Danshui Plant No.2

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INTRODUCTION

DANSHUI Plant No.2 is located in southern China was a contract manufacturer that assembled electronic products for companies wishing to save labor costs. DANSHUI was getting a one-year contract with apple Inc. to assemble 2.4 million iPhones. It was very anxious when in the first three months of the contract, the plant is unable to be assembled as many as the expected and its operating at a loss.

The plant has had difficulty hiring enough workers despite raising wages to 35%. In addition, the process of assembling is complex and required almost entirely based on handwork by 325 workers, with 140 steps involving 100 components during 5 days. The DANSHUI controller considers preparing a “flexible budget” whether it is more useful to help them identify the misinterpreting their performance. Li also must analyze the currently static budget have been used and prepare a summary of monthly operations to identify what goes wrong in their operations that contribute to the performance problems.

If DANSHUI not analyzed the sources of problem and find the alternatives ways, it will contribute to disability in performing the contract and in the long term will lead to inefficiency of controlling the cost of materials, labor and overhead. This is in order to provide incentive to control all costs whether caused by use waste, damage theft or inefficiencies.

ISSUE/PROBLEM

DANSHUI Plant has faced an important issue, that is trying to solve the shortage of production line in the first three month and too caught up with the Apple IPhone 4 contract in the rest of the nine month.

As we can know that after having report from the plant operation, DANSHUI Plant is not meeting with the targeted production line, with is shortage about 10% from the targeted amount. Although DANSHUI manage to produce up to 90% of the contract, but the shortage 10% has result DANSHUI to face loss about $672,000 rather than profit $100,000.

For the first three month, DANSHUI have met the shortage of 10%. Therefore, DANSHUI Plant have to plan a strong strategic in order to catch up with the Apple iPhone 4 contract in the rest of the nine month. If the contract amount is not reach during the end of the contract, DANSHUI Plant will bear much higher cost than revenue that will result loss to this plant.

After study the situation, we also find out that labor force and labor cost have contributed to this issue too. For the labor cost, DANSHUI Plant has result over budget in labor cost. As compare to the budgeted, this figure is higher and yet the target production has not reached. By raise the labor cost around 30%, DANSHUI Plant will need to increase the production line to cover the increment. And bear in mind that, DANSHUI only has nine months leave.

Although DANSHUI Plant raises the labor price per hour, but we can observe that this did not help DANSHUI Plant to solve the shortage labor force much. Since DANSHUI Plant was built at the semi-skilled labor field, labor cost is cheap. DANSHUI Plant still cannot increase the number of labor force needed. The issue has contributed to the shortage in production line for the first three months. This is due to DANSHUI Plant is heavy rely on handwork by labor.

DANSHUI Plant raise the labor price is to hire the qualified labor force to push up the production line. As we noted that DANSHUI Plant has only nine months to ensure everything in targeted and also cover the difference at the early three months.

As the production line is based on handwork, the component import is easy damaged. Large number of materials needs to replace from that. Therefore a high skilled level labor forces can help to reduce this problem.

CONCEPTS AND STRATEGIES

Before proceed with the strategies or concepts, our group have analyzed the strengths and weaknesses of DANSHUI in order to know which strategy DANSHUI should go for. Based on the case, we know that DANSHUI strength is they has had the...
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