Solution - Executive Shirt Case

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

Regular Shirts
A) Actual Cycle
Time (Min/shirt)
11,760 * 0.5 /
(WIP * Cycle Time) / 480 minutes
Minutes in a working = 12.25
day
196 * 60
Average WIP * Batch = 11,760
size
D) Production
Capacity
Regular Shirts
Custom Shirts
All labor
content / one
less worker for 2.5 / 5 = 0.5
120 minutes for each category labor content
while cutting is for cutting.
cutting / 480
2 minutes per
shirts worth = still 0.25:
With everything
cuff / 4 workers
0.25 < labor
Cuffs
is
still
the
divided by 1,
= 0.5
content of cuffs bottleneck at 2 collar is new
at 0.5 CT
labor content / bottleneck
3 workers
at 3.90 CT
= 0.67
mins/shirt
B) Manufacturing
Lead Time (days)
C) WIP Inventory
(shirts)
Regular &
Custom Shirts
Ike's Plan
0.5 * 1980 /
480 = 2.06
days
396 * 5 =
1980 shirts
8 hours * 60
8 hours * 60
minutes / 0.5 = mins / 0.5
(9060 * 0.66) /
(50 * 3.9) / 480
480 = 12.58
= 0.41 days
days
30 units at
sewing + 5
60 * 151 sum of units being cut
+ 15 units
avg. WIP =
being finished
9,060 shirts = 50
WIP(given in
case)
480 / 0.666 =
8 * 60 / 3.9 =
(shirts/day)
Minutes available /
CT
E) Capacity
Utilization
Actual Produced /
What could be
produced
Ike's Plan
Regular Shirts
Regular &
Custom Shirts
Regular Shirts
960 shirts /
day
= 960
shirts/day
720 shirts/day123 shirts/day
10,000 / (960 * (16,000 +

20 days)
2000) / (960 *
= 83%
20) = 93.75%
Custom Shirts
123 * 20 days =
2460 monthly
16,000 / (720 * production
20) = 111.11% capacity
2000 / 2460
= 81.25%
(16,000 /
18,000) * 0.25
= 0.2777 +
(90 + 30
(120 minutes /
(2,000 / 18,000
minutes /8hr *
480 total
* 0.5) = 0.2777
60 mins) + 3.9
minutes) + 3.9
= weighted
F) Direct Labor
+ 2 + 0.65 +
+ 2 + 0.65 +
avg. cutting
Content (min/shirt) 2.5 + 1.7 +
2.5 + 1.7 +
time for regular
0.66 + 1.65 +
Time spent cutting + 0.66 + 1.65 + and custom
1.55
+
0.65
+
1.55 + 0.65 +
Direct labor for one
1.8 + 1.55 +
25.76 - 0.25 = 1.8 + 1.55 +
shirt
1.7 + 1.5 +
25.51 sum of
1.7 + 1.5 +
1.95 + 1.75
standard
1.95 + 1.75
= 25.76
station time
= 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
25.51 + 0.2777
= 25.79
(900 * 25.79) /
(800 shirts *
(65 direct
(800 per day *
25.76 Direct
workers * 480 25.76) / (64 100 * 26.01 /
(Shirts per day *
labor content) / minutes
15) * 480) =
(16 * 480)
Direct labor content / 64*480
available)=
20,608 / 23,520 = 33.87%
(Direct labor *
= 67.08%
23,211 / 31,200 = 87.62%
minutes available)
= 74.39%
G) Direct Labor
Utilization
H) Direct Labor
Cost
($/shirt)
Direct labor (Salary *
hours worked) / shirts
produced
64 (6 * 8) / 800 65 ( $6 *
720 shirts / day 16 ($6 * 8
= $3.84
8hours) / 900 = on normal
hours) / 100
31200 / 900
salary: 49 * 6 * = 7.68
= $3.47
8 = $2,352
80 remaining
shirts * 0.67 =
53.6 minutes

