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Contents

Letter of transmittal ....................................................................................... Error! Bookmark not defined.


Executive Summary....................................................................................... iError! Bookmark not defined.
Situation Analysis ......................................................................................................................................... iii
Problem Statement ...................................................................................................................................... iv
The Options .................................................................................................................................................. iv
Criteria for Evaluation ................................................................................................................................... v
Evaluation of Options.................................................................................................................................... v
Recommendation......................................................................................................................................... vi
Action Plan ................................................................................................................................................... vi
Contigency Plan............................................................................................................................................ vi
Exhibits ......................................................................................................................................................... vi

i
LETTER OF TRANSMITTAL

To,

Ms. Elizabeth Hines,

Elizabeth’s Country Wares,

Wood Stock, Ontario

Canada.

Dear Ms. Hines,

Concerning your request regarding Elizabeth’s country Wares course of action, please find the
attached report detailing the analysis and the recommended course of action. I hope that the
report will provide the necessary details and solution to handle the current situation. It is
recommended that ECW outsources the decal production to the New York based Firm to meet
the current demand.

Let me know if you have any questions or concerns.

Regards,

Vivek

i
EXECUTIVE SUMMARY

Ms. Elizabeth Hines, the founder of Elizabeth Country wares (ECW), wants her firm to deliver a
customer demand of 3000 units of country pitcher. She is considering various options that will
enable ECW to meet the demand and maximize ECW’s earning potential.

She could either install decal printing equipment in ECW’s premises or outsource the decal
production to known firm or outsource the entire CP production to a Chinese firm. It is
recommended that ECW should pursue the option of outsourcing the decal production to meet
the customer’s demand.

No of Words: 88

ii
Situational Analysis

Ms. Elizabeth Hines started Elizabeth’s Country Wares(ECW) in April 1991. ECW is in the
business of making and selling decorative pottery and other household items to both wholesale
and retail customers. Ms. Hines learnt ceramics from her mother and shows interest in
manufacturing the products personally. ECW produces and sells products like lamps, country
pitchers, serving plates, non-ceramic decorative wood and fabric pieces. The products of ECW
feature hand painted designs which are unique and appealing to the customers.

The current production line of ECW has Hines herself working on the products along with 2
hourly paid workers. Along with necessary equipment and tools for making country wares, the
production line has two kilns which are available for production throughout the year.

Country Pitcher(CP) is one of the primary products of ECW. ECW’s CPs feature a hand painted
burgundy design, accented with either blue or green paint on the rest of the design and border.
Ms. Hines likes to take advantage of the growing interest in the CPs from some of her primary
customers. ECW has forecasted a demand of 3000 units of its CPs from a national pharmacy
chain for the next year.

The production of CPs involves operations like pouring, removing the mould, deburring,
painting, loading and unloading the kiln, glazing, deglazing and packing (See Exhibit 1). Among
these activities, the painting requires consistency and attention, so Hines is the only person to
perform this activity. The other activities are performed by the hourly workers who are flexible
in their work and availability.

Due to her family commitments and other business related works, Hines can contribute only 8
hours per week towards the CP production. Hines spends her time working on higher margin
items such as butter churn lamps featuring unique design when not working on CPs. Due to Ms.
Hines time constraint, the maximum CPs that ECW could produce in a year is limited to 1996
CPs. ECW has to find a way to address the shortfall of 1004 CPs to meet the customer’s
requirement

The capacity study of the three major resources (Kiln availability, Workers availability and
Hines availability) shows Hines availability is the hindering factor in meeting the demand. (See
Exhibit 2).

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THE PROBLEM STATEMENT

Ms. Hines intends ECW to deliver the forecasted demand of 3000 units of CPs. At the same
time, since ECW is her primary occupation and source of her income, she wants to maximize her
earning potential by focusing on other higher margin like lamps also. The present capacity of
ECW’s resources will be unable to meet the demand (See Exhibit 2). So, ECW should consider
either increasing the capacity of constraint resource or it should outsource the constraint activity.

THE OPTIONS

To meet the customer’s demand, ECW could exercise one of the following options

1. PURCHASE DECAL EQUIPMENT:

ECW could purchase and install a computer, specialized scanner/printer combo,


laminator and a third kiln for $6600. The designs would be stored as decals in the
computer and can be printed and transferred on CPs. The additional kiln would be used to
burn decal into the finish of CP. Thus the painting activity can be carried without the use
of skilled labor. The other activities will be same as that of the original process.

