Kristens Cookie Company Case Study and Analysis

Forecasting and Operations Management Saint Marys College of California Executive MBA Program

Jessica Marie www.jessicamariemba.com

Kristens Cookie Company Agenda

Introduction and Preliminary Modeling Key Questions and Problems for Further Thought Recommendations for Improvement Q & A Session and Discussion

Kristens Cookie Company

Introduction
Kristens Cookie Company Mission Statement: Born from a hunger to feed the student body and the craving brain

This presentation will evaluate the preliminary design for the Companys production process to make policy and pricing decisions, equipment needed, how many orders can be accepted, and whether the business can be profitable.

Kristens Cookie Company

The Service Triangle
The Service Strategy

The Customer

The Systems

The People

Kristens Cookie Company

Process Flow Chart
Order and Reply (Roommate) 0 minutes

Cooling 5 minutes

Hold

Wash and Mix (kristen) 6 minutes

Baking (Oven) 9 minutes

Pack/Colle ct Money 3 minutes

Spooning 2 minutes

Heat Oven 1 minutes

Kristens Cookie Company

Key Question 1:
How long will it take to fulfill a rush order?
Activity Order Entry Resource E-mail Cycle Time Start Time 0 minutes 00:00 Finish Time 00:00

Wash/Mix
Spooning Heat Oven Bake Cool

Kristen
Kristen Roommate Oven Tray

6 minutes
2 minutes 1 minute 9 minutes 0 minutes 5 minutes

00:00
06:00 08:00 09:00 18:00 18:00

06:00
08:00 09:00 18:00 18:00 23:00

Remove Cookies Roommate

Pack/Collect $$

Roommate

3 minutes

23:00

26:00

Kristens Cookie Company

Key Question 2
How many orders can you fill in a night, assuming you are open four hours each night?
Task Order Entry 1 Wash and Mix 1 Spooning Start Oven 1 Baking Time 1 Remove from Oven 1 Cooling Time 1 Pack and Collect Money 1 Order Entry 2 Wash and Mix 2 Fill Tray 2 Start Oven 2 Baking Time 2 Remove from Oven 2 Cooling Time 2 Pack and Collect Money 2 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36

Kristens Cookie Company

Group 2
Order Size 1 dozen 2 dozen 3 dozen 4 dozen 5 dozen 6 dozen 7 dozen 8 dozen 9 dozen 10 dozen 11 dozen 12 dozen 13 dozen 14 dozen 15 dozen 16 dozen 17 dozen 18 dozen 19 dozen 20 dozen 21 dozen Order Completion Time 26 minutes 36 minutes 46 minutes 56 minutes 66 minutes 76 minutes 86 minutes 96 minutes 106 minutes 116 minutes 126 minutes 136 minutes 146 minutes 156 minutes 166 minutes 176 minutes 186 minutes 196 minutes 206 minutes 216 minutes 226 minutes

Operating time = 240 minutes (4 hours)

Solution 22 dozen cookies in 4 hours. From the table, a formula can be generalized: The number of minutes to produce n one-dozen batches is given by this expression: 16 + 10n<=4x60, so we get N(max) = 22.

22 dozen

236 minutes

Kristens Cookie Company

Key Question 3
How much of your own and your roommates valuable time will it take to fill each order?
Kristen
Activity Wash, Mix and Spoon Total Cycle Time 6+2= 8 minutes

Roommate
Activity Heat Oven, Remove Cookies, Pack and Collect Money Total Cycle Time

1+0+3=

4 minutes

Kristens Cookie Company

Key Question 4
Because your baking trays can hold exactly one dozen cookies, you will produce and sell cookies by the dozen. Should you give any discount for people who order two or more dozen? If so, how much? Will it take you any longer to fill a two-dozen order than a one-dozen order?
All costs of ingredients and boxes for each dozen are the same. With that said, total valuable time is 6 (wash and mix) + 2 (spooning) + 1 (set timer on oven) + 2 (packing time) + 1 (process payment) = 12 minutes. For a two dozen order, total time is 6 + 2 + 1 + 2 x 2 + 1 = 17 minutes. For a three dozen order, total time is 6 + 2 + 1 + 2 x 3 + 1 = 22 minutes.

