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Executive Shirt Company Case Analysis-The Executive Shirt Company (Group 9) Part A Calculations

Current Process Regular Shirts

Mike's Plan

Ike's Plan Custom Shirts

Regular & Custom Regular Shirts Shirts

A) Actual Cycle Time (Min/shirt)

All labor content / one less worker 2.5 / 5 = 0.5 labor for each category content for 120 minutes for while cutting is cutting. cutting / 480 shirtsstill 0.25: 2 minutes per cuff worth = 0.25 < With everything / 4 workers = 0.5 labor content of Cuffs is still the divided by 1, collar bottleneck at 2 cuffs at 0.5 CT is new bottleneck labor content / 3 at 3.90 CT workers = 0.67 mins/shirt

B) Manufacturing Lead Time (days) (WIP * Cycle Time) / Minutes in a working day

11,760 * 0.5 / 480 0.5 * 1980 / 480 = (9060 * 0.66) / (50 * 3.9) / 480 = minutes = 12.25 2.06 days 480 = 12.58 days 0.41 days

C) WIP Inventory (shirts) 196 * 60 = 11,760 Average WIP * Batch size

396 * 5 = 1980 shirts

60 * 151 sum of avg. WIP = 9,060 shirts

30 units at sewing + 5 units being cut + 15 units being finished = 50 WIP (given in case) 8 * 60 / 3.9 = 123 shirts/day 123 * 20 days = 2460 monthly production capacity 2000 / 2460 =

D) Production Capacity (shirts/day) Minutes available / CT E) Capacity Utilization

8 hours * 60 minutes / 0.5 = 960 shirts / day

8 hours * 60 mins 480 / 0.666 = / 0.5 = 960 720 shirts/day shirts/day

(16,000 + 2000) / 10,000 / (960 * 20 16,000 / (720 * (960 * 20) = Actual Produced / What days) = 83% 20) = 111.11% 93.75% could be produced

Current Process Regular Shirts

Mike's Plan

Ike's Plan Custom Shirts 81.25%

Regular & Custom Regular Shirts Shirts

(16,000 / 18,000) * 0.25 = 0.2777 + (2,000 / 18,000 * 0.5) = 0.2777 = (90 + 30 minutes weighted avg. /8hr * 60 mins) + F) Direct Labor Content 3.9 + 2 + 0.65 + cutting time for regular and (min/shirt) 2.5 + 1.7 + 0.66 + custom 1.65 + 1.55 + 0.65 Time spent cutting + Direct labor for one shirt + 1.8 + 1.55 + 1.7 25.76 - 0.25 = + 1.5 + 1.95 + 1.75 25.51 sum of standard station = 25.76 time 25.51 + 0.2777 = 25.79 G) Direct Labor Utilization (Shirts per day * Direct labor content / (Direct labor * minutes available)

(120 minutes / 0.5 direct labor for 480 total minutes) cutting + 3.9 + 2 + + 3.9 + 2 + 0.65 + 0.65 + 2.5 + 1.7 + 2.5 + 1.7 + 0.66 + 0.66 + 1.65 + 1.55 1.65 + 1.55 + 0.65 + 0.65 + 1.8 + 1.55 + 1.8 + 1.55 + 1.7 + + 1.7 + 1.5 + 1.95 + 1.5 + 1.95 + 1.75 = 1.75 = 25.01 25.76

(900 * 25.79) / (65 (800 shirts * 25.76 (800 per day * direct workers * Direct labor 25.76) / (64 - 15) * 100 * 26.01 / (16 * 480 minutes content) / 64*480 480) = 20,608 / 480) = 33.87% available)= 23,211 = 67.08% 23,520 = 87.62% / 31,200 = 74.39% 720 shirts / day on normal salary: 49 * 6 * 8 = $2,352

H) Direct Labor Cost ($/shirt) Direct labor (Salary * hours worked) / shirts produced

80 remaining shirts * 0.67 = 65 ( $6 * 8hours) / 53.6 minutes 64 (6 * 8) / 800 = 900 = 31200 / 900 $3.84 53.6 / 60 * 9 = = $3.47 8.04 49 * 8.04 = 393.96 Total: (393.96 + 2352) / 800 = 3.43

