Operation Management
IIM PGPMX 2018 - 20
Executive Shirt Company, Inc
Overview
The Executive shirt company is selling high quality, competitively prices men’s shirt. Prompted by dip in
sales GM Collier decided to expand the product line in custom sized shirt which commands a 75%
premium and customer can wait upto 6 weeks longer. Based on customer buying pattern, Collier decided
to deliver within 10 working days and a premium of $10 on wholesale and $20 on retail over each
standard shirt.
Production Basics
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White and blue shirts constitute 80% of total sales
Production takes place in Pauquet Mississippi factory
The production area was divided into cut and assembly area
Computer cutting machine can cut 60 layers of clothes in 30 mins
Each layer require 1.5 minutes to lay
8 different patterns of shirt can be cut from each layer of cloth
There were 4 operators to do the cutting function.
Batch size was 60 shirts in a Bin.
There were 15 operations happens after cutting
4 material handlers moves these bins to each work stations
Total 64 workers are working including cutting and assembling
They work 8 hours a day, 5 days a week and 20 days a month
They are paid $6 per hour on regular shift and $9 per hour on overtime
Collier bought a small, low ply laser cutting machine
This cuts one type of shirt with 5 layer and took 2.5 mins
Scrap value is 10%
The manufacturing time should be less than 5 days
They should produce 2000 shirts apart from regular 16000 shirts
Given the job to plan the action to Mike and ike
Calculations
Current Process
Actual cycle time – it is the time required to make one shirt.
Total available time in a month (mins)
= 20 days X 8 hours X 60 mins = 9600 mins
Total number of shirt produced in a month
= 16000 shirts
Therefore the actual cycle time would be
= 9600 mins/16000 shirts = 0.6 min/shirts
Ideal cycle time – it is the time required to produce one shirt in the given environment considering the
bottleneck (making cuff = 2 min/shirt by 4 workers = 0.5 mins/shirt as it is the maximum time)
Maximum time required (mins) in a job
= 0.5 mins/shirt
Production capacity – is the number of shirts produced in the ideal cycle time
Number of mins available in a day
= 8 X 60 = 480 mins
Ideal cycle time
= 0.5 mins/shirt
Therefore the production capacity is
= 480 mins/0.5 mins = 960 shirts
Actual Production capacity – is the number of shirts produced in the actual cycle time
Therefore the actual production capacity is
= 480 mins/0.6 mins = 800 shirts
Submitted by : Vinod Kumar Singh
Operation Management
IIM PGPMX 2018 - 20
Work in Progress Inventory – inventory (shirts) held up at different stage of operations
Average WIP – 196 batches with 60 shirts
= 11760 shirts
Manufacturing Lead time (days) is the time clear the WIP in the given production capacity
WIP Inventory (shirts)
= 11760 shirts
Production capacity
= 800 shirts/day
Manufacturing Lead time
= 11760/800 = 14.7 days
Capacity utilization is the how much of the total capacity utilized
Actual Production capacity
= 800 shirts
Ideal production capacity
= 960 Shirts
Capacity Utilization
= 800/960 = 83.33%
Direct labour Content is the time taken by all workers to complete the job
Cutting time by 4 workers
= 1 min/shirt
Assembly time
= 25.51 mins/shirt
Total time
= 26.51 mins/shirt
Direct labour Utilization is how much the labour services utilized of the total capacity
Total workers
= 64
Total time
= 26.51 mins/shirt
Actual productions (shirts)
= 800 shirts
Production time
= 800 X 26.51 = 21208 mins
Total worker time available
= 64 X 8 X 60 mins = 30720 mins
Direct labour Utilization %
= 21208/30720 = 69%
Direct labour cost is the cost paid to the worker per shirt
Money paid to worker in a day
= 64 X $6 X 8 Hours = $3072/day
Actual productions (shirts)
= 800 shirts
Therefore Direct labour cost
= 3072/800 = $3.84/shirt
Mike Process
Actual cycle time – it is the time required to make one shirt.
Total available time in a month (mins)
= 20 days X 8 hours X 60 mins = 9600 mins
Total number of shirt produced in a month
= 18000 shirts
Therefore the actual cycle time would be
= 9600 mins/18000 shirts = 0.53 min/shirts
Ideal cycle time – it is the time required to produce one shirt in the given environment considering the
bottleneck as everything remain same.
