Discussion Competitiveness of Albatross Anchor

Introduction

Question One Based on the information presented in the scenario/case study discuss Albatross Anchor’s competitiveness in relation to (please address all items in the below list and provide support for your conclusions)

Cost

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Cost of Production

To understand the cost of production we must first understand what two costs are valuable to company along what can make a company gain or lose profit. First we look at Variable cost which “depends on what materials and labor are needed for the company” and in this case it is anchors which can vary with the volume of anchors that is produced (Russell & Taylor, 2011).

The fixed costs are “those that do not vary with output and typically in rents, deprecation, insurance, set-up cost and normal profit” (economicsonline. co. uk). Fixed costs are usually known as your overheads. When it comes to Albatross Anchor and the manufacturing of its anchor we can see that the fixed cost are down because they chose to manufacture in house. Looking at the cost we can see that the cost of manufacturing mushrooms/bell anchors are $8. 00 per pound and $11. 00 per pound for the snag hook anchors.

One has to understand that Albatross sells their products are the same rate as their competitors and their product are made primarily for fresh water which can be a disadvantage. Another disadvantage that I noticed is that all of their produces are made in house which affect their cost as well. When it comes to shipping they only have two means which is shipping (larger freight ships) and truck shipping. Although there profit margin may at times be less than 35% we also have to think if they operating efficiently and everything that maybe affected if the manufacturing, shipping or receiving lines go down. ) Economies of Scale in material purchasing: “A company that achieves Economies of Scales lower the average cost per unit through increased production since fixed costs are shared over an increased number of goods” (Andexer, 2008). “When more units of a good or a service can be produced on a larger scale, yet with (on average) less input costs, economies of scale (ES) are said to be achieved. Alternatively, this means that as a company grows and production units increase, a company will have a better chance to decrease its costs” (Investopedia. com).

One has to ask that if, Albatross Anchors is producing anchors in small batches how are they able to meet the economies of scale? To be honest we can state they are not. Although the company itself has grown from 4 to 130 people the company output/manufacturing has not causing the cost of output to drop.

Cost of Raw Materials Sitting Idle in the Warehouse

“Raw materials can be classified as direct or indirect materials. Direct materials are: raw materials that can be physically and directly associated with the finished product” (simplestudies. com).

With that being stated if the raw materials are sitting idle in the warehouse then that will affect the overhead. This may also affect the shipping/receiving departments along with the storage space that is available.

Cost of Finished Goods Sitting Idle in the Warehouse

With both finished and raw materials sitting idle one has to ask how much of increase in cost is because of the storage is the company taking. Many products at Albatross Anchor are not shipped out until they proven to efficient.

Speed of Manufacturing Process from Order to Finished Product

Although it may seem that due to limited amount of anchors that are made are produced the manufacturing of the product would be efficient and effective. But from the video and all of the reading I would have to say that due to the types of machines that is need for each anchor that speed and quality maybe affect at times. There are different types of machines that are needed for each anchor along with making sure that employees are trained well to run the machines. With that being stated between having to change each machine/product line it may slow the process of making each product.

Flexibility in Filling Order(s)

When it comes to the flexibility of filling order Albatross only sells their anchors at wholesale price and it is mainly to companies and not the general consumer/public. Another factor to consider is the way the building is set up along with the limited amount of space that is available in the warehouse between each department. Many items depending on the size and quantity can take weeks in order to fill that particular order.

Technology

When it comes to our current world and as much technology that is used one may think that they would have found a way to put it use within heir company but that is not the case. Albatross Anchors only tend to changes as they go along causing them to fall behind when it comes to technology. The machines are older which has me wondering about the added cost that it may cause to keep them going.

Capacity and Facilities

After reviewing the video I see that their facilities are in poor conditions making it harder for many to work that type of environment. The administrative office have no space/order to them along with their shipping or receiving department affecting how the company flows on a daily bases.

Not having enough space along with clean, organized facilities can affect the produce and output of a company.

Service to Customers

Albatross Anchors only sell to wholesalers not really having a relationship to their consumers. Because many of products are sold by distribution companies or OEM companies usually have large orders one may not know the real service that is being provided. Another factor to consider is that they sell their products at the same rate as their competitors so there is never any real discount creating a larger client base.

I would suggest opening the doors to other consumers to help broaden the market. Question Two There are many ways that mushroom/bell anchors may be manufactured. Albatross Anchor is considering two new manufacturing processes (Process A and Process B) to reduce costs. Analysis of the information below will help determine which process has the lowest breakeven point (this validates the process is more cost effective). For each process the following fixed costs and variable costs are identified below: Anchor and ProcessProcess AProcess B

Sale price per anchor$45. 00$45. 00 Total Fixed cost $ 650,000. 00$950,000. 00 Variable cost per anchor$ 36. 00$ 29. 99 Based on the information in the table above complete the table below: Anchor and ProcessProcess AProcess B (a) Fixed costs per anchor 650000950000 (b) The total number of anchors to attain break–even point for Process A and Process B 72,22263,291. 14 (c) Based on your calculations which Process (A or B) that you would recommend for adoption (you can select only one). Please make sure to explain how you arrived at your conclusion.

Personally since the breakeven point of the two has been calculated I would have to recommend using process B because of the cost and the amount that has are produced. Within a company we all have to think about what is going to be profitable in the end and that is another reason why I went with Process B. Conclusion Albatross Anchor is a family business that started off with only four people and it grew to 130. This company has came along way and have the potential to grow even bigger it they can deliver product quality and also using some of the newer technology that is available to them.

I would also suggest that they expand their market and client base along with renovating/expanding the manufacturing company. Along with improving their manufacturing departments they also need have the administrative office in a space that is workable and more organized. Within every business there needs to be a plan, structure and a means of delivering the best quality of service that is out there and this company has a long way to go.

References

1. Cost of Production. (n. d) Retrieved March 17, 2013 from http://www. economicsonline. co. uk/Business_economics/Costs. html Andexer, T. 2008).
2. Analysis and Evaluation of Market Entry Modes Into the Asia-Pacific Region.
3. Retrieved March 17, 2013 from books. google. com/books? isbn=3640144074 Manufacturing and Nonmanufacturing cost, (n. d) Retrieved March 16, 2013 from http://simplestudies. com/manufacturing-nonmanufacturing-costs. html/page/4 What are Economies of Scale? (Smith & Marshall, 2009).
4. Retrieved March 17, 2013 from http://www. investopedia. com/articles/03/012703. asp Russell, R. Taylor, B. (2011). Operations Management: Creating Value along the Supply Chain, 7th Edition. Hoboken, New Jersey: John Wiley and Sons.

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