Executive Shirt Company

1 Executive Shirt Company, Inc.

OPERATIONS MANAGEMENT -‐ 1 ASSIGNMENT

EXECUTIVE SHIRT COMPANY

PGP – 1; Section – B

Group – 11

Overview:

The Executive Shirt Company (ESC) is a top apparels company which is looking to expand into the high potential custom-‐sized dress shirt market. Customers currently had a problem with this market because of higher prices and long delivery times of up to 6 weeks. If these factors were addressed, ESC had the opportunity to tap into the highly lucrative market where customers were willing to pay at least 75% more than standard shirts.

Identified objective:

The general manager Collier wants to make alterations to his current process that would enable him to make both custom-‐sized shirts and standard shirts using his resources to the maximum extent possible.

Current process flow:

The current process flow in ESC is as shown in Figure 1. Each batch consists of 60 shirts and Work-‐In-‐Process at each station was three batches per worker. Collier purchases a new cutting machine which takes only 2.5 minutes for the entire process. But the batch size that this machine can handle is five shirts. Two managers, Mike and Ike are asked to present their plans as alternatives to the current process flow.

Mike’s plan:

Mike proposes a plan where both custom and standard shirts are processed together. To reduce the lead time, he proposes to reduce the batch time from sixty to five shirts. He also plans to increase the Work-‐In-‐Process to six batches per worker from the current three. The process flow for this plan is the same as the previous. Only, an extra cutting machine is added for the Cutting process.

Ike’s plan:

Ike’s proposal is to separate the Custom shirt production from the Standard shirt production line by introducing a new assembly line. One worker each from all sewing stations, the inspection station, the ironing station and the packaging station are proposed to be moved to the new custom line. The plan seeks to implement the assembly line by moving twelve sewing machines and one ironing machine from the current assembly line. One extra worker


is employed to operate the laser cutting machine. The process flow for the standard shirts is the same as the current plan with a batch size of 60. The process flow for the Custom shirts is same as well, except that, processing is done one shirt at a time.

An analysis based on the proposed alternatives from Mike and Ike will help in making the ideal choice that will maximize the inherent potential of the custom-‐shirts business.

Fig 1 – Process flow diagram

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Analysis of current process:

For calculating the cycle time, we will divide the time required for each operation by the number of workers required for that operation. The tabulated results are as follows:

Operation Regular Shirts Labour(minutes

per shirt)

Number of workers

minutes/per shirt/worker

Make collar 3.9 8 0.49 Make cuffs 2 4 0.50

Make sleeves 0.65 2 0.33 Make front 2.5 6 0.42 Make back 1.7 4 0.43

Join shoulders 0.66 2 0.33 Attach collar 1.65 4 0.41 Attach sleeves 1.55 4 0.39

Stitch down sleeves 0.65 2 0.33 Sew side seam 1.8 4 0.45 Attach cuffs 1.55 4 0.39 Hem bottom 1.7 4 0.43

Inspect 1.5 4 0.38 Iron 1.95 4 0.49

Fold, Package 1.75 4 0.44 Hence, Ideal cycle time = 0.5 min/shirt The actual production rate for regular shirts is 16000 shirts/month. Hence, the number of shirts produced per minute can be calculated as:

16000/(20*8*60) = 1.67 shirts/min (assuming 8 hour work day) Cycle time = 1/1.67 = 0.6 min/shirt

Since, this cycle time value is higher than the ideal cycle time of 0.5 min/shirt, the actual cycle time = 0.6 min/shirt From Exhibit 3, we can calculate the WIP inventory by adding the individual inventories. WIP inventory = 196 batches = 196*60 shirts = 11760 shirts Production capacity = number of shirts produced using ideal cycle time

= Number of minutes available per day/ ideal cycle time = (8*60)/ 0.5 = 960 shirts/day

Actual production capacity being used = (8*60)/0.6 = 800 shirts/day Capacity Utilization = 800/960 = 83.33% Manufacturing Lead Time = WIP inventory/production capacity


= 11760/800 = 14.7 days For calculating Direct Labour Utilization, we have to consider the time taken by all workers for the operations. For cutting operation, 90+30=120 minutes are taken in the cutting process for 480 shirts. Cutting time per shirt is (120/480)=0.25 min/shirt with 4 workers working on it. The time taken for all other operations is the sum of the times given in exhibit 3 = 25.51 min/shirt Direct labour content = time taken for cutting + time taken for other operations = 0.25*4 + 25.51 = 26.51 min/shirt Direct labour utilization = time taken to produce shirts/total time available for 64 labourers = 26.51*800/(64*8*60) = 69% Money paid to direct labourers = 64*6$*8 hours = 3072 $/day Direct labour cost = 3072/800 = 3.84 $/shirt Analysis of Mike’s process:

For calculating the cycle time, we will refer to the previous table 1, since the workforce is same. Ideal cycle time = 0.5 min/shirt The actual production rate for regular shirts is 16000 regular + 2000 customized = 18000 shirts/month. Hence, the number of shirts produced per minute can be calculated as:


Since, this cycle time value is higher, the actual cycle time = 0.533 min/shirt From Exhibit 5, we can calculate the WIP inventory by adding the individual inventories. WIP inventory = 396 batches = 396*5 shirts = 1980 shirts Production capacity = number of shirts produced using ideal cycle time


Actual production capacity being used = (8*60)/0.533 = 900 shirts/day Capacity Utilization = 900/960 = 93.75% Manufacturing Lead Time = WIP inventory/production capacity = 1980/900 = 2.2 days For calculating Direct Labour Utilization, we have to consider the time taken by all workers for the operations and the time taken on the laser-‐cutting machine. For computer


controlled cutting operation, cutting time per shirt is 0.25 min/shirt with 4 workers working on it. The time taken for laser-‐cutting machine = (2.5 min/5 shirts) = 0.5 min/shirt with 1 worker working on it. The time taken for all other operations is the sum of the times given in exhibit 3 = 25.51 min/shirt Direct labour content = time taken for cutting + time taken for other operations = 0.25*4 + 0.5*1 + 25.51 = 27.01 min/shirt Direct labour utilization = time taken to produce shirts/total time available for 65 labourers = 27.01*900/(65*8*60) = 77.9% Money paid to direct labourers = 65*6$*8 hours = 3120 $/day Direct labour cost = 3120/900 = 3.47 $/shirt Analysis of Ike’s regular shirt process:


Operation

Regular Shirts Labor(minutes per shirt)

Number of workers

Minutes/per shirt/worker

Make collar 3.9 7 0.56 Make cuffs 2 3 0.67 Make sleeves 0.65 1 0.65 Make front 2.5 5 0.50 Make back 1.7 3 0.57 Join shoulders 0.66 1 0.66 Attach collar 1.65 3 0.55 Attach sleeves 1.55 3 0.52 Stitch down sleeves 0.65 1 0.65 Sew side seam 1.8 3 0.60 Attach cuffs 1.55 3 0.52 Hem bottom 1.7 3 0.57 Inspect 1.5 3 0.50 Iron 1.95 3 0.65 Fold, Package 1.75 3 0.58

Hence, Ideal cycle time = 0.67 min/shirt The actual production rate for regular shirts is 16000 shirts/month. Hence, the number of shirts produced per minute can be calculated as:



Since, the value of the ideal cycle time is higher, so the actual cycle time = 0.67 min/shirt From Exhibit 6, we can calculate the WIP inventory by adding the individual inventories. WIP inventory = 151 batches = 151*60 shirts = 9060 shirts Production capacity = number of shirts produced using ideal cycle time


Production capacity as per normal demand = (8*60)/0.6 = 800 shirts/day Capacity Utilization = 800/720 = 111.11% This indicates that the workers are working overtime in this case. Total overtime/day = (8*60)*11.11% = 53.33 mins/day Manufacturing Lead Time = WIP inventory/production capacity = 9060/800 = 11.33 days For calculating Direct Labour Utilization, we have to consider the time taken by all workers for the operations and the time taken on the laser-‐cutting machine. For computer controlled cutting operation, cutting time per shirt is 0.25 min/shirt with 4 workers working on it. The time taken for all other operations is the sum of the times given in exhibit 3 = 25.51 min/shirt Direct labour content = time taken for cutting + time taken for other operations = 0.25*4 + 25.51 = 26.51 min/shirt Direct labour utilization = time taken to produce shirts/total time available for 49 labourers = 26.51*800/(49*8*60*111.11%) = 81.1% Money paid to direct labourers = regular working payment + overtime payment = 49*6$*8 hours + 49*9$*(53.33/60 min) = 2743.9 hours Direct labour cost = 2743.9/800 = 3.43 $/shirt


Analysis of Ike’s customized shirt process:


Operation

Regular Shirts Labor(minutes per shirt)