Kristens Cookie Company

Key Question 4 continued
We can also solve this problem by calculating labor costs.
Lets assume $10 per hour = $0.16667 per minute # Cookies in Batch
1 dozen 2 dozen 3 dozen

Minutes
12 17 22

Cost
$2.00 $2.83 $3.66

Cost per Dozen

$2.00 $1.41 $1.22

Potential Discount
0 $0.59 $0.78

Perhaps offering a 10% - 20% discount (or set dollar amount) on orders of two dozen and above is an option.

Kristens Cookie Company

Key Question 4 continued
When applying materials costs with labor costs, we find that the cost also decreases with larger orders.
From both analyses, a discount is advised. (10% - 20% discount or dollar amount)
# Cookies in Batch Minutes
1 dozen 2 dozen 3 dozen 12 17 22

Cost
$2.00 $2.83 $3.66

Labor Cost per Dozen

$2.00 $1.41 $1.22

Material Cost per Dozen

$ 0.70 $ 0.70 $ 0.70

Total
$2.70 $2.11 $1.92

Potential Discount
0 $0.59 $0.08

$0.60/dozen, ingredients $0.10/dozen, box

Kristens Cookie Company

Key Question 5
How many electric mixers and baking trays will you need?
As the charts and tables have shown, the electric mixer is idle for a long time during the production process, so only one is needed. Because the mixer can only contain 3 dozens of ingredients, during the whole process, at least 3 trays are needed.
Note: We have suggested process improvements regarding equipment in recommendation segment.

Kristens Cookie Company

Key Question 6
Are there any changes you can make in your production plans that will allow you to make better cookies or more cookies in less time or at lower cost? For example, is there a bottleneck operation in your production process that you can expand cheaply? What is the effect of adding another oven? How much would you be willing to pay to rent an additional oven?

Kristens Cookie Company

Process Flow Diagram With Two Ovens
Load & Bake

Mix & Spoon

Cool

Pack & Pay

Load & Bake

The speed with which you can produce cookies is dependent upon the cycle time for baking, the bottleneck operation.

Kristens Cookie Company

Increasing capacity of the oven makes it so we can start a new order every 5 minutes. New capacity is 7.5 dozen/hour (if all orders are one dozen. 7.5 = 60/8

Throughput Time

6+2 = 8 minutes

1+9 = 10 minutes 12 Dozen

5 minutes

2+1 = 3 minutes

Hourly Capacity Cycle Time

7.5 Dozen

12 Dozen

20 Dozen

8 minutes

5 minutes

5 minutes

3 minutes

Kristens Cookie Company

Problems for Further Thought: 1
What happens if you are trying to do this by yourself without your roommate?
We must calculate the amount of time it takes to begin a new batch of cookies with their selected ingredients, to the time when the dozen cookies are packed into a box and paid for.

Kristens Cookie Company

Problems for Further Thought: 1
Because all the tasks have to be done by Kristen alone, her time for one dozen cookies becomes 12 minutes (8 + 4), which exceeds the previous 10 minute cycle time for one dozen cookies. In this case, Kristen becomes the bottleneck, rather than the baking process. However, if the order contains two dozens of the same kind of cookie, the washing and mixing can be done together, so her time for this order becomes 17 minutes (6 + 2 x 2 + 2 x 1 + 2 x 2 + 1), which is less than the previous of 20 minutes. If the order is 3 dozen, it becomes 22 minutes.

Kristens Cookie Company

Problems for Further Thought: 2
Should you offer special rates for rush orders? Suppose you have just put a tray of cookies into the oven and someone calls up with a crash priority order for a dozen cookies of a different flavor. Can you fill the priority order while still fulfilling the order for the cookies that are already in the oven? If not, how much of a premium should you charge for filling the rush order?

