Thicketwood Ltd. Case Study

Problem Statement

In the Thicketwood Ltd. case, the operations manager, Mark Taylor, must produce the quantity of cabinets demanded with efficiency, while maintaining the quality stipulated by customers, and eliminate expenses where possible. Taylor will have to evaluate the costs and benefits of acquiring a new piece of equipment and bring balance to the production line.

Problems/Issues/Concerns

If the company continues with its current operations, the business will not be successful in supplying the quantity demanded that is predicted for the upcoming year. The routing step in creating the cabinet is causing other steps of the process to idle for substantial periods of time. Since it takes the four employees roughly 96 minutes to rout one cabinet, and this is the slowest step of the process, they will only be able to produce 1250 cabinets during the period of one year. There are 2000 work hours in the year (8hrs a day x 5 days a week x 50 weeks a year), and the routing step takes 1.6 hours per cabinet. By dividing the total amount of work hours by the length of time it takes to rout one cabinet, it is clear that the current operations system allows for a maximum of 1250 cabinets to be produced. This is a major concern as it is imperative to meet the quantity demanded of the customers if the company seeks continual growth and expansion.

An additional concern of the case relates to the structure of the production line. The production of one cabinet is completed in five steps that take 24, 72, 96, 90 and 20 minutes respectively. The time period gaps between the steps create substantial idling of the phases of production and as a result, a production line that lacks balance. Even with the implementation of a piece of routing equipment, it is possible that this will create other bottlenecks in the production line. When lines are not balanced, resources are wasted and the firm is losing out on potential revenue.

Moreover, Mark Taylor must take into account that it is quality above all else that drives the sales of the cabinets. Since it is known that the cabinets' quality is what primarily attracts the consumer, Taylor should make a decision that will maintain or improve the superiority of the company's outputs.

Since the implementation of equipment could lead to the lay-offs of employees, Mark Taylor must take into account how this will affect the workplace environment. Lay-offs could lead to a decrease in employee moral, as well as a demand for a union. These repercussions could be very costly to the business.

To date, no marketing operations exist within the firm. Thicketwood is possibly losing potential customers by not marketing their product. By allocating resources to marketing, and increasing demand, the firm would also need to increase supply.

Analysis

Since the raw materials and works in process move in batches, the current process would be considered to be job shop, as the volumes of outputs reduced is relatively small. Quality and design are of the utmost importance and the routers would presumably improve the quality of the cabinets. The cabinets must be functional if the company wishes to sustain their reputation. Equally important to function is service, as the cabinets are priced high and attract a high-income clientele. As the cabinets are relatively expensive, higher quality service is expected. Quantity demanded must be met, however the goal of the firm is not to produce pricey cabinets in the masses since there is a limited demand. Price is not considered overly important since the customers are willing to spend more since the cabinets are considered custom and unique.

To begin, it is important to evaluate the current production line. Appendix A is a diagram of the current process being used to manufacture cabinets. The following table illustrates the time and labor required to complete one cabinet and the idling time at each phase of production.

Table 1

Number of workers Phase of production Time (minutes) Idle (minutes)

1 Cutting wood 24 72

1 Drilling holes 72 24

4 Routing wood 96 0

1 Assembling cabinets 90 6

2 Finishing cabinets 20 76

This table assumes that there are only nine employees that work directly in the production division of the firm and the remaining 6 employees make up management personnel or hold positions in other divisions in the firm. The pace of the system is roughly one cabinet produced every 5 hours. This figure is calculated by adding the time that it takes to complete each step (24 + 72 + 96 + 90 +20 = 302). Since the slowest phase of production takes 96 minutes to complete, a maximum of 1250 cabinets can be manufactured during a one year time period. The business operates for 120,000 minutes each year and the routing phase takes 96 minutes to complete. By dividing the total amount of minutes by the time required for one cabinet to be routed, it is evident that the firm is going to produce at the most 1250 cabinets if nothing is changed.

The first CNC router that Taylor considers is new and would be purchased from High-Tech Inc. There are several quantitative and qualitative factors that must be carefully considered. Its total cost of implementation would include the purchase price, and the cost of training ($150,000 + $1,500 = 151,500). Annual costs include the new electricity ($1,000), maintenance ($4,500), as well as salary expense for the CNC operator ($20/hour x 40 hours/week x 50 weeks = $40,000). Depreciation is calculated using the straight-line method, whereby the cost of the equipment is divided by the number of useful years ($150,000 / 5 = $30,000). To make a sound qualitative decision, Mark Taylor must also consider his relationship with the supplier of the equipment. It is stated in the case that this will be his first time buying from this particular company. This could lead to unforeseen frustrations for Mark Taylor such as poor service, late delivery and company bankruptcy. These uncertainties about the supplier add risk to this alternative. In addition, a three-year warranty is offered to Thicketwood, which is important, as the equipment is very expensive, and is only a sound investment if it lasts for a reasonable amount of time.

Table 2 - Production Line with new routing equipment purchased from High-Tech Inc.:

Number of workers Phase of production Time (minutes)

1 Cutting wood 24

1 Drilling holes 72

1 Routing