00 $35.00
Profit/Shirt $9.00 $9.37 $9.13 $18.67 $14.46
This indicates that Mike's method is more cost efficient and economical than Ike's method,
considering that there is a difference of $4.45 total manufacturing cost per shirt. Also, due to
lower costs, we can observe that Mike’s method is giving higher profits for both regular and
custom shirts.
Capacity Utilization
2 Calculations for the cost structure are provided in detail in the excel attachment provided in the Appendix
Current Mike's Method Ike's Method
Process Regular Shirts Custom Shirts
Capacity Utilization 83.33% 93.75% 111.11% 81.25%
Direct Labour Utilization 69.04% 76.31% 83.36% 33.87%
The capacity utilization under Mike's method has increased from 83.33% earlier, to 93.75%
now which shows an improvement over the current process. However, in Ike's process there
is overutilization of capacity in case of regular shirt production (111.11%), while that for
custom shirts (81.25%) is lower than in case of the old process. This overutilization allows
barely any scope to absorb operational risks, if these arise. Thus, Mike's plan is considered
more effective in this aspect.
In terms of labour utilization, Mike's method increases it from 69.04% to 76.31%; while Ike's
method shows a better utilization in the regular shirt production but a dramatic
underutilization in custom shirt production. This is mainly because, while the workers in
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regular shirt production work overtime, the workers in custom shirt production remain idle.
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Production Flexibility
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In Ike's plan, there is only one worker performing each function in the new assembly line.
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This leaves very limited flexibility in the sense that no worker can afford to take breaks since
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this would disrupt the entire sequence of operations. Mike's production plan, on the other
hand, more or less follows the previous method, and thus entails more flexibility than Ike's
plan. On the other hand, Mike’s process is close to full utilization and has not much room for
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delays which Ike’s plan does for custom shirts due to its underutilization.
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Recommendation
Based on these criteria discussed above, it is evident that Mike's production plan is more cost
efficient, more effective in terms of capacity and labour utilization and offers more flexibility
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to the production process. Thus, Dwight Collier should adopt Mike's production strategy.
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However, in the long term, it may not be feasible since the assumption of an order of 5 shirts
of the same kind may not be true. Also, since we're customizing the shirts, Ike's production
strategy may work out better eventually. It would completely depend on the minimum
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demand for each customized shirt.

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Appendix
1. The quantities are explained in detail below:
Total labour time
I. Actual Cycle Time (min. /shirt) =Maximum( , Bottleneck
No . of shirts produced
Time)
The bottleneck for each of the processes is identified (Eg. making cuffs for current
process) and the time taken is compared with the ratio of total labour time to number of
shirts produced. The maximum of the 2 quantities gives the actual cycle time. A
comparison of actual cycle time with bottleneck time is as shown above. It shows that
actual cycle time is not always the bottleneck time.
WIP × Actual cycle time
II. Manufacturing Lead Time (days) =
Total labour time
Manufacturing lead time is the amount of time required for delivering a shirt from the
time of order. In this case, it is the total shirts being worked on (WIP) multiplied with the
actual cycle time for each shirt, which gives the total lead time for all shirts in progress
divided by the total labour time for a day. This will give us the manufacturing lead time
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for any shirt ordered.
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III. WIP Inventory (shirts) = Average Work-In-Progress (WIP) x Batch Size
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This gives the total number of shirts being worked on at a particular point in time. A
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multiplication of the average inventory with the total batch size of the process
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Total availabletime
IV. Production Capacity (shirts/day) =
Actual cycle time
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The production capacity of the process is the number of shirts that can be produced in a
day, which can be found by the total time available in the day, 6 hours in this case,
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divided by the actual cycle time for the respective process

Shirts produced per day
V. Capacity Utilization =
Maximum productioncapacity per day
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The capacity utilization is to find out how efficiently the available facility’s capacity is
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being used. It can be found by taking a ratio of the shirts produced per day to the
maximum number of shirts that can be produced in a day.
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VI. Direct Labour Content (min/shirt) = Total time for the operations to take place
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Direct Labour Content is the total time for which the labour is busy and is given by the
total time required for a shirt to be made.
Shirts produced per day ×Time taken per shirt
VII. Direct Labour Utilization =
No . of Labourers× Time available per labourer
To find direct utilization we find the time required to produce shirts in a day and divide it
by the total available labour time to get the direct labour utilization
VIII. Direct Labour Cost ($/shirt) =
No . of Labourers× Hours per day × Salary per hour
Shirts produced per day
The direct labour cost per shirt would be a ratio of labour cost per day to the shirts
produced per day.
2. Excel Attachment:
Group
3_Executive_Shirt_Company.XLSX
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Executive Shirt Company Inc.

o Eight batches of regular shirts with 60 shirts in each batch

o One batch contains 1 custom shirt

Fig. Current process for regular shirts

Current Mike’s Plan Ike’s Plan Ike’s Plan

Shirts Custom Shirts Shirts Shirts

Actual Cycle Time (min./shirt) 0.60 0.53 0.67 4.80

Cost Current Mike's Method Ike's Method

Total: $2970 + $768 = $3738 per day

Process Method Method Method Method

Raw materials $7.00 $7.00 $7.00 $7.70 $7.70

Other Indirect Costs $4.50 $4.50 $4.50 $4.50 $4.50

demand for each customized shirt.

divided by the actual cycle time for the respective process

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