JudyDowling Unit4CaseStudy1 Assignment
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
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
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.