Number of workers

minutes/per shirt/worker

Make collar 3.9 1 3.9 Make cuffs 2 1 2 Make sleeves 0.65 1 0.65 Make front 2.5 1 2.5 Make back 1.7 1 1.7 Join shoulders 0.66 1 0.66 Attach collar 1.65 1 1.65 Attach sleeves 1.55 1 1.55 Stitch down sleeves 0.65 1 0.65 Sew side seam 1.8 1 1.8 Attach cuffs 1.55 1 1.55 Hem bottom 1.7 1 1.7 Inspect 1.5 1 1.5 Iron 1.95 1 1.95 Fold, Package 1.75 1 1.75

Hence, Ideal cycle time = 3.9 min/shirt The actual production rate for regular shirts is 2000 shirts/month. Hence, the number of shirts produced per minute can be calculated as:


Since, this cycle time value is higher than the ideal cycle time of 3.9 min/shirt, the actual cycle time = 4.8 min/shirt As given, 15 workers have on an average 3 shirts as inventory and the cutting machine has 5 shirts as inventory at a given time, so we can calculate the WIP inventory by adding the individual inventories. WIP inventory = 15*3 + 5 = 50 shirts Production capacity = number of shirts produced using ideal cycle time

= Number of minutes available per day/ ideal cycle time = (8*60)/ 3.9 = 123.1 shirts/day

Actual production capacity being used = (8*60)/4.8 = 100 shirts/day


Capacity Utilization = 100/123.1 = 81.2% Manufacturing Lead Time = WIP inventory/production capacity = 50/100 = 0.5 days For calculating Direct Labour Utilization, we have to consider the time taken by all workers for the operations. The time taken for laser-‐cutting machine = (2.5 min/5 shirts) = 0.5 min/shirt with 1 worker working on it. The time taken for all other operations is the sum of the times given in exhibit 3 = 25.51 min/shirt Direct labour content = time taken for cutting + time taken for other operations = 0.5*1 + 25.51 = 26.01 min/shirt Direct labour utilization = time taken to produce shirts/total time available for 16 labourers = 26.01*100/(16*8*60) = 33.9% Money paid to direct labourers = 16*6$*8 hours = 768 $/day Direct labour cost = 768/100 = 7.68 $/shirt Results for all processes are tabulated as follows:

Current Process

Regular Shirts

Mike’s Plan Regular & custom Shirts

Ike’s Plan

Regular Shirts

Custom Shirts

Actual Cycle Time (min./shirt) 0.6 0.533 0.67 4.8

Manufacturing Lead Time (days) 14.7 2.19 12.64 0.5

WIP Inventory (Shirts) 11760 1980 9060 50

Production Capacity (Shirts/day) 960 960 720 123.1

Capacity Utilization 83.33% 93.75% 111% 81.2%

Direct Labour Content (Min./shirt) 26.51 27.01 26.51 26.01

Direct Labour Utilization

69.0% 77.9% 80.74% 33.9%

Direct Labour Cost ($/shirt) $3.84 $3.47 $3.26 $7.68


Comparison between Mike’s plan and Ike’s plan

The profits for shirts manufactured in a month are compared for both the plans. The results are tabulated as follows:

Mike's plan Ike's plan

Regular Shirts

Customized shirts

Regular Shirts

Customized shirts

Number of shirts (manufactured per

month) 16000 2000 16000 2000 Cost per shirt

Raw material cost 7 7.7* 7 7.7* Total labour cost 4.5 4.5 5** 4.5 Indirect cost 4.5 4.5 4.5 4.5

Total manufacturing cost 16 16.7 16.5 16.7

Wholesale price 25 35 25 35 Profit# 180600 172600

*Raw material costs are 10% more expensive for customized shirts ** Calculating overtime costs: Overtime = 53.33 minutes/worker/day Overtime wages = Overtime * Overtime wages per hour

= (53.33* $9 / 60) = $8 per worker per day Overtime wage per shirt = Overtime wages * No. of workers / Shirts per day

= 8 * 49 / 800 = $ 0.5 per shirt Total Labour cost = 4.5 + overtime cost = 4.5 + 0.5 = $5 per shirt # Profit = ((Wholesale price – Total Manufacturing Cost)*Number of regular shirts) +

((Wholesale price – Total Manufacturing Cost)*Number of regular shirts) Conclusion:

From the above detailed analysis, it is clear that Mike’s process is superior to Ike’s process in terms of profitability and manufacturing lead-‐time. The effective lower MLT of Mike’s process implies that the delivery efficiency is greater. Customer waiting time for Customized shirts is greatly reduced compared to industry standard of six weeks. Executive Shirts Company, Inc. will therefore be in a position to leverage this factor and become a leader in the market for Custom-‐sized shirts.

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Executive Shirt Company