Chad's Creative Concept

Chad's Creative Concept

Case Study

Chad's Creative Concept

Question 1: What type of decisions must Chad Thomas make daily for his
companys operation to run effectively? Over the long run?
During the course business Chad Thomas needed to make many decisions in
order for his company to run successfully. As an example, each day Chad
must decide which production type he will focus on. Since he produces two
distinctly different lines of furniture, standard and custom, he must
determine which one gets the priority when both have orders that need to be
filled. Since he usually bases his decisions on profits, the custom line tended
to be completed first, but volume may actually have made the standard line
more productive.
With that said, Chad still needed to ensure factory time is allocated to both
lines of business. Since both lines utilize the same machines, its a never
ending balancing act. Chad also needs to take his employee hours into
consideration. His employees are all specialized in different aspects of the
manufacturing process and the same employees need to work on both lines.
Currently, the company has no more space for storage and is renting storage
units. Storage units cut into the companys profits.
The best for Chad may be to relocate the business. Moving into a larger
space will allow Chad to store the extra inventory and create two different
production lines that can run simultaneously. Two production lines will help
reduce the lead-time and scheduling production time should be easier.
With the intention of becoming effective over the long run the company must
reduce the lead times on both the custom and standard lines. With the
increase in volume it is currently difficult to meet the promised delivery
dates for both custom and standard lines. Increased lead times has an effect
all through the company. Increased lead times always result in added costs
such as storage of materials and unfinished products.
Training additional personnel will allow the team to become more flexible and
can only improve long-term effectiveness. Currently, each employee is
specialized at one station; this causes a backlog of work in times of high
volume. Additional impacts are personnel out sick or taking vacation.
Allowing different employees to work in different areas and adding new
personnel on a permanent basis or from a surge perspective will reduce lead
times.

Chad's Creative Concept

Question 2: How did sales and marketing affect operations when they
began to sell standard piece to retail outlets?
Ever since entering the retail outlets, sales and marketing increased. Since
the custom line was already popular, the standard line apparently had no
trouble taking off. The gain in sales made an impact on the companys
operation. Since operations were only set up for the custom line, the
increased volume created higher lead times in both product lines.
It was then realized that operation did not flow seamlessly as before because
of new demands on machinery and the need to more effectively schedule
personnel hours. The custom line was given the priority because the profits
were higher. The prioritization of the custom line over the standard line
meant that the standard furniture line was left in various stages of
production throughout the warehouse.
This obviously led to a storage issue, forcing Chad to invest in additional
storage units increasing the companys operational costs. Delivery times
could not be met for the standard line or custom line because of the
increased volume.
Question 3: How has the move to producing standard furniture affected the
companys financial structure?
Creating a standard line for retail outlets has demonstrated to be
challenging. In the outset the idea seemed to be working but the execution
proved to be challenging and not completely thought out. With the standard
lines increased sales, the profits not equivalent to the custom line, and the
sales of the custom line remaining strong, issues began to arise and
decisions needed to be made.
The custom line still accounted for 60% of the volume and 75% of dollar
sales. One reason why the standard line may not have been as profitable as
the custom line was the fact that there were too many costs associated with
the line. The customers who purchase the standard line tended to be price
sensitive and imposed more stringent delivery requirements which required
production to remain on a very specific schedule. This requirement would
impact the manufacture of the custom line which provided a significant profit
for the company.
Since production time for the standard line had to be minimized in order to
support of the required time for the custom line, the profits were not
maximized with the standard line. Since the start of the production of the

Chad's Creative Concept

standard line, the volume of business increased to the point where extra
storage was needed.
Unplanned expenses, such as extra storage, always tend to cut into profits.
Much of the remaining profits get tied up in production materials as well as
work-in-process. This is probably one reason why the custom line was given
priority, leaving unfinished standard line products sitting around costing
money.

Question 4: What might Chad Thomas have done differently to avoid some
of the problems he now faces?
There are many things that could have been done differently to ensure both
product lines succeeded. Chad should have assessed through proper
analysis how much production materials, labor hours, and production time
were required to produce both lines. He could have done this by using
various scheduling techniques as well as running a cost benefit analysis
and impact assessment.
Chad should also have developed repeatable procedures that would address
issues such as the production rate for each line or what factors determine
priority. Also, before initiating production of the standard line, Chad should
have conducted his due diligence and performed an analysis specifically
focused on setting up the plant for maximum utilization. This analysis, if
performed properly, would have allowed Chad to make an informed decision
on the entire setup prior to the start of selling in retail outlets.
Assuming this analysis was performed properly Chad would have been able
to make the determination that his current setup would be stressed to the
point where it would be obvious that his production line was not optimized to
the point where he would be able to maintain the production levels required.
Some options that could have been considered were setting up two
independent production lines.
He also could have made the determination of the skill levels required for
each line. With the standard line not requiring the same craftsman like skills
as the custom line, a cost savings would be realized with the standup of the
new line and introduction of less skilled labor freeing the current highly
skilled personnel to work solely on the custom line.

Chad's Creative Concept

Bottom line is that Chad needed to explore more in depth ways to determine
the requirements associated with the standing up of a standard line,
especially since the profit margin would be significantly less than the custom
line. This analysis would also have determined the production volume
required from the standard line for it to remain profitable.
If Chad had performed these actions prior to initiating the standard line he
would have considerably reduced his risk and cost impact.