Albatross_Unit_3

Unit three Written Assignment Carmen L. Lozada MT435 Operations Management Kaplan University February 21, 2011 Albatross Anchor has had the success of growth. Once a small family based business of four, today, it employs one hundred thirty people. The rapid growth of Albatross Anchor’s business has created operational inefficiencies that are currently precluding Albatross from attaining its profit potential. The purpose of this paper is to analyze Albatross’ operational inefficiencies and suggest operational adjustments that will enable Albatross to remain competitive not only in product, but, also in profit with its competitors. In addition, improving efficiencies will alleviate the necessary financial resources that Albatross will need to support future growth (Albatross Anchor Case Study). Question One Based on the information presented in the scenario/case study discuss Albatross Anchor’s competitiveness in relation to (please address all items in the below list and provide support for your conclusions): 1. Cost a) Cost or Production: Currently, although Albatross’ pricing is in line with its competitors, its profit margin can fluctuate to as much as 35% less than its competitors (Albatross Anchor Case Study). The difference in profit margins is attributed to inefficiencies in operations. For example, in 1989, Albatross decided to expand their product line to include snag hook anchors which require a completely different manufacturing process however they did not expand their facilities to accommodate the manufacturing of the two separate types of anchors (Albatross Case Study). As a result, production times increased while production outputs decreased. These inefficiencies in production are a primary cause of the disparity in profit margin and as such leave Albatross at a competitive disadvantage with the competition (McClure, n.d.). b) Economies of Scale: When Albatross decided to expand its product line, it chose a product that would need a separate manufacturing process. Unfortunately, Albatross failed to accommodate the second product with its separate manufacturing area and chose instead to share the plant area to manufacture both products. The implications of two separate manufacturing processes in one area created a challenge in the line as it would have to be completely changed in order to accommodate the current product being assemble (Albatross Anchor Case Study). This process caused increased down time and forced them to produce in small batches, which in turn, increased lead times for large orders. For this reason, Albatross is at a disadvantage in terms of its economies of scale for production. c) Cost of Raw Materials Sitting Idle in the Warehouse: Albatross’ long standing relationships with suppliers enables them to have negotiating power in regards to the purchase of its raw materials however, its inability to produce in large quantities causes them to hold on idle inventory for longer periods of time creating yet another inefficiency (Albatross Case Study). d) Cost of Finished Goods Sitting Idle in the Warehouse: In addition to its failure to expand its manufacturing area for the second product, Albatross, also failed to update its facilities to include separate shipping areas to accommodate both domestic and international shipments. As a result, international shipments have to go out of the receiving dock which increases the production time for receiving materials as well as shipping international orders (Albatross Case Study). These inefficiencies idle inventory of raw materials as well as finished goods, which ultimately translates into increased costs. 2. Speed of manufacturing process from order to finished product. Albatross’ advantage in speed of manufacturing process is the fact that it only has two products. Separately the methods employed by Albatross are efficient for each product. However, given the fact that both products must share manufacturing space while employing separate methods of manufacturing, Albatross is also at a disadvantage due to the imposed delays in the change-over of one method to the next and limits in production rates of the finished goods (Albatross Case Study). 3. Flexibility in filling order(s) Albatross is at a disadvantage in terms of filing orders due to the fact that its current facility layout does not allow for separate manufacturing lines. At present, this particular layout causes delays in the production and output of their current product lines. Therefore, it stands to reason that Albatross’ flexibility in filling orders would not lend itself to a wide variety of products in its current state ( Scholl & Boysen, 2008). 4. Technology Having incorporated in 1976 Albatross’ plant in now antiquated and the facilities continues to employ a manual manufacturing process (Albatross Case Study). 5. Capacity and facilities The current layout of the Albatross’ facilities is inefficient as it separates key components to the manufacturing process from each other. For example the Foundry is between receiving and shipping. This takes up a crucial space that could be used more efficiently for international shipping as it would help alleviate the issues with idle finished goods and raw materials. Moreover given the fact that at least in premise, Albatross has implemented a mixed manufacturing model of business, they would best be served with focused factory type layout. This type is ideal for a narrow range of products, customers and processes and centers around one or two key manufacturing tasks ( Strategosnic, n.d.). 6. Service to customers (what types of services would an anchor company provide to marine wholesalers' As the manufacturer of the bell anchors and snag hook anchors, Albatross, is able to offer quality anchors to its wholesalers along with spare parts and warranties. Question Two There are many ways that mushroom/bell anchors may be manufactured. Albatross Anchor is considering two new manufacturing processes (Process A and Process B) to reduce costs. Analysis of the information below will help determine which process has the lowest breakeven point (this validates the process is more cost effective). For each process the following fixed costs and variable costs are identified below: |Anchor and Process |Process A |Process B | |Sale price per anchor |$ 42.00 |$ 42.00 | |Total Fixed cost |$ 650,000.00 |$950,000.00 | |Variable cost per anchor |$ 36.00 |$ 29.99 | Based on the information in the table above complete the table below: |Anchor and Process |Process A |Process B | |(a) Fixed costs per anchor |$650,000.00  |$950,000.00  | |(b) The total number of anchors to attain |108,333  |79,101 | |break–even point for Process A and Process B | | | (c) Based on your calculations which Process (A or B) that you would recommend for adoption (you can select only one). Please make sure to explain how you arrived at your conclusion. Considering the fact that Albatross’ current inefficiency are attributed in part to its current manufacturing process, as well as, its high production costs (Albatross Case Study), I would recommend process B because its it has a lower break-even point and variable cost, which will enable larger production batches, lower costs and higher profit margins. In conclusion, by implementing a more technologically advanced production process that can support mixed model manufacturing and designing the layout of its facilities to support a focused factory, Albatross’ will be able reduce the cost per unit, increase the efficiency of production, and ultimately raise its profit margins. This in turn will accommodate its current expansion of products, enable the upgrading of its facilities and secure its future potential for growth. References Albatross Anchor Case Study McClure, Ben (n.d.), The Bottom Line on Margins retrieved on February 21, 2011 http://www.investopedia.com/articles/fundamental/04/042804.asp Scholl, A & Boysen N., The Multiproduct Parallel Assembly Line Balancing Problem: Model and Optimization Procedure, Jenaer Schriften zur Wirtschaftswissenschaft, Frerich-Schiller University Retrieved on February 22,2 011 from http://www.wiwi.uni-jena.de/Papers/wp-jbe200813.pdf Strategosnic, (n.d.): The Focused Factory & Lean Manufacturing, retrieved February 22, 2011 from http://www.strategosinc.com/focused_factory.htm