I. TIME CONTEXT
The case is analyzed when problems affecting the company’s operation took place, inventory cost rises, and lead time for manufacturing custom and standard product line increases. It was then that Thomas decided that it’s about time to take a careful look at the overall impact the new standard furniture line is having on his operation.
II. POINT OF VIEW
Chad’s Creative Concept started with a good vision of producing custom-made wooden furniture for vacation cabins bringing “a bit of outdoors inside”. Gaining popularity, evidenced by the increasing demand for their products, they’ve proven themselves and earned the trust of their clients with subtle and elusive tastes. Opportunity came for the company to venture into the production of a more standard line of furniture. This endeavour could have been great but such affected the company’s operations, marketing and finances.
Alterations could have been done in the overall manufacturing process of the company or conducting a marketing analysis could provide insights and working out the marketing segmentation on the potential demand for the standard line products. Most likely, the company was not that much ready to embark on this new line of furniture making in terms of their managing their resources and making the most out of them. Consequently, problems arose and if this situation will continue, additional investment in product cycle will be low or even zero at some point of time. If this will not be given much attention and proper solution will make matters worse.
III. STATEMENT OF THE PROBLEM
Enumerated below are the problems identified in the case of Chad’s Creative Concepts. How did producing standard furniture affect Chad’s Creative Concept’s operations and its financial gain? How can the company operations or slow manufacturing process be improved to cater market demand for both furniture lines? What can the management do to reduce production costs while upholding customer satisfaction?
The following are the objectives the case proponent would like to achieve in order the address the problems faced by Chad’s Creative Concept. To ascertain the operational and financial effects of manufacturing standard furniture. To determine ways on how to improve company operations to cope with the increasingly steady demand for standard and custom-made furniture. To decrease production cost without sacrificing product quality and customer satisfaction.
V. AREAS OF CONSIDERATION
A. SWOT ANALYSIS
The company began by producing custom-made furniture and in a short period established a stable reputation for creative designs and high-quality workmanship. Growth of sales led into the production of a more standard line of furniture. Can offer products at the lowest possible price with utmost customer satisfaction. Producing custom and standard furniture offer customers with more choices.
Single manufacturing process for both standard and custom furniture. Processing time on the same equipment and craftspeople are shared in manufacturing custom and standard furniture. The holding cost of the company is increasing with dollars tied up in inventory, both of raw materials and work in process.
Good reputation yields custom furniture sales to be strong and steady sales growth for standard line furniture.
Customer demands lowest possible cost with maximum satisfaction, in terms of product quality and delivery requirements. Custom furniture is prioritized in making schedules because of its high sales and profit margin causes delay of finishing standard furniture. Costs associated with standard furniture line are increasing. Expensive storage or warehousing cost.
Increasing lead time for both custom and standard orders causing longer promised delivery times. Capacity is at its peak providing no space left for expansion.VI. ALTERNATIVE COURSES OF ACTION
In order to address the issues faced by the management of Chad’s Creative Concept the following alternative courses of action may be implemented: 1.Relocation of warehouse to an economical and cost saving location. 2.Recruitment of additional staffs e.g., craftsman. By doing so, both product lines will not compete for the same craftspeople. 3.Encourage existing staffs for overtime in order to reduce delay in manufacturing products, by providing night differential fees and hazard fees.
4.Given that both manufacturing lines are in demand, business capacity maybe enlarged by enabling more facilities to accommodate processing of both product lines. 5. Employ inventory management. This includes developing a forecasting technique about product demand and making right layout and work flow process. Make scheduling decisions, entails how much to produce, to make sure there are not so many raw materials as work in progress status.
VII. DECISION CRITERIA
The following criteria were used to evaluate the suitability of alternatives recommended in making the decision:
Maintain customer satisfaction and company reputation. It is important to note that decision must be based on this rationale because the longevity of a business may be determined by the patronage of its satisfied clients. Chad’s Creative Concept best marketing strategy is the quality furniture they produce for both product lines. Moreover, customers of standard furniture line imposed more stringent delivery requirements, increased lead time for both product lines causes longer agreed delivery times which may garner dissatisfied customers and tarnish company reputation.
