Management of Organizations COMM 1006 Operations Thicketwood Ltd Problem Statement The current production process that Thicketwood Ltd is utilizing can no longer keep with the demand of custom kitchen cabinets. Management must implement a new step to the production line to increase efficiency; however, they must also maintain quality as the customers that are purchasing these cabinets expect top quality for the amount of money they are paying. Problems/Sub problems/Issues
In the Thicketwood Ltd case there are a few problems and issues that need to be addressed immediately in order to keep up with demand.
The current process that involves strictly human labor is no longer efficient as the demand for cabinets continues to increase. The current process has 5 steps which include cutting, drilling, routing, assembling, and finishing the cabinets. The third step in this process takes the longest amount of time to complete and also has the highest number of employees working on it.
This step causes a bottleneck and everything is becoming backed up at this stage. Management needs to implement a change in order to try to become more efficient and meet demand but also continue to make quality cabinets. The company has come across an option that they believe will eliminate the bottleneck and allow the supply to meet demand. The option the company believes would be the most beneficial is a Computer Numeric Controlled (CNC) router. The decision that must be made is either to purchase the new machine or the old machine.
Each machine has a different price and different life expectancy. By purchasing and implementing this machine to the production process it would also eliminate jobs on the production line, which may result in employees being transferred to different areas or may cause some layoffs which as a result can have a negative impact on the relationship between workers and management which is currently very good as a result of wages and benefits and there have been very few layoffs in the past. Analysis For Thicketwood Ltd, the quality of their cabinets is the most important aspect.
Their target market is individuals or families of higher income that are willing to spend more money for a specialty product which is the custom kitchen cabinets. When people are out shopping for the custom products, price is generally not of big concern in comparison to quality and service. Thicketwood Ltd needs to ensure quality, ensure that their service is top notch, ensure that the quantity of cabinets produced meets the forecasted demand for that and lastly, price. As previously stated, the current system that the company uses includes five steps and all the steps are performed by hand.
Although performing by hand is a good way to ensure quality, the human labor cannot keep up with the forecasted demand in all five steps. The current process is as follows: (Per Cabinet) Step 1: (1 employee) 4 cuts per part X 3feet per cut X 20 parts = 240/10ft per minute = 24min. Step 2: (1 employee) 60 holes per cabinet X 1. 2 minutes per hole = 72min. Step 3: (4 employees) 4 employees routing 1 part each of the 4 required parts = 96min. Step 4: (1 employee) 1 worker assembling 1 cabinet = 90min. Step 5: (2 employees) 2 employees finish the cabinet = 20min.
With this current process, Thicketwood Ltd cannot reach the forecasted demand of 2000 cabinets per year in all categories. Even if the company was operating at 100 percent efficiency, due to the bottleneck in step 3, the maximum amount of cabinets that can be produced in one year is 1250. 60/96 = 0. 625 X 8 hour shift X 5 days a week X 50 weeks a year = 1250 per year However, we cannot make the assumption that the company is operating at 100 percent efficiency as the employees need time to walk around and set up. To keep things more realistic we will calculate at 90% efficiency as well.
Step 3 is not the only step that cannot produce 2000 cabinets a year. Here are the current numbers when the company is operating at 100 percent efficiency and 90 percent efficiency: Table 1. 1 | # of employees| Efficiency| Per Shift| Per Year| Step 1(24 minutes)| 1| 100%90%| 2018| 5,0004,500| Step 2(72 minutes)| 1| 100%90%| 6. 645. 976| 1,6601,494| Step 3(96 minutes)| 4| 100%90%| 54. 5| 1,2501,125| Step 4(90 minutes)| 1| 100%90%| 5. 3364. 8| 1,3341,200| Step 5(20 minutes)| 2| 100%90%| 2421. 6| 6,0005,400| | Total: 9| | | | Table 1. 1 represents 9 workers working 8 hours a day for 5 days a week and 50 weeks a year.