2. OUTSOURCE DECAL PRODUCTION:

ECW could buy decals from a firm located in New York state. The New York firm
employed traditional method of decal printing, which has shown positive results. The
remaining activities will be same as that of the original process.

3. OUTSOURCE CP PRODUCTION:

ECW could outsource the entire production of 3000 CPs to a Chinese firm at a flat rate.
But Ms. Hines was not sure about the quality of the CPs. The remaining activities will be
same as that of the original process.

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CRITERIA FOR EVALUATION

1. The ability of ECW to meet the demand

2. Quality of CPs

3. Flexibility and Control over the manufacturing process of CPs.

4. Profit from the CP production

EVALUATION OF OPTIONS

OPTION 1: PURCHASE DECAL EQUIPMENT

If ECW purchases decal printing equipment including computer, printer/scanner, and kiln, the
decals printing will replace stenciling operation done by Ms. Hines. By this, ECW will be able to
meet the customer’s demand. But as Ms. Hines has no prior experience with this kind of decal
printing, there is no certainty about the quality of the CPs produced. This uncertainty might
affect customer retention. If the demand fluctuates, it might affect the financial position of ECW
also, as a one-time investment of $6600 is required. This option will have the 2nd highest profit
percentage compared to other options.

OPTION 2: OUTSOURCE DECAL PRODUCTION

If ECW outsources decal printing to the New York-based firm, it would be able to meet the
customer demand. Moreover, since Ms. Hines has prior experience in working with this method,
ECW will be able to retain its customer. Based on the further demand, the production can be
increased or decreased without any major changes. This option will have the lowest overall profit
percentage compared to other options.

OPTION 3: OUTSOURCE CP PRODUCTION

ECW can outsource the entire CP production to the China-based firm. Ms. Hines is apprehensive
about the quality of the CP. There is no flexibility and control regarding production as the entire

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3000 units have to be outsourced. This method has the highest overall profit percentage
compared to other options. This option must be rejected. (See Exhibit 3) for the overall
evaluation of the all the options based on evaluation criteria.

THE RECOMMENDEDATION

It is recommended that the decal production should be outsourced to the New York-Based Firm
for the meeting the customer demand of 3000 CPs.

ACTION PLAN

i) Outsource the decal printing activity to the New York-Based Firm with the first order
of 50nos.

ii) Continue with existing stenciling method for a month and introduce the first 50
products produced from the decal printing in the market as a new variety along with
the normal ones.

iii) Analyze customer feedback and introduce the new product as the mainstream
product.

CONTIGENCY PLAN

Since the digital decal printing is becoming the standard of industry, this method should be
furthered studied. An hourly worker should be trained in this method of production. If future
demand for the country ware increases, investment should be made in equipment like computer,
scanner for higher earnings from the business.

No of Words: 1060.

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Exhibit 1: Table showing the processing time, material, labor and operational cost of CP

Time Material Labor


Operational
Required in Cost in Cost
S No Activity Cost Per CP
Mins per Dollars per Per CP
CP CP

1 Slip - 0.65 -
2 Pouring, Opening the Mould and Cleaning 20 5
3 Painting 12.5 1 -
3 Firing in Kiln 22.5 0.24
4 Glazing, Unloading, and Reloading 8.75 0.8 2.19
5 Second Firing 22.5 0.24
6 Removing and Packing 2 0.5
Sub Total 2.45 0.48 7.69
Total ($) 10.62

Exhibit 2: Table showing the required and present capacity of resources at ECW
Whether a Constraint
Capacity Present
S No Resource or Not based on present
Required Capacity
demand
1 Kiln Availability (in Hours) 2250 4500 No
2 Hourly Availability (in Hours) 1500 6200 No
3 Hines Availability (I Hours) 625 416 Constraint

Exhibit 3: Table showing the evaluation of options based on the criteria

Outsource
Purchase Decal Outsource Decal CP
Options Equipment Production production
Meeting Customer Demand √ √ ?
Quality of CPs ? √ ?
Flexibility and control over CPs √ √ ?
Profit percentage 32%* 24.96* 68*

* Profit Percentage calculated assuming that depreciation of decal equipment is 10%.


“√” indicates criteria is meet with certainty. “?” indicates uncertainty

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