Harvard Business School

9-696-071

Rev. March 11, 1996

Executive Shirt Company

Case Analysis-The Executive Shirt Company (Group Project)

Part A

Calculations

 

	Current Process	Mike's Plan	Ike's Plan
	Regular Shirts	Regular & Custom Shirts	Regular Shirts	Custom Shirts
A) Actual Cycle Time (Min/shirt)	2 minutes per cuff / 4 workers = 0.5	120 minutes for cutting / 480 shirts worth = 0.25 < labor content of cuffs at 0.5 CT	All labor content / one less worker for each category while cutting is still 0.25: Cuffs is still the bottleneck at 2 labor content / 3 workers = 0.67 mins/shirt	2.5 / 5 = 0.5 labor content for cutting. With everything divided by 1, collar is new bottleneck at 3.90 CT
B) Manufacturing Lead Time (days) (WIP * Cycle Time) / Minutes in a working day	11,760 * 0.5 / 480 minutes = 12.25	0.5 * 1980 / 480 = 2.06 days	(9060 * 0.66) / 480 = 12.58 days	(50 * 3.9) / 480 = 0.41 days
C) WIP Inventory (shirts) Average WIP * Batch size	196 * 60 = 11,760	396 * 5 = 1980 shirts	60 * 151 sum of avg. WIP = 9,060 shirts	30 units at sewing + 5 units being cut + 15 units being finished = 50 WIP (given in case)
D) Production Capacity (shirts/day) Minutes available / CT	8 hours * 60 minutes / 0.5 = 960 shirts / day	8 hours * 60 mins / 0.5 = 960 shirts/day	480 / 0.666 = 720 shirts/day	8 * 60 / 3.9 = 123 shirts/day
E) Capacity Utilization Actual Produced / What could be produced	10,000 / (960 * 20 days) = 83%	(16,000 + 2000) / (960 * 20) = 93.75%	16,000 / (720 * 20) = 111.11%	123 * 20 days = 2460 monthly production capacity 2000 / 2460 = 81.25%
F) Direct Labor Content (min/shirt) Time spent cutting + Direct labor for one shirt	(90 + 30 minutes /8hr * 60 mins) + 3.9 + 2 + 0.65 + 2.5 + 1.7 + 0.66 + 1.65 + 1.55 + 0.65 + 1.8 + 1.55 + 1.7 + 1.5 + 1.95 + 1.75 = 25.76	(16,000 / 18,000) * 0.25 = 0.2777 + (2,000 / 18,000 * 0.5) = 0.2777 = weighted avg. cutting time for regular and custom 25.76 - 0.25 = 25.51 sum of standard station time 25.51 + 0.2777 = 25.79	(120 minutes / 480 total minutes) + 3.9 + 2 + 0.65 + 2.5 + 1.7 + 0.66 + 1.65 + 1.55 + 0.65 + 1.8 + 1.55 + 1.7 + 1.5 + 1.95 + 1.75 = 25.76	0.5 direct labor for cutting + 3.9 + 2 + 0.65 + 2.5 + 1.7 + 0.66 + 1.65 + 1.55 + 0.65 + 1.8 + 1.55 + 1.7 + 1.5 + 1.95 + 1.75 = 25.01
G) Direct Labor Utilization (Shirts per day * Direct labor content / (Direct labor * minutes available)	(800 shirts * 25.76 Direct labor content) / 64*480 = 67.08%	(900 * 25.79) / (65 direct workers * 480 minutes available)= 23,211 / 31,200 = 74.39%	(800 per day * 25.76) / (64 - 15) * 480) = 20,608 / 23,520 = 87.62%	100 * 26.01 / (16 * 480) = 33.87%
H) Direct Labor Cost ($/shirt) Direct labor (Salary * hours worked) / shirts produced	64 (6 * 8) / 800 = $3.84	65 ( $6 * 8hours) / 900 = 31200 / 900 = $3.47	720 shirts / day on normal salary: 49 * 6 * 8 = $2,352 80 remaining shirts * 0.67 = 53.6 minutes 53.6 / 60 * 9 = 8.04 49 * 8.04 = 393.96 Total: (393.96 + 2352) / 800 = 3.43	16 ($6 * 8 hours) / 100 = 7.68

 

 

 