As presented in table 1. 1, the line is unbalanced and is not meeting the quantity demanded. The CNC router can rout 1 part every 12 minutes and there are 4 parts that need to be routed so this step would now take 48 minutes as oppose to 96 minutes. The CNC router only requires 1 operator who would earn $20. 00 per hour resulting in an annually salary of $40,000. If the company were to implement the CNC router, it would allow other employees to be moved around but would also eliminate some jobs. Table 1. 2 represents the production process with the CNC router. Table 1. 2 # of employees| Efficiency| Per Shift| Per Year| Step 1(24 minutes)| 1| 100%90%| 2018| 5,0004,500| Step 2(36 minutes)| 2| 100%90%| 13. 3612. 024| 3,3403,006| Step 3(48 minutes)| 1| 100%90%| 109| 2,5002,250| Step 4(45 minutes)| 2| 100%90%| 10. 649. 576| 2,6602,394| Step 5(40 minutes)| 1| 100%90%| 1210. 8| 3,0002,700| | Total: 7| | | | Table 1. 2 represents 7 employees each working 8 hour shifts 5 shifts a week and 50 weeks a year. Although each step is now over 2000 cabinets per year, this would still not be desired for the company because some steps are still producing much larger numbers than other steps.
In order to balance this line, each step will be operating at different efficiencies. We have also decided to produce 2,250 cabinets a year which will be beneficial if the forecasted demand is slightly off and if it is not we will have an additional 250 cabinets in inventory to be sold the following year. Table 1. 3 shows a balanced line. Table 1. 3 | # of employees| Efficiency| Per Shift| Per Year| Step 1| 1| 45%| 9| 2,250| Step 2| 2| 67. 37%| 9| 2,250| Step 3| 1| 90%| 9| 2,250| Step 4| 2| 84. 6%| 9| 2,250| Step 5| 1| 75%| 9| 2,250| Total: 7| | | | The line is now balanced; however, each step requires a different efficiency in order to produce 2,250. In step 1, the 1 employee will only have to work 3. 6 hours each of the 5 days for 50 weeks to complete 2,250 cabinets. In step 2 each employee will have to put forth 5. 44 hours. In step 3 the CNC router will be working all 8 hours with the operator spending his entire shift there. Step 5 requires both workers to work 6. 67 hours and step 5 requires the 1 employee to work 6 hours to complete his amount of 2,250 per year.
Although they will not need to spend their entire shifts on the production line, the company is still not obligated to cut their hours down to part time. Each employee will be given miscellaneous tasks to complete once they are done their respective duties. Tasks will include helping load the truck, cleaning the warehouse etc. We will also need to take into consideration days where other employees are sick and cannot make into work, when and if this happens, the other employees will be forced to fill in at the respective step.
Alternative Analysis There are only a few alternatives the company can choose in dealing with the problem. Before the company makes a decision they must take into consideration the pros and cons for each alternative, the incremental cost and benefits, the payback period if going with the router, and the employees. We can choose one of the following options: 1. Do not purchase the CNC router and leave the process as it currently is 2. Purchase the new CNC router 3. Purchase the used CNC router
In choosing to not purchase the CNC router and leave the process as it currently operates would mean that we would not be able to keep up with demand, therefore this alternative is one that cannot be chosen. The new CNC router comes with a warranty of 3 years. If the company purchased the new CNC router it would cost $150,000 and a training cost of $1,500. The router has a life expectancy of 5 years which translates into an annual depreciation of $30,000. The CNC router also requires one operator who will earn $20 per hour which results in an annual salary expense of $40,000 for the company.
