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Executive Post Graduate Programme - 2016-17

Operations Management (Term 2)

Case Analysis

Executive Shirt Company, Inc.

Members of Group 10:


Ankur Tyagi (1614015)
Anshul Arora (1614016)
Pavan Rapaka (1614037)
Raghvender Sharma (1614043)
Sheetal Dahotre (1614053)

1. Compute the following quantities for the current


production process as well as for Mikes and Ikes
plans, assuming the plans are implemented as
described in the case.
Solution:
Current
Process
(Regular
Shirts)
A
B
C

Actual Cycle Time


(min/shirt)
Manufacturing Lead Time
(days)
WIP Inventory (shirts)

Mikes Plan
Regular &
Custom
Shirts

Ikes Plan
Regular
Shirts

Ikes Plan
Custom Shirts

0.5

0.5

0.67

3.9

12.25

2.0625

12.58

0.41

11760

1980

9060

50

960

960

720

123

Production Capacity
(shirts/day)

E
F

Capacity Utilization
Direct Labor Content
(min/shirt)

83.33 %

93.75%

111.11%

81.3%

25.76

25.787

25.76

26.01

Direct Labor Utilization


Direct Labor Cost ($ / shirt)

67.08 %

74.39 %

87.62%

33.87%

3.84

3.47

3.43

7.68

G
H

Current Process

A) Actual Cycle Time This is the time duration between batches of


output at a steady state of performance. This is equivalent to the
maximum value of cycle times of individual stages within the overall
process, since rate of output from the overall process is limited by
its slowest stage.
Stage
Minutes
Shirts
Stage Time = Minutes/Shirt
Setup
90
480
0.1875
Cutting
30
480
0.0625
For rest of the stages the Stage Time = Labor Content / Number of Workers. This is
because each worker completes his/her portion of work for a single shirt in amount
of time = labor content involved in that task.
Labor
Stage Time = Labor
Content Workers
Content /Workers
1 Make Collar
3.9
8
0.4875
2
3
4
5
6
7
8
9
10
11
12

Make Cuffs
Make Sleeves
Make Front
Make Back
Join Shoulders
Attach Collar
Attach Sleeves
Stitch down
Sleeves
Sew side seam
Attach cuffs
Hem bottom

2
0.65
2.5
1.7
0.66
1.65
1.55

4
2
6
4
2
4
4

0.5
0.325
0.416666667
0.425
0.33
0.4125
0.3875

0.65
1.8
1.55
1.7

2
4
4
4

0.325
0.45
0.3875
0.425

13
14
15

Inspect
Iron
Fold and Package

1.5
1.95
1.75

4
4
4

0.375
0.4875
0.4375

Cycle Time = Max (Cycle times for all stages) = Time (Make Cuffs) =
0.5 minutes/shirt
(Assuming that there is no overtime involved)
B) Manufacturing Lead Time = WIP Inventory / Production Capacity
= (C) / (D)
= 196x60 / 960 = 12.25 days
C) WIP Inventory = Number of shirts that are WIP in all stages. This
can be found from Exhibit 3
Average (60-Shirt) batches WIP = 16+144+12+12+12 = 196
Average WIP shirts = 196 x 60 = 11760
D) Production Capacity This is the maximum capacity to produce
shirts on a given day.
a. We know that plant is open for 8 hours = 8 x 60 minutes =
480 minutes. (Assuming no overtime)
b. One shirt is produced every 0.5 minutes = Cycle Time
c. Hence, maximum shirts that can be produced on a given day
= 480 /0.5 = 960 shirts
E) Capacity Utilization This is the percent of the total capacity that
is utilized. To find this measure we will find the ratio of number of
shirts that are produced to the maximum production capacity
a. Shirts produced per day Current shirts produced per
month = 16000 (As given in the case section: Planning the
Custom Shirt Line). Plant operates for 20 days in a month.
Hence shirts produced per day = 16000 / 20 = 800 shirts/day
b. Production capacity per day As derived in (D) this is 960
c. Capacity utilization = 800/960 = 83.33 %
F) Direct Labor Content This measure indicates the labor minutes
spent per shirt. We find the stage wise minutes and add them up to
get the solution

Labor
Content
Minutes/Shirt
s = 120/480
Setup and Cutting
120
480
= 0.25
For rest of the stages the labor content is given in Exhibit 3
Make Collar
3.9

2
3
4
5

Make
Make
Make
Make

Labor Minutes

Cuffs
Sleeves
Front
Back

Shirts

2
0.65
2.5
1.7

6
7
8
9
10
11
12
13
14
15

Join Shoulders
Attach Collar
Attach Sleeves
Stitch down Sleeves
Sew side seam
Attach cuffs
Hem bottom
Inspect
Iron
Fold and Package
Total