16 ($6 * 8 hours) / 100 = 7.68

Explanation 1. a. i. ii. b. i. ii. iii. c. i. d. i. ii. e. i. ii. iii. f. i. ii. iii. iv. v. g. Regular shirt production process without custom shirt fabrication. Cycle time for each station = total station time / # of workers at station Cycle time for system = longest station cycle time Cuffs station = System CT = 2.0 minutes / 4 workers = 0.5 minutes Manufacturing Lead Time (MLT) = Cycle Time (CT) * Works in Progress (WIP) CT = 0.5 minutes WIP individual shirts = (196 batches * 60 shirts / batch) = 11,760 MLT in days = (0.5 * 11,760) / 480 minutes per day = 12.25 days Total individual shirts as WIP = Sum of average batches * 60 shirts per batch WIP shirts = 196 batches * 60 shirts per batch = 11,760 shirts as WIP Production capacity of system at continuous 100% utilization (minutes) Production capacity = minutes per day / CT of system Production capacity = 480 / 0.5 = 960 units per day @ continuous 100% utilization Production capacity utilization = monthly production / monthly production capacity Current monthly production is 16,000 (given in case) Total monthly capacity = 19,200 (920 per day * 20 days per month) Production utilization = 16,000 / 19,200 = 83% Direct Labor content = sum of time at all stations + time per shirt for cutting Sum of time at all stations = 25.51 minutes per shirt A single cutting of 8 patterns on 60 layers of cloth produces (60 * 8) = 480 shirts Total cutting time = (1.5 minutes * 60 layers) + (30 minutes cutting) = 120 minutes Cutting time per shirt = 120 minutes / 480 shirts = 0.25 minutes per shirt Total labor content (time) per shirt = 25.51 + 0.25 = 25.76 minutes per shirt Direct Labor Utilization = Total used labor time / Total labor time available

i. ii. iii. iv. h. i. ii.

Total labor time available = 64 workers * 480 minutes per day = 30,720 minutes Total time used = time per shirt * daily production (16,000 per month / 20 days) Total time used = 25.76 minutes * 800 shirts per day = 20,608 minutes Direct Labor Utilization = 20,608 minutes used / 30,720 minutes available = 67.08% Total Direct Labor Cost per shirt = (# workers * 8 hours per day * $6 per hour) / 800 Total Direct labor cost = (64 * 8 * 6) / 800 (total daily production = 16,000 / 20 days) Total Direct Labor Cost = $3.84 / shirt

2. Mikes plan for production of regular and custom shirts using existing facilities with the addition of a new cutting machine and one worker. a. b. i. ii. iii. c. i. d. i. ii. e. i. ii. iii. f. i. ii. System CT remains unchanged = 0.5 (the cuffs station still has the longest station CT) Manufacturing Lead Time (MLT) = Cycle Time (CT) * Works in Progress (WIP) CT = 0.5 minutes WIP individual shirts = (396 batches * 5 shirts / batch) = 1,980 MLT in days = (0.5 * 1,980) / 480 minutes per day = 2.06 days Total individual shirts as WIP = Sum of average batches * 5 shirts per batch WIP shirts = 396 batches * 5 shirts per batch = 1,980 shirts as WIP Production capacity of system at continuous 100% utilization (minutes) Production capacity = minutes per day / CT of system Production capacity = 480 / 0.5 = 960 units per day @ continuous 100% utilization Production capacity utilization = monthly production / monthly production capacity Current monthly production is 16,000 regular + 2000 custom shirts (given in case) Total monthly capacity = 18,000 (900 per day * 20 days per month) Production utilization = 18,000 / 19,200 = 93.8% Direct Labor content = sum of time at all stations + time per shirt for cutting Sum of time at all stations = 25.51 minutes per shirt New machine can cut 1 pattern on five layers in 2.5 minutes

ii.Custom cutting time = 5 shirts / 2.5 minutes = 0.5 minutes per custom shirt

iii.