Explanation

1.       Regular shirt production process without custom shirt fabrication.

a.        Cycle time for each station = total station time / # of workers at station

i.         Cycle time for system = longest station cycle time

ii.       Cuffs station = System CT = 2.0 minutes / 4 workers = 0.5 minutes

b.        Manufacturing Lead Time (MLT) = Cycle Time (CT) * Works in Progress (WIP)

i.         CT = 0.5 minutes

ii.       WIP  individual shirts = (196 batches * 60 shirts / batch) = 11,760

iii.     MLT in days = (0.5 * 11,760) / 480 minutes per day = 12.25 days

c.        Total individual shirts as WIP = Sum of average batches * 60 shirts per batch

i.         WIP shirts = 196 batches * 60 shirts per batch = 11,760 shirts as WIP

d.        Production capacity of system at continuous 100% utilization (minutes)

i.         Production capacity = minutes per day / CT of system

ii.       Production capacity = 480 / 0.5 = 960 units per day @ continuous 100% utilization

e.        Production capacity utilization = monthly production / monthly production capacity

i.         Current monthly production is 16,000 (given in case)

ii.       Total monthly capacity = 19,200 (920 per day * 20 days per month)

iii.     Production utilization = 16,000 / 19,200 = 83%

f.         Direct Labor content = sum of time at all stations + time per shirt for cutting

i.         Sum of time at all stations = 25.51 minutes per shirt

ii.       A single cutting of 8 patterns on 60 layers of cloth produces (60 * 8) = 480 shirts

iii.     Total cutting time = (1.5 minutes * 60 layers) + (30 minutes cutting) = 120 minutes

iv.     Cutting time per shirt = 120 minutes / 480 shirts = 0.25 minutes per shirt

v.       Total labor content (time) per shirt = 25.51 + 0.25 = 25.76 minutes per shirt

g.        Direct Labor Utilization = Total used labor time / Total labor time available

i.         Total labor time available = 64 workers * 480 minutes per day = 30,720 minutes

ii.       Total time used = time per shirt * daily production (16,000 per month / 20 days)

iii.     Total time used = 25.76 minutes * 800 shirts per day = 20,608 minutes

iv.     Direct Labor Utilization = 20,608 minutes used / 30,720 minutes available = 67.08%

h.        Total Direct Labor Cost per shirt = (# workers * 8 hours per day * $6 per hour) / 800

i.         Total Direct labor cost = (64 * 8 * 6) / 800 (total daily production = 16,000 / 20 days)

ii.       Total Direct Labor Cost = $3.84 / shirt

 

2.       Mike’s plan for production of regular and custom shirts using existing facilities with the addition of a new cutting machine and one worker.

a.        System CT remains unchanged = 0.5 (the cuffs station still has the longest station CT)

b.        Manufacturing Lead Time (MLT) = Cycle Time (CT) * Works in Progress (WIP)

i.         CT = 0.5 minutes        

ii.       WIP individual shirts = (396 batches * 5 shirts / batch) = 1,980

iii.     MLT in days = (0.5 * 1,980) / 480 minutes per day = 2.06 days

c.        Total individual shirts as WIP = Sum of average batches * 5 shirts per batch

i.         WIP shirts = 396 batches * 5 shirts per batch = 1,980 shirts as WIP

d.        Production capacity of system at continuous 100% utilization (minutes)

i.         Production capacity = minutes per day / CT of system

ii.       Production capacity = 480 / 0.5 = 960 units per day @ continuous 100% utilization

e.        Production capacity utilization = monthly production / monthly production capacity

i.         Current monthly production is 16,000 regular + 2000 custom shirts (given in case)

ii.       Total monthly capacity = 18,000 (900 per day * 20 days per month)

iii.     Production utilization = 18,000 / 19,200 = 93.8%

f.         Direct Labor content = sum of time at all stations + time per shirt for cutting

i.         Sum of time at all stations = 25.51 minutes per shirt

ii.       New machine can cut 1 pattern on five layers in 2.5 minutes

ii.Custom cutting time = 5 shirts / 2.5 minutes = 0.5 minutes per custom shirt

iii.     Total cutting time = Weighted average of old & new machine cutting times

iii.(16,000 reg / 18000 total) * 0.25 + (2000 / 18000) * 0.5 = 0.278 min/shirt

iv.     Total labor content (time) per shirt = 25.51 +0.28 = 25.79 minutes per shirt

g.        Direct Labor Utilization = Total used labor time / Total labor time available

i.         Total labor time available = 65 workers * 480 minutes per day = 31,200 minutes

ii.       Total time used = time per shirt * daily production (18000 per month / 20 days)

iii.     Total time used = 25.79 minutes * 900 shirts per day = 23,211 minutes

iv.     Direct Labor Utilization = 23,211 minutes used / 31,200 minutes available = 74.39%

h.        Total Direct Labor Cost per shirt = (# workers * 8 hours per day * $6 per hour) / 900

i.         Total Direct labor cost = (65 * 8 * 6) / 900 (total daily production = 18,000 / 20 days)

ii.       Total Direct Labor Cost = $3.47 / shirt

 

