Executive Summary
The company Five Star is a family-based business which manufactures diamond coated tools for the jewelers. The company is facing capacity issues and needs to tackle its situation by using alternative solutions. For this purpose, the report shows that it can use cross training and alternate working hours for better utilizing its resources and capacity. Furthermore, it can work on installing the investigation before coating and sharpening process for reducing the possibility of damaged and scraped goods.
Overview
The company, Five star Tools, is a small firm which is owned by the Turner family. It manufactures diamond coated tools used for cutting by the jewelers. The past two years of the company had seen substantial growth, and this is the reason that it has witnessed a capacity shortage in one of its processes, i.e., coating and sharpening. It has been acting as a bottleneck for the company. The company has been missing deadlines and delaying its projects from its important customers due to this constraint. The case analysis would focus on finding out ways to handle this problem in a way that it maximizes the profits for the company.
| Model C210 Chisel | Model D400 Chisel | |||
| Selling Price | $ 500.00 | $ 850.00 | ||
| Less: | ||||
| Variable Costs | $ 85.00 | $ 180.00 | ||
| Direct Labor | $ 150.00 | $ 180.00 | ||
| Direct Material | $ 15.00 | $ 250.00 | $ 60.00 | $ 420.00 |
| Variable Overhead | $ 250.00 | $ 430.00 | ||
| Contribution Margin | $ 185.00 | $ 230.00 | ||
| Less: Allocated Fixed Costs | $ 65.00 | $ 200.00 | ||
| Profit Per Unit | ||||
| Time for coating and sharpening to Produce 1 unit | 0.2 | hours | 0.8 | hours |
Issues and Their Solutions
The solutions for the constraints faced by the company are needed to be sorted out to better utilize the capacity and potential of the company (Jiambalvo, 2009). The president and VP marketing of the company have decided to look for the solutions which will best solve this solution. There are many alternative solutions which can be used to cater to this problem. For loosening of the constraints, Five Star can work on using the Goldratt’s Theory of constraints; by using this theory, the company can take several steps to loosen the capacity constraint of the coating and sharpening process (Techt, 2014). By using cross-train workers from other departments, the company can help in the coating and sharpening process by utilizing their current resources to their full potential. Furthermore, by adding of the inspection station also before the initiation of the coating and sharpening process, the company can save valuable time by not wasting it in scrap inventory (Ricketts, 2010).
Furthermore, the company can look for ways in reducing the scrapped and damaged goods. It is essential as it will also release the bound capacity, which is bound by the goods which are damaged or scrapped. For reduction of the defective and scrapped units, the company can use the subcontractors to designate some of the work whose demands cannot be met. Furthermore, the company can work on implementing the resource management teams. It will aid in the managing of the scheduling of the teams during the break-in alternative manners. This team will make sure that the company does not have any idle employees during its break times. It can use the employees alternatively shifting their break and work times. Moreover, along with this, the management team can also work on implementing the overtime hours (Jiambalvo, 2009).
Five Star tools manufacture two types of chisels. They are unable to loosen the constraint, and then they can work on producing and manufacturing the one who gives it the highest profits. It will give them the model on which they can completely focus. The calculations for the contribution margin of the two models show that the C210 model gives the highest profit of the two models produced by the company.
| Model C210 | Model D400 | |
| CM Per Unit | 250 | 430 |
| Time -coating & Sharpening | 0.2 | 0.8 |
| No of units in 1 Hour | 5 | 1.25 |
| CM Per Hour | 1250 | 537.5 |
| CM per hour Spent | $ 850.00 | |
| Save hours | 240 | hours |
| Profit | $ 204,000.00 |
If Five Stars can have more one hour of operations in the sharpening and coating department, then it will produce five more of the C210 model and one and a quarter more of the D400 model. Based on this, the C210 model will gain an additional contribution margin of $1250, and the other model can gain an additional CM of $ 537.5. These calculations show that through this implementation, Five Star can additionally gain a profit total of $1788.
Conclusion
Concluding this analysis, it can be said that for better handling of the situation the company Five Star can use cross training and alternate break and work hours for capacity maximization. Furthermore, it should consider manufacturing of the C210 model. The installation of the inspection step before the coating and sharpening process and loosening of the constraints by using subcontractors can ease the bottleneck.
References
Jiambalvo, J. (2009). Managerial Accounting. John Wiley & Sons.
Ricketts, J. (2010). Theory of Constraints in Professional, Scientific, and Technical Services. McGraw Hill Professional.
Techt, U. (2014). Goldratt and the Theory of Constraints: The Quantum Leap in Management. Columbia University Press.
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