Total cutting time = Weighted average of old & new machine cutting times

iii.(16,000 reg / 18000 total) * 0.25 + (2000 / 18000) * 0.5 = 0.278 min/shirt iv. g. i. ii. iii. iv. h. i. ii. Total labor content (time) per shirt = 25.51 +0.28 = 25.79 minutes per shirt Direct Labor Utilization = Total used labor time / Total labor time available Total labor time available = 65 workers * 480 minutes per day = 31,200 minutes Total time used = time per shirt * daily production (18000 per month / 20 days) Total time used = 25.79 minutes * 900 shirts per day = 23,211 minutes Direct Labor Utilization = 23,211 minutes used / 31,200 minutes available = 74.39% Total Direct Labor Cost per shirt = (# workers * 8 hours per day * $6 per hour) / 900 Total Direct labor cost = (65 * 8 * 6) / 900 (total daily production = 18,000 / 20 days) Total Direct Labor Cost = $3.47 / shirt

3. Ikes plan for shifting labor from the regular assembly floor to create a separate assembly line dedicated to custom shirts, thus separating the two streams of production. (A) Regular Shirt Production: a. b. i. ii. iii. c. i. d. i. ii. e. i. ii. System CT = 0.67 (the cuffs station still has the longest station CT @ 2.0 min / 3 workers ) Manufacturing Lead Time (MLT) = Cycle Time (CT) * Works in Progress (WIP) CT = 0.67 minutes WIP individual shirts = (151 batches * 60 shirts / batch) = 9,060 MLT in days = (0.67 * 9,060) / 480 minutes per day = 12.58 days (for regular shirts) Total individual shirts as WIP = Sum of average batches * 60 shirts per batch WIP shirts = 151 batches * 60 shirts per batch = 9,060 shirts as WIP Production capacity of system at continuous 100% utilization (minutes) Production capacity = minutes per day / CT of system Production capacity = 480 / 0.67 = 720 units per day @ continuous 100% utilization Production capacity utilization = monthly production / monthly production capacity Current monthly production is 16,000 regular shirts (given in case) Total monthly capacity = 14,400 (720 per day * 20 days per month)

iii. f. i. ii. iii. iv. v. g. i. ii. iii. iv. v. h.

Production utilization = 16,000 / 14,400 = 111% Direct Labor content = sum of time at all stations + time per shirt for cutting Sum of time at all stations = 25.51 minutes per shirt A single cutting of 8 patterns on 60 layers of cloth produces (60 * 8) = 480 shirts Total cutting time = (1.5 minutes * 60 layers) + (30 minutes cutting) = 120 minutes Cutting time per shirt = 120 minutes / 480shirts = 0.25 minutes per shirt Total labor content (time) per shirt = 25.51 + 0.25 = 25.76 minutes per shirt Direct Labor Utilization = Total used labor time / Total labor time available New direct labor available = 64 15 = 49 Total labor time available = 49 workers * 480 minutes per day = 20,608 minutes Total time used = time per shirt * daily production (16000 per month / 20 days) Total time used = 25.76 minutes * 800 shirts per day = 23,211 minutes Direct Labor Utilization = 20,608 minutes used / 23,520 minutes available = 87.62% Total Direct Labor Cost per shirt = (# workers * 8 hours per day * $6 per hour) / 800

i. Overtime is incurred for all employees in order to reach excess of normal hour production levels (calculated above @ 11% above capacity) ii. Overtime production = daily production daily capacity = 800 720 = 80 shirts

ii.OT (minutes) = 80 * CT = 80 * 0.67 = 53.60 extra minutes per worker ii.OT cost = (53.60 / 60) *$6 / hour * number of workers = (53.60 / 60) * 6 * 49 ii.OT cost = $393.96 iii. iv. Total Direct labor cost = (49 * 8 * 6) + 393.96 / 800 (total daily production = 18,000 / 20 days) Total Direct Labor Cost = $3.43 / regular shirt

(B) Custom shirt production on separate assembly line (15 workers + 1 new hire): a. i. ii. b. i. Cycle time for each station = total station time / # of workers at station Cycle time for system = longest station cycle time Cuffs station = System CT = 3.90 minutes / 1 worker = 3.90 minutes (collar station) Manufacturing Lead Time (MLT) = Cycle Time (CT) * Works in Progress (WIP) CT = 0.5 minutes

ii. iii. c.