3.       Ike’s plan for shifting labor from the regular assembly floor to create a separate assembly line dedicated to custom shirts, thus separating the two streams of production.

(A)  Regular Shirt Production:

a.        System CT = 0.67 (the cuffs station still has the longest station CT @ 2.0 min / 3 workers )

b.        Manufacturing Lead Time (MLT) = Cycle Time (CT) * Works in Progress (WIP)

i.         CT = 0.67 minutes

ii.       WIP individual shirts = (151 batches * 60 shirts / batch) = 9,060

iii.     MLT in days = (0.67 * 9,060) / 480 minutes per day = 12.58 days (for regular shirts)

c.        Total individual shirts as WIP = Sum of average batches * 60 shirts per batch

i.         WIP shirts = 151 batches * 60 shirts per batch = 9,060 shirts as WIP

d.        Production capacity of system at continuous 100% utilization (minutes)

i.         Production capacity = minutes per day / CT of system

ii.       Production capacity = 480 / 0.67 = 720 units per day @ continuous 100% utilization

e.        Production capacity utilization = monthly production / monthly production capacity

i.         Current monthly production is 16,000 regular shirts (given in case)

ii.       Total monthly capacity = 14,400 (720 per day * 20 days per month)

iii.     Production utilization = 16,000 / 14,400 = 111%

f.         Direct Labor content = sum of time at all stations + time per shirt for cutting

i.         Sum of time at all stations = 25.51 minutes per shirt

ii.       A single cutting of 8 patterns on 60 layers of cloth produces (60 * 8) = 480 shirts

iii.     Total cutting time = (1.5 minutes * 60 layers) + (30 minutes cutting) = 120 minutes

iv.     Cutting time per shirt = 120 minutes / 480shirts = 0.25 minutes per shirt

v.       Total labor content (time) per shirt = 25.51 + 0.25 = 25.76 minutes per shirt

g.        Direct Labor Utilization = Total used labor time / Total labor time available

i.         New direct labor available = 64 – 15 = 49

ii.       Total labor time available = 49 workers * 480 minutes per day = 20,608 minutes

iii.     Total time used = time per shirt * daily production (16000 per month / 20 days)

iv.     Total time used = 25.76 minutes * 800 shirts per day = 23,211 minutes

v.       Direct Labor Utilization = 20,608 minutes used / 23,520 minutes available = 87.62%

h.        Total Direct Labor Cost per shirt = (# workers * 8 hours per day * $6 per hour) / 800

i.         Overtime is incurred for all employees in order to reach excess of normal hour production levels (calculated above @ 11% above capacity)

ii.       Overtime production = daily production – daily capacity = 800 – 720 = 80 shirts

ii.OT (minutes) = 80 * CT = 80 * 0.67 = 53.60 extra minutes per worker

ii.OT cost = (53.60 / 60) *$6 / hour * number of workers = (53.60 / 60) * 6 * 49

ii.OT cost = $393.96

iii.     Total Direct labor cost = (49 * 8 * 6) + 393.96 / 800 (total daily production = 18,000 / 20 days)

iv.     Total Direct Labor Cost = $3.43 / regular shirt

(B)   Custom shirt production on separate assembly line (15 workers + 1 new hire):

a.        Cycle time for each station = total station time / # of workers at station

i.         Cycle time for system = longest station cycle time

ii.       Cuffs station = System CT = 3.90 minutes / 1 worker = 3.90 minutes (collar station)

b.        Manufacturing Lead Time (MLT) = Cycle Time (CT) * Works in Progress (WIP)

i.         CT = 0.5 minutes        

ii.       WIP  individual shirts = (10 batches * 5 shirts / batch) = 50 shirts

iii.     MLT in days = (3.90 * 50) / 480 minutes per day = 0.41 days

c.        Total individual shirts as WIP = Sum of average batches * 5 shirts per batch