Maximum time required (mins) in a job
= 0.5 mins/shirt
Production capacity – is the number of shirts produced in the ideal cycle time
Number of mins available in a day
= 8 X 60 = 480 mins
Ideal cycle time
= 0.5 mins/shirt
Therefore the production capacity is
= 480 mins/0.5 mins = 960 shirts
Actual Production capacity – is the number of shirts produced in the actual cycle time
Therefore the actual production capacity is
= 480 mins/0.53 mins = 900 shirts
Submitted by : Vinod Kumar Singh
Operation Management
IIM PGPMX 2018 - 20
Work in Progress Inventory – inventory (shirts) held up at different stage of operations
Average WIP – 396 batches with 5 shirts= 1980 shirts
Manufacturing Lead time (days) is the time clear the WIP in the given production capacity
WIP Inventory (shirts)
= 1980 shirts
Production capacity
= 900 shirts/day
Manufacturing Lead time
= 1980/900 = 2.2 days
Capacity utilization is the how much of the total capacity utilized
Actual Production capacity
= 900 shirts
Ideal production capacity
= 960 Shirts
Capacity Utilization
= 900/960 = 93.75%
Direct labour Content is the time taken by all workers to complete the job
Cutting time by 4 workers
= 1 min/shirt
Cutting time by 1 worker (Laser machine)
= 2.5 min/5 shirts = 0.5 mins
Assembly time
= 25.51 mins/shirt
Total time
= 27.01 mins/shirt
Direct labour Utilization is how much the labour services utilized of the total capacity
Total workers
= 65
Total time
= 27.01 mins/shirt
Actual productions (shirts)
= 900 shirts
Production time
= 900 X 27.01 = 24309 mins
Total worker time available
= 65 X 8 X 60 mins = 31200 mins
Direct labour Utilization %
= 24309/31200 = 77.9%
Direct labour cost is the cost paid to the worker per shirt
Money paid to worker in a day
= 65 X $6 X 8 Hours = $3120/day
Actual productions (shirts)
= 900 shirts
Therefore Direct labour cost
= 3120/900 = $3.47/shirt
Ike Process (Regular Shirt)
Actual cycle time – it is the time required to make one shirt.
Total available time in a month (mins)
= 20 days X 8 hours X 60 mins = 9600 mins
Total number of shirt produced in a month
= 16000 shirts
Therefore the actual cycle time would be
= 9600 mins/16000 shirts = 0.6 min/shirts
Ideal cycle time – it is the time required to produce one shirt in the given environment considering the
bottleneck. One worker is less in each operation.
Maximum time required (mins) in a job
= 0.67 mins/shirt (there is one less worker)
Production capacity – is the number of shirts produced in the ideal cycle time
Number of mins available in a day
= 8 X 60 = 480 mins
Ideal cycle time
= 0.67 mins/shirt
Therefore the production capacity is
= 480 mins/0.67 mins = 720 shirts
Actual Production capacity – is the number of shirts produced in the actual cycle time
Therefore the actual production capacity is
= 480 mins/0.6 mins = 800 shirts
Submitted by : Vinod Kumar Singh
Operation Management
IIM PGPMX 2018 - 20
Work in Progress Inventory – inventory (shirts) held up at different stage of operations
Average WIP – 151 batches with 60 shirts
= 9060 shirts
Manufacturing Lead time (days) is the time clear the WIP in the given production capacity
WIP Inventory (shirts)
= 9060 shirts
Production capacity
= 800 shirts/day
Manufacturing Lead time
= 9060/800 = 11.33 days
Capacity utilization is the how much of the total capacity utilized
Actual Production capacity
= 800 shirts
Ideal production capacity
= 720 Shirts
Capacity Utilization
= 800/720 = 111.11%
Since capacity utilization is 100% that means worker are doing overtime.
Total Overtime (Day) = 8 X 60 X 11.11 = 53.33 mins/day
Direct labour Content is the time taken by all workers to complete the job
Cutting time by 4 workers
= 1 min/shirt
Assembly time
= 25.51 mins/shirt
Total time
= 26.51 mins/shirt
Direct labour Utilization is how much the labour services utilized of the total capacity
Total workers
= 49 (one less from each 15 operation)
Total time
= 26.51 mins/shirt
Actual productions (shirts)
= 800 shirts
Production time
= 800 X 26.51 = 21208 mins
Total worker time available
= 49 X 8 X 60 mins*111.11% = 26133 mins
Direct labour Utilization %
= 21208/26133 = 81.1%
Direct labour cost is the cost paid to the worker per shirt
Money paid to worker in a day (regular)
= 49 X $6 X 8 Hours = $2352/day
Money paid to worker in a day (overtime)
= 49 X $9 X (53.33/60) Hours = $392/day
Total Paid
= $2744/day
Actual productions (shirts)
= 800 shirts
Therefore Direct labour cost
= 2744/800 = $3.43/shirt
Ike Process (Custom Shirt)
Actual cycle time – it is the time required to make one shirt.