WIP individual shirts = (10 batches * 5 shirts / batch) = 50 shirts MLT in days = (3.90 * 50) / 480 minutes per day = 0.41 days Total individual shirts as WIP = Sum of average batches * 5 shirts per batch

i. WIP shirts = 30 shirts in sewing + 5 shirts in cutting + 15 shirts in finishing = 50 shirts as WIP (given in case) d. i. ii. e. i. ii. iii. f. i. ii. iii. iv. v. g. i. ii. iii. iv. v. h. i. ii. Production capacity of system at continuous 100% utilization (minutes) Production capacity = minutes per day / CT of system Production capacity = 480 / 3.90 = 123 units per day @ continuous 100% utilization Production capacity utilization = monthly production / monthly production capacity Current monthly production is 2,000 (given in case) Total monthly capacity = 2460 (123 per day * 20 days per month) Production utilization = 2000 / 2460 = 81.25% Direct Labor content = sum of time at all stations + time per shirt for cutting Sum of time at all stations = 25.51 minutes per shirt A single cutting of 1 pattern on 5 layers of cloth produces 5 shirts Total cutting time = 2.5 minutes Cutting time per shirt = 2.5 minutes / 5 shirts = 0.50 minutes per shirt Total labor content (time) per shirt = 25.51 + 0.50 = 26.01 minutes per shirt Direct Labor Utilization = Total used labor time / Total labor time available Total labor = 12 sewers + 3 finishers + 1 cutter = 16 Total labor time available = 16 workers * 480 minutes per day = 7680 minutes Total time used = time per shirt * daily production (2000 per month / 20 days) Total time used = 26.01 minutes * 100 shirts per day = 2601 minutes Direct Labor Utilization = 2601 minutes used / 7680 minutes available = 33.87% Total Direct Labor Cost per shirt = (# workers * 8 hours per day * $6 per hour) / 200 Total Direct labor cost = (16 * 8 * 6) / 200 (total daily production = 2000 / 20 days) Total Direct Labor Cost = $7.68 / custom shirt

Part B Recommendation to Management Using the calculations in Part A it is possible to evaluate each of the two proposals in terms of their cost and efficiency. Firstly, to deduce the total cost for the custom shirts each month, the Direct Labour Cost from each plan can be multiplied by 2000 (the desired quantity produced). By doing this we learn that Ikes total cost for custom shirts is $7.68 x 2000 = $15,360, compared to Mikes $3.47 x 2000 = $6,940. This results in an $8,420 cost difference in favour of Mikes plan. Production of regular shirts on the other hand are cheaper using Ikes process, that is Ikes labour costs are $3.43 x 16,000 (desired quantity of regular shirts) = $54,880 compared with Mikes labour costs of $3.47 x 16,000 = $55,520. The difference between the two is only $640, which is fairly insignificant, and leaves the total cost difference between the two plans at $7,780 in favour of Mike.

The great disparity in cost between the two is mainly due to the efficiency of each proposal. Whilst Mike increases the efficiency of both capacity and labour utilization in the factory (absorbing excess capacity and increasing efficiency from 83% to 93.75% as well as improving labour efficiency by 7.31%), Ike over-utilizes capacity in his regular shirt production line and severely under-utilizes capacity in his custom shirts production line. The result of this is that he has to pay the workers on the regular shirt line overtime whilst the workers on the custom shirt line are frequently starved and sitting idle.

Furthermore, when considering the logistics of each production line layout, Mikes proposal is favourable over Ikes because it allows for more flexibility. Whilst Mike retains the existing process layout in the batch shop process, where similar operations are performed in common functional areas, Ike instead adopts a product layout structure, where the operations are located according to the progressive steps involved in making a shirt. Having only one worker completing each production task, as is the case in Ikes plan, means that if one worker is slowed down for any reason or needs to take a break, then there is no one to pick up the slack. As a result, the whole process is negatively affected. An ideal assembly line should allow workers to trade elements of work and it should be unproblematic to add workers to the line to increase efficiency, however the straight-line layout of Ikes plan does not satisfy these requirements.

Based upon our analysis, although both processes do essentially satisfy Dwight Colliers production lead management time conditions, we would recommend that he should trial Mikes plan. If there does indeed prove to be a market for mid price range custom shirts, then implementing Mikes proposal is the companys best shot at making a lucrative profit from this initiative.

Reference: http://blog.sina.com.cn/s/blog_7d38cdcf0100qygm.html