i.         WIP shirts = 30 shirts in sewing + 5 shirts in cutting + 15 shirts in finishing = 50 shirts as WIP (given in case)

d.        Production capacity of system at continuous 100% utilization (minutes)

i.         Production capacity = minutes per day / CT of system

ii.       Production capacity = 480 / 3.90 = 123 units per day @ continuous 100% utilization

e.        Production capacity utilization = monthly production / monthly production capacity

i.         Current monthly production is 2,000 (given in case)

ii.       Total monthly capacity = 2460 (123 per day * 20 days per month)

iii.     Production utilization = 2000 / 2460 = 81.25%

f.         Direct Labor content = sum of time at all stations + time per shirt for cutting

i.         Sum of time at all stations = 25.51 minutes per shirt

ii.       A single cutting of 1 pattern on 5 layers of cloth produces 5 shirts

iii.     Total cutting time = 2.5 minutes

iv.     Cutting time per shirt = 2.5 minutes / 5 shirts = 0.50 minutes per shirt

v.       Total labor content (time) per shirt = 25.51 + 0.50 = 26.01 minutes per shirt

g.        Direct Labor Utilization = Total used labor time / Total labor time available

i.         Total labor = 12 sewers + 3 finishers + 1 cutter = 16

ii.       Total labor time available = 16 workers * 480 minutes per day = 7680 minutes

iii.     Total time used = time per shirt * daily production (2000 per month / 20 days)

iv.     Total time used = 26.01 minutes * 100 shirts per day = 2601 minutes

v.       Direct Labor Utilization = 2601 minutes used / 7680 minutes available = 33.87%

h.        Total Direct Labor Cost per shirt = (# workers * 8 hours per day * $6 per hour) / 200

i.         Total Direct labor cost = (16 * 8 * 6) / 200 (total daily production = 2000 / 20 days)

ii.       Total Direct Labor Cost = $7.68 / custom shirt

 

Part B

Recommendation to Management

Using the calculations in Part A it is possible to evaluate each of the two proposals in terms of their cost and efficiency. Firstly, to deduce the total cost for the custom shirts each month, the Direct Labour Cost from each plan can be multiplied by 2000 (the desired quantity produced). By doing this we learn that Ike’s total cost for custom shirts is $7.68 x 2000 = $15,360, compared to Mike’s $3.47 x 2000 = $6,940. This results in an $8,420 cost difference in favour of Mike’s plan. Production of regular shirts on the other hand are cheaper using Ike’s process, that is Ike’s labour costs are $3.43 x 16,000 (desired quantity of regular shirts) = $54,880 compared with Mike’s labour costs of $3.47 x 16,000 = $55,520. The difference between the two is only $640, which is fairly insignificant, and leaves the total cost difference between the two plans at $7,780 in favour of Mike.

 

The great disparity in cost between the two is mainly due to the efficiency of each proposal. Whilst Mike increases the efficiency of both capacity and labour utilization in the factory (absorbing excess capacity and increasing efficiency from 83% to 93.75% as well as improving labour efficiency by 7.31%), Ike over-utilizes capacity in his regular shirt production line and severely under-utilizes capacity in his custom shirts production line. The result of this is that he has to pay the workers on the regular shirt line overtime whilst the workers on the custom shirt line are frequently starved and sitting idle.

 

Furthermore, when considering the logistics of each production line layout, Mike’s proposal is favourable over Ike’s because it allows for more flexibility. Whilst Mike retains the existing ‘process layout’ in the batch shop process, where similar operations are performed in common functional areas, Ike instead adopts a ‘product layout’ structure, where the operations are located according to the progressive steps involved in making a shirt. Having only one worker completing each production task, as is the case in Ike’s plan, means that if one worker is slowed down for any reason or needs to take a break, then there is no one to pick up the slack. As a result, the whole process is negatively affected. An ideal assembly line should allow workers to trade elements of work and it should be unproblematic to add workers to the line to increase efficiency, however the straight-line layout of Ike’s plan does not satisfy these requirements.

 

Based upon our analysis, although both processes do essentially satisfy Dwight Collier’s production lead management time conditions, we would recommend that he should trial Mike’s plan. If there does indeed prove to be a market for mid price range custom shirts, then implementing Mike’s proposal is the company’s best shot at making a lucrative profit from this initiative.