0.66
1.65
1.55
0.65
1.8
1.55
1.7
1.5
1.95
1.75
25.76

G) Direct Labor Utilization This measure gives the ratio of labor


time utilized to the labor time available
a. Labor Time Utilized Labor minutes spent per shirt x
Number of shirts produced per day = Labor content x Number
of shirts produced per day = 25.76 x 800 = 20608
b. Labor Time Available = 8 hr x 60 minutes/hr x 64 workers =
30720
(Assuming no overtime)
c. Labor Utilization = Labor Time Utilized / Labor Time
Available = 20608/30720 = 67.08 %
H) Direct Labor Cost This measure gives the labor expense per
shirt. To find this, we will find the total labor expense per day and
divide by the number of shirts per day.
a. Total labor expense per day = 64 workers x 8 hours x $ 6 per
hour rate = $3072
b. Number of shirts per day = 800 (calculated above)
c. Direct labor cost = 3072 / 800 = $3.84 / shirt
Mikes Plan

A) Actual Cycle TimeCycle times for individual stages from current process remain the
same. Stage time for the new cutting machine is computed below:
Stage
Cutting (new
machine)

Minutes
2.5

Shirts

Stage Time = Minutes/Shirt

Cycle Time = Max (Cycle times for all stages) = Time (Make Cuffs or
Cutting on new machine) = 0.5 minutes/shirt
B) Manufacturing Lead Time = WIP Inventory / Production Capacity
= (C) / (D)
= 396x5 / 960 = 2.0625 days
C) WIP Inventory = Number of shirts that are WIP in all stages. This
can be found from Exhibit 5
Average (5-Shirt) batches WIP = 36+288+24+24+24= 396
Average WIP shirts = 396 x 5 = 1980

0.5

D) Production Capacity This is the maximum capacity to produce


shirts on a given day.
a. We know that plant is open for 8 hours = 8 x 60 minutes =
480 minutes. (Assuming no overtime)
b. One shirt is produced every 0.5 minutes = Cycle Time
c. Hence, maximum shirts that can be produced on a given day
= 480 /0.5 = 960 shirts
E) Capacity Utilization = Shirts produced per day/ Daily production
capacity
= (100 custom + 800 regular)/ 960
= 93.75%
Since custom shirts produced per month = 2000, and there are 20 working days per
month, daily production of custom shirts = 100
Since the production volume of standard-sized shirts remains the same, it is = 800 per
day
F) Direct Labor Content
Since all the operations from exhibit 3 are common for custom and
regular shirts,
Labor content for all operations except cutting remains 25.51
Labor content for cutting:
Labor Minutes
Setup and Cutting
(regular)
Cutting (custom)

120
2.5

Shirts
480
5

Labor
Content
(min/shirt)
120/480 =
0.25
0.5

To obtain direct labor content for cutting in general, we consider the


weighted average of cutting labor for custom and regular shirts:
= (100x0.5+0.25x800)/900 = 0.2777
Overall direct labor content for all operations = 25.51 + 0.277 =
25.787 min/shirt
G) Direct Labor Utilization
= Direct labor utilized/ Direct labor available
= Direct labor content x Production capacity/ No. of workers x
labor time
= 25.787x900/ 65x8x60 = 74.385%
(Assuming no overtime)
H) Direct Labor Cost
= Total daily labor expense/ Daily capacity
= No. of workers x wages per worker/ Daily capacity
= 65x6x8/ 900 = $3.467/ shirt

Ikes Plan
Regular shirts:

Custom shirts:

A) Actual Cycle TimeRegular shirts:


Cycle times for individual stages from current process change as
below due to change in number of workers:

Stage
Minutes
Shirts
Stage Time = Minutes/Shirt
Setup
90
480
0.1875
Cutting
30
480
0.0625
For rest of the stages the Stage Time = Labor Content / Number of Workers. This is
because each worker completes his/her portion of work for a single shirt in amount
of time = labor content involved in that task.
Labor
Stage Time = Labor
Content Workers
Content /Workers
1 Make Collar
3.9
7
0.557143
2
3
4
5
6
7
8
9
10
11
12
13
14
15

Make Cuffs
Make Sleeves
Make Front
Make Back
Join Shoulders
Attach Collar
Attach Sleeves
Stitch down
Sleeves
Sew side seam
Attach cuffs
Hem bottom
Inspect
Iron
Fold and Package

2
0.65
2.5
1.7
0.66
1.65
1.55

3
1
5
3
1
3
3

0.666667
0.65
0.5
0.566667
0.66
0.55
0.516667

0.65
1.8
1.55
1.7
1.5
1.95
1.75

1
3
3
3
3
3
3

0.65
0.6
0.516667
0.566667
0.5
0.65
0.583333

Cycle time for regular shirts = 0.67 min/shirt


Stage time for the new cutting machine is computed below:
Stage
Cutting (new
machine)

Minutes
2.5

Shirts

Stage Time = Minutes/Shirt

For rest of the stages, since there is only one worker assigned, stage cycle time = labor
content (from exhibit 3). Hence, stage with maximum cycle time is Make collar with cycle
time = 3.9 min/shirt
Cycle time for custom shirts = 3.9 min/shirt
B) Manufacturing Lead Time = WIP Inventory / Production Capacity
= (C) / (D)
Lead time for regular shirts = 9060/ 720
= 12.58 days
Lead time for custom shirts = 50/123
= 0.406 days

C) WIP Inventory = Number of shirts that are WIP in all stages.