Regular Shirts
Regular &
Custom Shirts
Ike's Plan
Regular Shirts
Custom Shirts
53.6 / 60 * 9 =
8.04
49 * 8.04 =
393.96
Total: (393.96 +
2352) / 800
= 3.43
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.
ii.
Current monthly production is 16,000 (given in case)

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.
Mikes 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.
i.
CT = 0.5 minutes
ii.
iii.
MLT in days = (0.5 * 1,980) / 480 minutes per day = 2.06 days
c.
i.
d.
i.
ii.
utilization
e.
capacity
i.
Current monthly production is 16,000 regular + 2000 custom shirts (given in
case)
ii.
iii.
Production utilization = 18,000 / 19,200 = 93.8%
f.
i.
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.
i.
minutes
ii.
Total time used = time per shirt * daily production (18000 per month / 20
days)
iii.
iv.
= 74.39%
h.
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.
Ikes 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.
i.
CT = 0.67 minutes
ii.
iii.
MLT in days = (0.67 * 9,060) / 480 minutes per day = 12.58 days (for regular
shirts)
c.
i.
d.
i.
ii.
utilization
e.
capacity
i.
Current monthly production is 16,000 regular shirts (given in case)
ii.
iii.
Production utilization = 16,000 / 14,400 = 111%
f.
i.
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.
shirt
g.
i.
New direct labor available = 64 15 = 49
ii.
minutes
iii.
Total time used = time per shirt * daily production (16000 per month / 20
days)
iv.
v.
= 87.62%
h.
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.
i.
CT = 0.5 minutes
ii.
iii.
c.
WIP individual shirts = (10 batches * 5 shirts / batch) = 50 shirts

MLT in days = (3.90 * 50) / 480 minutes per day = 0.41 days
i.
WIP shirts = 30 shirts in sewing + 5 shirts in cutting + 15 shirts in finishing
= 50 shirts as WIP (given in case)
d.
i.
ii.
utilization
e.
capacity
i.
Current monthly production is 2,000 (given in case)
ii.
iii.
Total monthly capacity = 2460 (123 per day * 20 days per month)
Production utilization = 2000 / 2460 = 81.25%
f.
i.
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.
shirt
g.
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.
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 Ikes total cost for
custom shirts is $7.68 x 2000 = $15,360, compared to Mikes $3.47 x 2000 =
$6,940. This results in an $8,420 cost difference in favour of Mikes plan. Production
of regular shirts on the other hand are cheaper using Ikes process, that is Ikes
labour costs are $3.43 x 16,000 (desired quantity of regular shirts) = $54,880
compared with Mikes 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, Mikes
proposal is favourable over Ikes 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 Ikes 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
Ikes plan does not satisfy these requirements.
Based upon our analysis, although both processes do essentially satisfy Dwight
Colliers production lead management time conditions, we would recommend that
he should trial Mikes plan. If there does indeed prove to be a market for mid price
range custom shirts, then implementing Mikes proposal is the companys best shot
at making a lucrative profit from this initiative

Solution - Executive Shirt Case

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Current Process Mike's Plan

Current Process Mike's Plan

720 shirts/day123 shirts/day

10,000 / (960 * (16,000 +

0.5 direct labor

Current Process Mike's Plan

Regular shirt production process without custom shirt fabrication.

Cycle time for system = longest station cycle time

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

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

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

Production capacity = minutes per day / CT of system

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

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

Sum of time at all stations = 25.51 minutes per shirt

Total Direct Labor Cost = $3.84 / shirt

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

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

Production capacity = minutes per day / CT of system

Sum of time at all stations = 25.51 minutes per shirt

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

Total Direct Labor Cost = $3.47 / shirt

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

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

Production capacity = minutes per day / CT of system

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

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

Sum of time at all stations = 25.51 minutes per shirt

New direct labor available = 64 15 = 49

Total Direct Labor Cost = $3.43 / regular shirt

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

Cycle time for system = longest station cycle time

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

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

Production capacity = minutes per day / CT of system

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

Sum of time at all stations = 25.51 minutes per shirt

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

Total cutting time = 2.5 minutes

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

Total Direct Labor Cost = $7.68 / custom shirt

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