Introduction
The graphics art company Colorscope Inc., founded by Andrew Cha in March 1976, is situated
in southern California and specializes in pre-press production and special effects photography.
Due to the strong connections Andrew Cha had made with influential market participants and
the business's well-known and effective operational procedures, the company was known as a
top-notch service provider.
The business environment around Colorscope saw a significant change as a result of a
technical advancement in the microcomputer sector in the late 1980s. With the backward
integration of major printing firms and the closer ties between stand-alone pre-press companies
and their clients, competition grew overnight and became extremely severe. The establishment
of in-house design and pre-press procedures by customers also caused Cha's long-standing
commercial connections to fall apart.
The operational procedure at Colorscope began with the receipt of client orders, the majority of
which pertained to magazines and various types of art and graphics work. The preparation
process involved making templates by physically cutting and pasting text, graphics, and
photographs. Special effects were also included at an additional cost. All the specifications and
design requirements were recorded during phone calls, and the person with the authority to
record the task then did the preparation. The following stage of the production process involved
digitising and scanning the template images. The work was then submitted to the assembly
department, where an operator adjusted the hue and tone of the scanned photos to match the
client's requirements. Finally, the work was forwarded for quality assurance.
How could Colorscope improve its operations?
Colorscope has five core processes involved in its operations i.e. Job preparation, scanning,
assembly, output and quality control. Looking at these five core processes Scanning, assembly
has higher reworking cost (62 quality control initiated rework out of 74 are contributed by these
two processes as evident from exhibit 10), Frequency of in-house quality control initiated rework
can be minimized by having quality control system in place at all the stages of its operations
especially at scanning stage because once defect is introduced at scanning stage all the further
steps have to be redone increasing overall burden in its operations rather having quality control
division at the final stage.
There is also an issue of optimum space utilization, since rental expenses are direct related to
floor space we can see from exhibit 11 that 6500 sq. ft. of floor space is idle (43% of the floor
space) and not allocated to any jobs and impact profitability of Colorscope, Inc. directly and
significantly, Company can address this issue by either moving to smaller facilities, or
negotiating rent on the basis of floor area occupied by company.
Colorscope Inc should also invest in upgrading its technology to remain competitive in the
printing industry, The assembly was done with obsolete technology, higher depreciation cost
and ultimately leading to inferior quality output.
Since all the staff is multi trained and able to handle the entire process of production without any
additional training or support a better job rotation can help Colorscope to optimize its operations,
It is evident from exhibit 9 that job preparation have significant idle time (only 73% of its capacity
is used) whereas as other stations like scanning and assembly has more than 90% utilization,
so to improve the operations employee from job preparation can support employees in scanning
and assembly areas this will reduce overall pressure and thus mistakes that leads to additional
rework.
And finally documenting each step of operation rather than relying simply on institutional
knowledge of its employees, this will help in automating the process, uncover inefficiency,
mitigate risk and bring in consistency in the overall process.
How could it change its pricing strategy?
The costs of the work completed at each stage of the provided task must be evaluated, and an
activity-based costing system should be applied to allocate overhead costs like rent costs to
each stage. The cost should be divided among each process using the activity or capability that
causes it (the cost driver). Since rent expenditures are directly related to floor space, it makes
sense to divide rent based on how much space each department uses.
Loss-making jobs need to be further investigated, and cost per task has to be estimated using
activity-based pricing. Costs related to in-house errors, idle time, and wasted space shouldn't be
taken into account in this evaluation because they are unusual losses. To reduce the
depreciation cost resulting from the usage of outdated equipment, new technology should be
implemented.
As part of the job costing process, it is noted that almost all of the loss-making tasks have been
reworked, either due to changes in customer specifications or in-house errors; this should be
evaluated to determine what the policy is for additional charges on rework requested by the
customer, and the customer should be informed in advance that future changes in work will
necessitate additional costs. Reworking jobs should be done as infrequently as possible.
According to Appendix-B, during June 1996, 8% of the jobs were redone in the task preparation
phase and 15% in the remaining three stages.
COLORSCOPE INC should plan for competition's copying, as well as be prepared for rival
payers to replicate its cost-effectiveness method in order to reduce and manage their expenses,
as well as raise the total part of the pie for their goods. As a result, it is critical that
COLORSCOPE INC should not settle for one method of cost leadership but instead strives for
continuous improvement. This can be accomplished in a variety of ways, including:
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Developing and applying the Japanese kaizen approach
High efficiency
Utilization of a high limit
Utilize dealing capability to arrange for the lowest cost generating inputs.
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Lean manufacturing techniques
Process of effective creation
Channels of distribution that work
COLORSCOPE INC's cost difference and leadership approach will be depending on the
details.
The cost effort aims to reduce expenses to a minimum in order to offer reduced prices to
clients, allowing COLORSCOPE INC to save money.
Cost leadership strategy needs are frequently associated with highly specialised
competencies and financial availability.
The corporation should also invest in innovation and ensure economies of scale.
What accounting and control system should his company install?
To make sure that every process gets evaluated in terms of its cost consumed and performance, the
company can use Activity-based costing. This way of accounting system will help in balancing the
cost of each procedure against the amount of effort required to complete each task and reach at the
base price.
For proper and efficient functioning at all phases of the production process, a control system should
be in check. The absence of documentation despite the company having a standardized workflow is
noticeable. There is no benefit to straying from the established procedures; it should be documented
and conveyed at all levels of the manufacturing processes. In order to match customer specifications
with the work produced at each phase and reduce the likelihood of rework, each production process
should also get customer specifications.
At every stage, the task should go through a quality control process before being forwarded to the
next level. This is only possible because all the staff is trained to work at each level of the
production, making sure that each staff member is complete in itself to work individually on each
level. This process of quality control at every stage will help in reducing the amount of rework at the
final stage.
The performance of every individual at every stage of the production process can be checked by the
introduction of supervisory controls. This will not only help in keeping a check on the internal control
system but also come in handy in taking action in the areas where amendments are needed.