For regular shirts, this can be found from Exhibit 6.
Average (60-Shirt) batches WIP = 16+108+9+9+9= 151

0.5

Average WIP regular shirts = 151 x 60 = 9060


For custom shirts, we know that on an average every worker at each
stage post-cutting has 3 shirts. There can be up to 5 shirts on the
new cutting machine.
So, WIP custom shirts = 15 x 3 + 5 = 50
D) Production Capacity This is the maximum capacity to produce
shirts on a given day.
a. We know that plant is open for 8 hours = 8 x 60 minutes =
480 minutes. (Assuming no overtime)
b. One shirt is produced every 0.67 minutes = Cycle Time
c. Hence, maximum shirts (regular) that can be produced on a
given day = 480 /0.67 = 716.4 ~ 720 (since it is a multiple of
60 minimum batch size)
Production capacity for regular shirts is approximately 720
On similar lines, production capacity for custom shirts = 480 /3.9 = 123
(It is assumed that there is no minimum batch size for custom shirts)
Production capacity for custom shirts is approximately 123
E) Capacity Utilization = Shirts produced per day/ Daily production
capacity
It is assumed that the factory works overtime to maintain current production levels for
standard-sized shirts.
Capacity utilization for regular shirts = 800/ 720 = 111.11%
On similar lines, capacity utilization for custom shirts
= (2000 per month planned/ 20 days)/ 123 = 100/123 = 81.3%
F) Direct Labor Content
Since all operations remain the same for regular shirts, direct labor
content for regular shirts remains the same as it is in current
process = 25.76 min/shirt
Labor content for cutting custom shirts:

Cutting (custom)

Labor Minutes
2.5

Shirts
5

Labor
Content
(min/shirt)
0.5

Since all operations post-cutting remain the same for custom shirts,
direct labor content for custom shirts = 0.5 + 25.51 = 26.01
min/shirt
G) Direct Labor Utilization
= Direct labor utilized/ Direct labor available
= Direct labor content x Production capacity utilized/ No. of
workers x labor time

For regular shirts, Labor utilization = 25.76 x 800/ 49 x 8x 60 = 87.62%


For custom shirts, labor utilization = 26.01 x 100/ 16x 8x 60 = 33.867%
H) Direct Labor Cost
= Total daily labor expense/ Daily capacity
= No. of workers x wages per worker/ Daily capacity
For regular shirts, labor cost includes wages for regular time and overtime.
Wages for regular time = 49 x 8 x 6 = $2352
Wages for overtime = (time taken for additional capacity) x overtime wage x no. of workers
= (no. of shirts additionally produced x cycle time ) x overtime wage x
no. of workers
= (800 720)x 0.67 x 9/60 x 49 = $393.96
For regular shirts, labor cost = (2352 + 393.96)/ 800 = $3.43/ shirt
For custom shirts, = No. of workers x wages per worker/ Daily capacity
= 16 x 6 x8 / 100 = $7.68/ shirt

2. Compare the two plans, in terms of both regular


shirt production and custom-shirt production.
Based on your analysis, what is your
recommendation for Dwight Collier? [600 words]
Analysis:
From the calculations done earlier, we note that:
Mikes plan
Cost for regular shirts = Planned no. of regular shirts x direct labor cost
= 800 x 3.47
= $2776/ day
Cost for custom shirts = Planned no. of custom shirts x direct labor cost
= 100 x 3.47
= $347/day
Total cost = $3123/day
Ikes plan
Cost for regular shirts = Planned no. of regular shirts x direct labor cost
= 800 x 3.43
= $2744/ day

Cost for custom shirts = Planned no. of custom shirts x direct labor cost
= 100 x 7.68
= $768/day
Total cost = $3512/day
Recommendation: Adopt Mikes plan. Rationale for this recommendation follows:
A) Mikes plan is the least cost option
B) While labor utilization is marginally improved in Ikes plan for
producing regular shirts compared to Mikes plan, it suffers
significantly for producing custom shirts. Just about one-third of the
labor is utilized in custom shirt production per Ikes plan
C) While overall capacity utilization improves with Mikes plan, Ikes
plan requires over-utilization (and overtime wages) for regular shirt
production.
D) Having a single worker for each stage in Ikes plan for custom shirt
production increases cycle time significantly.
E) Mikes plan is closest to the current process as it requires minimal
changes to factory floor. This seems to be the most prudent
approach especially since the foray into custom-shirt market is not
yet proven successful.
F) Dwight Colliers requirement of having minimal capital expenditure
is not fulfilled in Ikes plan as it requires setting up a dedicated
assembly line for custom shirts and moving equipment from current
line.