As we saw in the previous gantt chart, there would be no need to stop baking of the previous cookie. The time that the rush order will delay is only at most 1 minute. And the previous order can be finished on time. There is no need to offer a special rate.

Kristens Cookie Company

Problems for Further Thought: 3
When should you promise delivery? How can you look quickly at your order board and tell a caller when his or her order will be ready? How much of a safety margin for timing should you allow? Looking at the order board will tell us when we finish and become idle. The finish time, will be that time, plus 26 minutes it takes to finish a one dozen order. At that time, they can promise delivery.

We suggest an 8 minute safety margin for rush orders. If we begin a wash and mix process, then a rush order comes in, we have to stop and process that order. The previous order would be delayed by a max of 8 minutes to wash and mix the rush order. Time is 6 + 2 = 8 minutes.

Kristens Cookie Company

Problems for Further Thought: 4
What other factors should you consider at this stage of planning your business?
Market: Is this attractive to potential customers? Cost: How can we get cheaper materials with good quality? Labor: Can I do this alone? Should I hire people? Product: How can we make the cookies better? Services: Can I provide other services, such as delivery? Hazards: How should I handle an accident? Laws: Am I violating any laws? Capital: What kind of equipment will I need? Investment: What kind of initial and/or further investment is required?

Kristens Cookie Company

Problems for Further Thought: 4
FACTORS TO CONSIDER
Market: Is this attractive to potential customer COLLEGE NIGHT STUDY

Kristens Cookie Company

Problems for Further Thought: 4
FACTORS TO CONSIDER
Cost: How can we get cheaper materials with good quality? Price point: What price point are students willing to pay? 6.00 Per dozen (.50) per cookie **TEST IT** Pay: What is Kristen and her roommates time worth?

Kristens Cookie Company

Problems for Further Thought: 4
FACTORS TO CONSIDER
Labor: Can I do this alone? Should I hire people? Demand should determine the Labor force and potential increase in equipment.

Kristens Cookie Company

Problems for Further Thought: 4
FACTORS TO CONSIDER
Product: How can we make the cookies better? Services: Can I provide other services, such as delivery? Hazards: How should I handle an accident? Laws: Am I violating any laws?

Kristens Cookie Company

Problems for Further Thought: 5
Your product must be made to order because each order is potentially unique. If you decide to sell standard cookies instead, how should you change the production system? The order-taking process? Other policies?
At the beginning, the cookies are unique. If we sell standard cookies, the value added products of the company change. - Bake cookies before receiving order. - order-taking process needs to change, as the customers dont need to call/email and wait for pickup. They can visit the apartment directly to buy the product. - If a large sum is needed, customers can make order earlier, and provide deposit.

Kristens Cookie Company

Problems for Further Thought: 5
Your product must be made to order because each order is potentially unique. If you decide to sell standard cookies instead, how should you change the production system? The order-taking process? Other policies?
- Create your own cookie menu - Freeze balled cookies. - Cookies can be ordered by number, and pulled from a freezer - Cookies cooked and served fresh from the menu

Kristens Cookie Company

Recommendations for Improvement
Increase Total Production Capacity Per Night

Purchase or rent an additional oven. - Increase capacity of the bottleneck. - Increases cookie-making capacity.
Purchase several additional baking trays. - These items are inexpensive - Buying more ensures they are never a binding constraint.

Kristens Cookie Company

Recommendations for Improvement continued
Decrease Total Time Spent in Activity Premixing in advance - eliminates the mixing step for these popular cookies - work-in-process inventory would eliminate mixing step for those cookies and thus increase capacity to 12 dozen per hour. Require immediate payment - Payment through PayPal, or similar service to eliminate the ending collect payment phase.

Kristens Cookie Company

Thank you.