Additional electricity for the router would run $1000 per year and maintenance would be a total of $4500 per year. The new router will allow a reduction of 3 employees out of the 15 who earn $16 per hour which results in annual savings of $96,000. In order to determine the payback period you must take the initial investment and divide it by the incremental benefits minus the incremental cost. Therefore the payback period would be: Investment= 150,000 + 1,500 = 151,500 Incremental Benefit = 96,000 Incremental costs = $40,000 + 4,500 + 1,000 = 45,500 Payback period = 151,500 / 96,000 – 45,500
Payback period = 151,500 / 50,500 Payback Period = 3 years With the payback period being 3 years, choosing to purchase the new CNC router would be an ideal purchase for the company as the routers life expectancy is 5 years. It is also beneficial that the warranty does not expire before the payback period in case of any possible malfunctions the router may experience. The company also must take into consideration that this is needed in the production line in order to meet demand and is made with state of the art technology which can ensure top quality.
The con to implementing the router is that some jobs will be eliminated which can result in a negative impact on the relationship between workers and management which is currently very strong. There is also the slight chance that the machine may not last the expected 5 years, however there is a slight chance it may last longer as well, and finally, the company would be buying the router off of High-Tech Inc. which we have had no previous relationship with in the past. The used CNC router comes with a warranty of 1 year. If the company were to go with this option it would cost $60,000 and would also have the additional $1,500 training cost.
The used router has a life expectancy of 3 years which translates into an annual depreciation of $20,000. The used CNC router would also require one operator earning $20 per hour which again results in an annual salary expense of $40,000 for the operator. Additional electricity for the used router is also $1,000 and regular maintenance of $4,500 plus additional maintenance of $1,000 which comes from projections assumptions that one maintenance worker would be required to complete one extra hour of maintenance each week of operations. The used router would reduce the line by 2. workers which would result in annual savings of $80,000. In order to determine the payback period we must follow the same steps we used to determine the payback period for the new CNC router: Investment = 60,000 + 1,500 = 61,500 Incremental Benefit = 80,000 Incremental Costs = 40,000 + 4,500 + 1,000 + 1,000 = 46,500 Payback Period = 61,500 / 80,000 – 46,500 Payback Period = 61,500 / 33,500 Payback Period = 1 year and 10 months (1. 835 years) In choosing to purchase the used CNC router the company would be taking a risk as the payback period is 10 months longer than the warranty given.
As a result of this, if the router experiences any problems after 1 year and Thicketwood Ltd is forced to pay for the repairs due to the warranty being expired, that will cause their payback period to be extended which results in losses for the company. The used machine however, is also believed to eliminate some jobs which again can have an impact on the worker and management relationship. On the positive side to purchasing the used CNC router, it would also increase demand and allow supply to meet demand.
In the event that no complications occurred with the router it would be cheaper to implement in comparison to the new CNC router. The company has also dealt with TDL products Co. before and have a good relationship with the sales representative and was confident in her ability to ensure servicing of the router if required. Decision/Recommendation The final decision on behalf of Thicketwood Ltd is going to be implement decision 2, purchase the new CNC router. We chose this decision for various reasons beginning with it is brand new, state of the art technology and has a life expectancy of 5 years along with a warranty of 3 years.
The payback period and the warranty both run 3 years which is crucial in the aspect that the payback period cannot be extended if the machine has any malfunctions within the first 3 years because all the repairs will be covered. It will also increase the number of cabinets we can produce per year as a result the company will be able to meet demand even when operating at lower efficiency levels in some steps which means that if demand happens to increase in following years the production line will be able to produce a larger number of custom cabinets.
The most important aspect for Thicketwood Ltd is the quality of the cabinets and there is no better way of ensuring quality when using machines than bringing in new machines. Since the current forecasted demand is only 2000 and with the new CNC router it brings down the 9 employees needed on the production line to 7. As a result of this the company will have to lay off 2 workers which can have a negative impact on the relationship between workers and management but that is a risk the company must take in order to maintain efficiency at a controllable level.
