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INDIAN INSTITUTE OF MANAGEMENT, AHMEDABAD

Elizabeths Country Wares (ECW)


A report submitted to
Instructor: Prof. Ajay Pandey
Academic Associate: Debarati Bhattacharya

In partial fulfillment of the requirements of the course


Written Analysis and Communication I (2016-17)

By
Mudit Rustagi
Ref No: 16202
Section: E

On
2nd July, 2016

LETTER OF TRANSMITTAL
June 12, 2009
Dear Mrs. Hines
With reference to your request for a report on increasing the overall profits of Elizabeths Country Wares
by capitalizing on the increased demand for country pitchers, I am enclosing a detailed analysis of the
situation, possible options and my recommendations along with an action plan for the near future.
My recommendation would be to outsource the production of Country Pitchers to vendors in China and
subsequently engage yourself and ECWs production facility and workers in other activities, which
might generate more profits for your business.
I hope you find the report to be satisfactory.

Regards
Mudit Rustagi

EXECUTIVE SUMMARY
Elizabeths Country Wares, a decorative country housewares and ceramics business based in Woodstock,
Ontario, is seeking to increase its profit levels by capitalizing on increased demand for its country
pitchers product line.

The business is currently not equipped to meet this demand; however, it is crucial that it does. To tackle
this issue, the business could purchase equipment, or outsource part or all of the production of its
country pitchers product line.
It is recommended that the production of country pitchers be outsourced completely, and the
production facility and workers be engaged in other areas.
(95 words)

TABLE OF CONTENTS

Situation Analysis.............................................................................................................. 1
The problem...................................................................................................................... 2
Options for the future........................................................................................................ 2
Criteria for Evaluation........................................................................................................ 2
Evaluation of Options........................................................................................................ 3
Recommendation............................................................................................................... 4
Action Plan......................................................................................................................... 4
Exhibits.............................................................................................................................. 5

THE REPORT
Situation Analysis
A national pharmacys growing interest in one of ECWs product lines, known as country pitchers, has
presented Hines with a ready opportunity to increase ECWs profits. It has been forecasted that the
demand for country pitchers (henceforth referred to as CP) in the following year would go up to 3000
units. Since ECW is her primary source of income, it is crucial that she capitalizes on this opportunity.
Additionally, since ECW is a relatively small business, Hines is averse to making large capital
investments.
An in-depth analysis of the current production process of CPs, as described later in this section, reveals
that ECW would be unable to meet the forecasted demand of 3000 units. ECW, therefore, needs to
expand its current production of CPs in order to increase its profit levels.
It is also worth noting that this demand is forecasted; therefore, actual demand may be lower or greater
than expected. Furthermore, consumers change preferences constantly in terms of patterns, colours, and
designs. The above factors together necessitate a blueprint of expansion that:

Is profitable
Can meet increased demand levels and changing preferences with relative ease
Requires minimal investment outlay

In addition to these factors, since Hines has been running the operation the same way for over two
decades now, it is important to understand that any course of action should preferably employ methods
that Hines is familiar with.
Operation
ECWs CP production is a linear process the output of one step feeds into the next. Upon analysis, it is
evident that the step involving Hines and the use of the kilns are the key bottlenecks in the process. Also,
the analysis reveals that in the current situation, the operation cannot be optimized any further.
Hines paints the desired design onto the CPs and loads the CPs into a kiln. This step requires attention to
detail and consistency, and therefore, cannot be performed by any other worker. However, Hines is only
available for CP production for a maximum of eight hours per week. Therefore, as shown in Exhibit 1,
Hines limited availability restricts CP production to almost 2000 units.
1

The kilns can only be operated overnight, and so, a kiln can only be run once a day. Furthermore, even if
the dependency on Hines is eliminated, the kilns restrict production to 3000 units (Exhibit 1), which
might result in a shortfall should actual demand be higher than 3000 units over the next year.
Hines also believes that her role in the process is monotonous and a rather inefficient use of her time,
which she would like to spend in other profitable pursuits.

