JudyDowling Unit4CaseStudy1 Assignment

Topics: Costs, Variable cost, Fixed cost Pages: 6 (1206 words) Published: April 19, 2015


Case Study #1 KU Consulting Report
Judy Dowling
MT435 Operations Management
Kaplan University
March 22, 2015

Case Study #1 Albatross Anchor
As a representative for KU Consulting, I would like to take this opportunity to address some of the issues with Albatross Anchor. Starting in 1976 as a small family owned business, Albatross is now a one hundred thirty employee operation. They manufacture bell and hook anchors and sell them wholesale in bulk. Located in Smalltown, USA, the company is facing many challenges in respect to building space, technology, and US safety and environmental standards, as well as production costs (Albatross Anchor). Cost

a) Cost of Production: The cost of manufacturing the bell anchor is $8.00 per pound and the cost of manufacturing the hook anchor is $11.00 per pound, yet charge the same amount per unit as their competitors, which in turn decreases their profit margins. At this time Albatross is dealing with operations and production obstacles due to the lack of space for the production of both anchors. b) Economies of Scale occur when the cost per unit decreases as the production of higher levels of units increases. In order to achieve this, the fixed cost per unit does not change and is spread over an increasing number of units (Pettinger, T., 2012). Production or operating costs do not increase with the output levels increasing. Since Albatross produces small batches due to the space issue, and raw materials purchased in large quantities would be a big cost because of time sitting idle, it would not be easy to even recognize the economies of scale. c) Cost of Raw Materials Sitting Idle in the Warehouse: Since Albatross manufactures only one of their two products at a time, raw materials are being stored and sitting idle within the compact warehouse space. This in turn creates a costly burden on Albatross. d) Cost of Finished Goods Sitting Idle in the Warehouse: Because of Albatross being landlocked they have weight restrictions on their products which means they must ship via truck, rail or ocean freight. By using distribution center, their products can be shipped out when finished so that there isn’t a long waiting period for the products to be idle. Speed of manufacturing process from order to finished product. Although it takes thirty-six hours to convert the machinery over to comply with specifications of the product being manufactured, the process is at its best. For large bulk orders it can take three to four weeks to fill. This is an area of definite concern. Flexibility in filling order(s)

Because of the fact that they have to change machinery to accommodate one product at a time, if an order for a product that is not being manufactured at that particular time comes in the turn-around time is three to four weeks so that the company can finish the product which is in production, tear down machines and switch them out, then manufacture the product next on order. Technology

Albatross is working with outdated office machinery, and their plant layout is in need of improvement and redesign. By investing in updated computers for the office and changing the layout then orders can be received and shipped faster by knowing ahead of time what product will need to be produced next in line. Also, a flexible manufacturing system (FMS) could be put into place so that machinery could be introduced to accommodate both products with minimal changes and setup and queuing times decreased (Inman, R., 2015). Capacity and facilities

With having to facilitate every inch of space in one building it is difficult to maximize production and effectiveness. To be more efficient the layout of the facility needs to be changed. Incorporating the warehouse (foundry) with the finished products and raw materials, this would allow for receiving and shipping being able to move much more smoothly. The administrative area can be decreased in size with billing and administrative (HR,...

References: Albatross Anchor. (n.d.) Retrieved from
http://extmedia.kaplan.edu/business/Media/MT435/MT435_1501C/MEDIAASSET_tEpIjEnsd9NFRYtenIIXxw/player.htm
Inman, R. A. (2015). Flexible manufacturing. Retrieved from
http://www.referenceforbusiness.com/management/Ex-Gov/Flexible-Manufacturing.html
Peavler, R. Business Finance Expert. (2015) How to calculate breakeven point. Retrieved from
http://bizfinance.about.com/od/pricingyourproduct/a/Breakeven_Point.htm
Pettinger, T. (2012). Definition of economics of scale. Retrieved from
http://www.economicshelp.org/microessays/costs/economies-scale/
Russell, R., & Taylor, B. (2013). Quality Management. In Operations and supply chain management (Eighth Ed.). VA: John Wiley and Sons.
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