Since Thicketwood Ltd is a non-unionized company we will not have to follow any corrective steps in accordance to the layoff, however, to be fair to the other employees the layoffs will be based on seniority with the company. For the remaining employees on the production line, they will not be required to spend their entire 8 hour shifts on the production line; however, it is not in the company’s best interest to cut their hours. The following steps in table 1. 4 represent the amount of hours required by each employee on the production per shift: Table 1. | # of Employees| Hours Per Shift| Cabinets Per Year| Step 1| 1| 3. 6| 2,250| Step 2| 2| 5. 39| 2,250| Step 3| 1| 8| 2,250| Step 4| 2| 6. 77| 2,250| Step 5| 1| 6| 2,250| As a result of steps 1, 2, 4, and 5 not requiring the full 8 hour shifts to complete the demand will result in the other employees given miscellaneous tasks to fill in the remaining hours of their shifts. Duties will include cleaning the warehouse, helping load the trucks for delivery, keeping track of inventory and another possible option can be training the employee in tep 1 to make local deliveries in order to try to reduce some of the shipping costs. As previously stated, the company must also take into consideration that with the majority of the production line being human labor, there is a very strong possibility that there will be some sick days taken from some of the employees in which case the remaining employees will have to fill in for their co-workers in the respective step. In conclusion, implementing the purchase of the new CNC router is the best possible option and will be completed immediately.
Executive Summary Thicketwood Ltd, a producer of custom kitchen cabinets is experiencing a bottleneck in their production line that will not allow them to produce the proper quantity to meet their increasing demand of their cabinets. The company must implement some new technology to the production line; however, they must also ensure quality as the cabinets the company produces are custom and more expensive than regular cabinets therefore the customers that buy these are expecting top quality.
The company has explored a couple options including a Computer Numeric Controlled (CNC) router which we will be exploring the pros and cons to each decision throughout the case in order to come up with the best possible alternative that would be most beneficial to the company. Calculations for the Tables 1. 1 and 1. 2 Table 1. 1 Step 1 (24 minutes) 60 / 24 = 2. 5 x 8 = 20 per shift x 5 x 50 = 5000 20 per shift x 0. 9 = 18 per shift x 5 x 50 = 4500 Step 2 (72 minutes) 60 / 72 = 0. 83 x 8 = 6. 64 per shift x 5 x 50 = 1660 6. 64 per shift x 0. = 5. 976 per shift x 5 x 50 = 1494 Step 3 (96 minutes) 60 / 96 = 0. 625 x 8 = 5 per shift x 5 x 50 = 1250 5 per shift x 0. 9 = 4. 5 per shift x 5 x 50 = 1125 Step 4 (90 minutes) 60/90 = 0. 667 x 8 = 5. 336 per shift x 5 x 50 = 1334 5. 336 per shift x 0. 9 = 4. 8 per shift x 5 x 50 = 1200 Step 5 (20 minutes) 60/20 = 3 x 8 = 24 per shift x 5 x 50 = 6000 24 per shift x 0. 9 = 21. 6 per shift x 5 x 50 = 5400 Table 1. 2 Step 1 (24 minutes) 60 / 24 = 2. 5 x 8 = 20 per shift x 5 x 50 = 5000 20 per shift x 0. 9 = 18 per shift x 5 x 50 = 4500
Step 2 (36 minutes) 60 / 36 = 1. 667 x 8 = 13. 36 per shift x 5 x 50 = 3340 13. 36 per shift x 0. 9 = 12. 024 per shift x 5 x 50 = 3006 Step 3 (48 minutes) CNC router 60 / 48 = 1. 25 x 8 = 10 per shift x 5 x 50 = 2500 10 per shift x 0. 9 = 9 per shift x 5 x 50 = 2250 Step 4 (45 minutes) 60 / 45 = 1. 33 x 8 = 10. 64 per shift x 5 x 50 = 2660 10. 64 per shift x 0. 9 = 9. 576 per shift x 5 x 50 = 2394 Step 5 (40 minutes) 60 / 40 = 1. 5 x 8 = 12 per shift x 5 x 50 = 3000 12 per shift x 0. 9 = 10. 8 per shift x 5 x 50 = 2700