The problem
ECW would like to capitalize on increased demand of one of its products (CP) to increase its profits

Options for the future


Of the several courses of action that can be employed to tackle the situation at hand, the following three
present plausible options
1. Purchase decal equipment
2. Outsource decal production
3. Outsource CP production

Criteria for Evaluation


In order of decreasing priority, the criteria for evaluation of possible alternatives as solutions to the
problem are:
1. Profitability
Evaluates how profitable the alternative is
2. Adaptability
Evaluates whether alternative can cater to higher demand levels and altered preferences
3. Investment outlay
Evaluates whether significant capital investment is required
4. Familiarity
Evaluates relative ease of adopting new operation method

Evaluation of Options
1. Purchase decal equipment

As per Exhibit 2, purchasing decal equipment is a reasonably profitable alternative. It would also
eliminate Hines role from the production of CPs, thereby allowing her to engage in other activities.
However, this course of action only increases ECWs current profit levels by about $100 (Exhibit 2), if
the investment made ($6,600) is recovered within the first year.
This alternative also falls short in terms of adaptability to increased demand as the kilns would still
restrict maximum production to 3000 units. Moreover, Hines hasnt worked with a system such as this
earlier. Therefore, it is unadvisable to proceed with this method of production.
2. Outsource decal production
Outsourcing decal production presents the least profitable alternative (Exhibit 2); disregarding, the
investment made, this process would generate lower profits for ECW than current levels. Moreover, the
production capacity would again be restricted to 3000 units due to the kilns.
Prima facie, employing this approach to CP production appears to require minimal investment vis--vis
the other two options. However, given that consumer preferences constantly change, each new decal
would cost an additional $500, making this an unattractive alternative from the aspect of investment
outlay.
Despite the fact that Hines is fairly familiar with a system such as this, the alternative is deficient on
other critical parameters, such as profitability, adaptability and possibly investment outlay.
3. Outsource CP production
Completely outsourcing CP production presents benefits on multiple fronts. It not only is the most
profitable of all three courses of action (Exhibit 2), but also frees Hines and the production facility to be
engaged in other activities.
It is also the most adaptable alternative to altered demand levels as well as altered preferences different
vendors can cater to higher demand levels as well as different preferences.
In terms of investment outlay, a payment is required to be made upon delivery of the CPs. However,
despite the fact that the order has to be made all-at-once for 3000 units, there is no such restriction on
the delivery of the goods, which can be done in batches.
This alternative also eliminates the requirement for Hines to be familiar with the process.

Recommendation
3

It is recommended that ECW completely outsource CP production to vendors based out of China at a
flat-rate per CP.

Action Plan
1.
2.
3.
4.

Negotiate terms of contract with the vendor, including details of delivery and payment
Place an order for 3000 units at the pre-discussed flat-rate
Contact the national pharmacy chain for pre-orders to avoid storage overhead costs
Employ the production facility and workers in other profitable pursuits

(989 words)

Exhibits
Exhibit 1: Maximum number of units that can be produced annually
By kiln*
Total kiln-days** available (a)
Kiln-days available for other
product lines (b)
Kiln-days available for CPs (c =
a-b)
Kiln-days required to produce 12
CPs (d)

730
230
500
2
4

Number of CPs that can be


produced annually (f = 12 * c /
d)
By Hines*
Minutes per week for CP
production (a)
Time required to finish painting
one CP (b)
Number of CPs that can be
produced annually (c = 52 * a /
c)

3000

480
12.5
1996.
8

* (Since both the workers are flexible in availability, it is self-evident that they do not represent the
bottleneck in the process)
** (Kiln-day represents the amount of work that can be finished by a kiln in one day)
*** (Calculated metrics are highlighted in grey)

Exhibit 2: Profitability of different alternatives per CP

Slip

Cost breakdown per country pitcher for different scenarios


Purchasin
Outsourcin Outsourcin
g decal
Item/Scenario
Current
g decal
g CP
Equipmen
production production
t
$0.65
$0.65
$0.65
5

Border underglaze
Design underglaze
Glaze
Energy
Energy rate ($/kWh)
Kiln energy usage (kW)
Time per firing (hours)
Cost per firing
Total energy usage
Energy cost per CP
Worker (greenware)
Worker (underglaze/glaze)

$0.68
$0.32
$0.80

$0.68
$0.32
$0.80

$0.68
$0.32
$0.80

$0.47

$0.47

$0.47

$5.00
$2.69

$5.00
$2.69

$5.00
$2.69

$0.50
$0.20

$0.50
$0.20

$1.88

$5.76

$13.19
$25.00

$17.07
$25.00

$8.45
$25.00

Profit Analysis
$0.00 $6,600.00
$14.39
$11.81

$1,000.00
$7.93

$0.00
$16.55

3000
$23,797.5
0
$22,797.5
0

3000
$49,650.0
0
$49,650.0
0

$0.0
6
10.5
4.5
$2.8
4
$5.6
8

Additional costs
Additional worker
Energy cost (new kiln)
Cost per decal (1
decal/CP)
Total cost per CP (a)
Selling price per CP (b)

Investment outlay (d)


Profit per CP (c = b - a)
Units expected to be sold
(e)
Total profits (p = [c * e])
Total profits less outlay (q
= [c * e] - d)

$10.61
$25.00

2000
$28,785.
00
$28,785.
00

3000
$35,437.5
0
$28,837.5
0