Total available time in a month (mins)
= 20 days X 8 hours X 60 mins = 9600 mins
Total number of shirt produced in a month
= 2000 shirts
Therefore the actual cycle time would be
= 9600 mins/2000 shirts = 4.8 min/shirts
Ideal cycle time – it is the time required to produce one shirt in the given environment considering the
bottleneck
Maximum time required (mins) in a job
= 3.9 mins/shirt (there is one worker)
Production capacity – is the number of shirts produced in the ideal cycle time
Number of mins available in a day
= 8 X 60 = 480 mins
Ideal cycle time
= 4.8 mins/shirt
Submitted by : Vinod Kumar Singh
Operation Management
IIM PGPMX 2018 - 20
Therefore the production capacity is
= 480 mins/4.8 mins = 100 shirts
Actual Production capacity – is the number of shirts produced in the actual cycle time
Therefore the actual production capacity is
= 480 mins/3.9 mins = 123 shirts
Work in Progress Inventory – inventory (shirts) held up at different stage of operations
Average WIP at cutting
= 1 worker X 5 Shirts = 5 shirts
Average WIP at assembling
= 15 workers X 3 Shirts = 45 shirts
Total WIP
= 50 shirts
Manufacturing Lead time (days) is the time clear the WIP in the given production capacity
WIP Inventory (shirts)
= 50 shirts
Production capacity
= 100 shirts/day
Manufacturing Lead time
= 50/100 = 0.5 days
Capacity utilization is the how much of the total capacity utilized
Actual Production capacity
= 100 shirts
Ideal production capacity
= 123.1 Shirts
Capacity Utilization
= 100/123 = 81.2%
Direct labour Content is the time taken by all workers to complete the job
Cutting time by 1 worker
= 0.5 min/shirt
Assembly time
= 25.51 mins/shirt
Total time
= 26.01 mins/shirt
Direct labour Utilization is how much the labour services utilized of the total capacity
Total workers
= 16 (one from each 15 operation + Cutter)
Total time
= 26.01 mins/shirt
Actual productions (shirts)
= 100 shirts
Production time
= 100 X 26.01 = 2601 mins
Total worker time available
= 16 X 8 X 60 mins = 7680 mins
Direct labour Utilization %
= 2601/7680 = 33.9%
Direct labour cost is the cost paid to the worker per shirt
Money paid to worker in a day (regular)
= 16 X $6 X 8 Hours = $768/day
Actual productions (shirts)
= 100 shirts
Therefore Direct labour cost
= 768/100 = $7.68/shirt
Let’s put it on the table
Operations
Actual Cycle time (min/shirt)
Ideal Cycle time
Manufacturing lead time (days)
WIP (shirts)
Production Capacity (Shirt/day)
Actual Production Capacity
Capacity Utilization
Direct Labour Content (Min/shirt)
Direct Labour Utilization (%)
Direct Labour Cost ($/Shirt)
Submitted by : Vinod Kumar Singh
Current
0.67
0.50
14.7
11760
960
800
83.33
26.51
69.0
3.84
Mike
0.53
0.50
2.2
1980
960
900
93.75
27.01
77.9
3.47
Ike Regular
0.60
0.67
11.33
9060
720
800
111.11
26.51
81.1
3.43
Ike Custom
4.8
3.9
0.5
50
123
100
81.2
26.01
33.9
7.68
Operation Management
IIM PGPMX 2018 - 20
Now Let’s do a profitability analysis
Particulars
Total No of Shirts
Raw Material Cost
Labour cost
Indirect cost
Total Cost
Wholesale Price
Selling Price
Cost Price
Profit
Mike
Ike
Regular
Custom
16000
2000
$7.0
$7.7*
$4.5
$4.5
$4.5
$4.5
$16.0
$16.7
$25
$35
400000
70000
256000
33400
180600
Regular
Custom
16000
2000
$7.0
$7.7*
$5.0
$4.5
$4.5
$4.5
$16.5
$16.7
$25
$35
400000
70000
264000
33400
172600
So it is quite evident that Mike’s plan is more profitable. Also we can see that Mike’s plan scores on all the
parameters (WIP, Manufacturing lead time, capacity utilization etc).
Submitted by : Vinod Kumar Singh