G.G. Toys: Case study #2
G.G. Toys was a toy manufacturer facing problems with productivity and profitability. The company found a profitable product in their Geoffrey doll and Specialty branded doll #106. Retailers could customize to the specifications and buying habits of their customer base. On average, the Geoffrey Doll cost $19.19 to produce, and the #106 doll $23.74.
To access in a study of their overhead cost for both of their plants, research showed that: 1. A setup was performed in the Chicago facility each time a modification to the dolls was made. Additionally, each time a specialty-branded doll was produced, a separate setup was required to process the raw materials to the required specifications. 2. Workers in the Chicago facility often operated several machines simultaneously once they were set up. Thus, machine-related expenses might relate more to the machine hours of a product than to its production-run labor hours.
Because each retailer required slight alterations to the Geoffrey doll's overall appearance, a new setup and production run was required for each design change. Retailers were found to be conservative in their ordering patterns, ordering fewer units more frequently. Thus increasing the number of setups required, causing increased labor and material cost.
The research done by the external group did show an area of opportunity. Because setup is time consuming, labor intensive, and costly, it would be within reason (at least with the information provided in the article) to offset some of this cost and put any additional setup cost back on the responsibility of the customer/ retailer requesting the modifications.
If set-up cost were put back on the retailer debit could turn into a profitable gain on a per unit basis.
Cost (labor+ material)
Profit (per unit)
Another concern is that the Chicago plant expanded its production capacity...
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