Improve or at least maintain profitability. Finance and accounting disclosed that profits are declining because of costs congruent with the standard furniture line. Priority given to custom furniture line delayed the generation of revenue for standard furniture line. A company even with a good reputation may not stay in the business if its sales can’t support company operation and administrative expenses. Reduction of cost through proper management of resources such as time, inventory and manpower, will increase profit margin. Hence, it is important at this point to base decisions on this criterion.
VIII. DECISION ANALYSIS
PROS / ADVANTAGES
CONS / DISADVANTAGES
Relocation of warehouse with a cheaper rental fee will lessen costs and increase profitability. May incur relocation cost.
Since new warehouse is cheaper it may not be that big to accommodate raw materials and inventories.
Can manufacture more products and accommodate market demand for both lines and deliver the products on time maintaining client satisfaction. Thus, increasing sales and profit margin. Increase in salaries expense decreases profit margin.
May spent time for training new recruits. Learning curve may be lower as they start off.
Can increase number of finished products and increases sales. Quality of work may suffer. Employees may get exhausted for working overtime and tend to finish it at a shorter time than usual. Increase salaries expense and decrease profit margin.
Can speed up processing time since both lines will not compete for the same equipment. Hence, sales will be increased. Increase asset – capital investment.
There is no space left in the plant for expansion.
Manpower should also be increased to operate new facilities which increase salaries expense and decrease profit margin.
Conceptualisation of right layout and work flow process suitable for both lines would expedite production process. Developing forecasting techniques in understanding demand of products will facilitate timing of procurement of raw materials ex. Just-in-Time Strategy which avoids too much investment on hanging raw materials and work in process inventory.
Hiring experts for making the right lay-out and for developing forecast will incur professional fees thus, increasing expenses or costs.
Based on the information presented in the case of Chad’s Creative Concept, the case proponent would like to recommend that alternative no. 5 which entails inventory management address best the problems enumerated above and matches the criteria specified. Hiring an expert who will conceptualize right lay-out for work flow process will speed up manufacturing procedure and configure standard and customized so to reduce setup and changeover time and cope with the demands. Hence, delivery requirement will be met and customers will be satisfied in consideration of preserving company reputation. Moreover, results of forecast will be useful in the timing of procuring raw materials to avoid unnecessary expenditures such as holding cost which will boost up profits.
As disclosed in the case, the plant capacity is at its full, plant has no space left for an expansion, and costs associated with the standard line are rising because there is no active sale and the inventory is increasing in the form of raw material and work in process which is holding the investments of the company. It is recommended that the JIT system should be used. Just in Time (JIT) is an inventory strategy companies employ to increase efficiency and decrease waste by receiving goods only as they are needed in the production process, thereby reducing inventory costs which at this point is what the company needs.
This inventory supply system represents a shift away from the older “just in case” strategy, used by Chad’s Creative Concept, where producers carried large inventories in case higher demand had to be met. Though hiring experts will incur cost still the “benefits exceed costs”. Bearing in mind this principle will further company success and the going concern of the business.
X. STRATEGY OF IMPLEMENTATION
In implementing the decision the following should be done:
Lay-out current manufacturing process. Hire experts who will make the forecasts techniques in understanding demand and conceptualise the layout and work flow process appropriate for both product lines. Lay-out developed should undergo dry run if it would accelerate manufacturing process and achieve the product quality desired. Such as: Product layout for standard line product, usually used for large volume products.
Process layout for custom products is used when there are diversified products using broad-spectrum operations, varying volumes and varying rate of output. Properly laid out factory can ensure the smooth and rapid movement of materials, from the raw material stage to the end product stage. In implementing the new inventory strategy, Just in Time system, supply chain should be adequate and would match demand projected.
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