Activity 23.

11 – Cooking pots

1. The problems facing Ben because his factory is operating at full capacity
i. He recently got an order of 3 100 pots when the company can only produce 3 000 pots a
week which means he is unable to meet the demand which may result in a loss of sales
as customers simply go where they can purchase 3 100 pots at once.
ii. He has been working long days to ensure that all resources are fully employed at all
times. This means he is also putting pressure on human resources to achieve the
maximum output which could result in the employees working long shifts and
demotivation.
iii. Putting pressure on the machine to stamp out the metal pans from sheet metal means
the machine could be working 24/7 and there is no time to do some repair work and
maintenance which could result in it breaking down resulting with a halt in the
production and idle time for employees who work on it.
iv. Ben is under pressure from his managing director to see that 3 100 pots are made to
meet the orders which could result in Ben being burnt out resulting dissatisfaction from
his job
2. The advantages and disadvantages of the two methods he is considering for solving the
problem

Purchasing a new machine

Purchasing a new machine is good as it ensures that production of the pots is done in the company
resulting in Ben having control on the production process as he is be able to monitor the quality of
the pots and do quality control to ensure the pots have a competitive advantage in the market. Ben
is able to reduce the hours he has been working as the new machine will be able to meet the
demand without him working to the bone resulting in improved motivation for him and the workers
under him. The managing director will no longer be on his neck much. However, purchasing a new
machine is expensive as it is a high capital investment from the purchasing cost and the extension of
the building to accommodate it. This could result in low cash flow in the business after much money
is used in the purchasing of the machine and extending it resulting in poor liquidity.

Buying components from another firm in the city that has spare capacity

This is the most economic decision as Cooking pots company is able to produce 3 000 pots and it
only has to purchase 100 pots from another firm or a bit more if the demand rises. This allows the
cash flow to be maintained. The pots could be cheaper if the other firm has low cost of production
allowing Ben’s company to maximise profits. The pots can be bought from another firm if need be
which means Ben is able to use the Just in time method of holding stocks resulting in low costs of
holding stocks. However, Ben loses control of the quality of the pots as he can’t monitor the
production process. The other firm may have a different design of the pots meaning 100 pots could
be different from the others while the customer wants 3 100 similar pots. There is no guarantee that
the other firm is able to deliver the pots on time even if it has spare capacity, it may not be reliable
and this could result in customers’ needs not being met in time leading to dissatisfied customers.

3. Three additional pieces of information Ben would find useful before making a decision
about how to solve the capacity problems
i. Motivation of the employees. The employees may have the capacity to produce the
required number of pots in a certain period of time but if they are demotivated to work
the output may be low and trying to solve capacity problems won’t solve the problem.
ii. The management can influence if a company is going to utilise its maximum capacity. If
management micro- manage employees, the employees can be demotivated.
iii. The market share of the company. Ben should analyse how his company dominates the
market compared to the other competitors. If they have a small percentage of the
market, they may not need to solve capacity problems as much.