Operation Management
IIM PGPMX 2Oz8 - zo
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, C oilier decided
to deliver within zo working days and a premium of $:zo on wholesale and $ 2o on retail over each
standard shirt.
Production Basics
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White and blue shirts constitute 8o% of total sales
Production takes place in Pauquet Mississippi factory
The production area was divided into eut and assembly area
Computer cutting machine can cut 6o layers of clothes in $o mins
Each layer require z s minutes to lay
8 diffère nt patterns of shirt can be eut from each layer of cloth
There were operators to do the cutting function.
Batch size was 6o shirts in a B in.
There were s operations happens after cutting
m aterial hand lers moves thèse bins to each work stations
Total 6ç workers are working including cutting and assembling
They worf 8 hours a day. s days a week and zo 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 s layer and tOOk 2. mins
Scrap value is:zo%
The manufacturing time should be tess than ç days
They should produce zooo shirts apart from regular z6ooo shirts
G iven 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)
= zo days X 8 hours X 60 MiDS = 96oo mins
Total number of shirt produced in a month
= z6ooo sh irts
Therefore the actual cycle time would be
= 96oo mins/z6ooo shirts = o. 6 min/shirts
Ideal cycle time — it is the time required to produce one shirt in the given environment considering the
bottleneck (making cuff= z min/shirt by g workers = s i ns/shirt as it is the maximum time)
Maximum time required (mins) in a j ob
= o s mins/shirt
Production capacit Y — is the number of shirts produced in the ideal cycle time
Number of mins available in a day
= 8 X 6o = g8o mins
I deal cycle time
= s mins/shirt
Therefore the production capacity is
= ç8o mins/o. minS = 96o shirts
Actual Production capacity — is the number of shirts produced in the actual cycle time
Therefore the actual production capacity is
= g8o mins/o.6 mins = 8oo shirts
Submitted by : Vinod Kumar Singh
IIM PGPMX 2Oz8 - zo
Operation Management
Work in Progress Inventory — Inventory (shirts) held up at different stage of operations
Average WIP — zg6 batches with 6o shl rts
= * 76o shirts
Manufacturing Lead time (days) is the time c lear the WIP in the given production capacity
WIP Inventory (shirts)
= » 76o shirts
Production capacity
= 8oo shirts/day
Manufactur1ng Lead time
- » 76o/8OO = *4 7 days
Capacity utilization is the how much of the total capacity utilized
Actual Production capacity
= 8oo shirts
I deal production capacity
= 96o Shirts
CapaCity UtiliZatiOn
= 8OO/ 96o = 3 33@0
Direct labour Content is the time taken by all wa rkers to complete the job
Cutting time by § workers
= z min/shirt
Assembly time
= s s mins/shirt
Total time
= z6.5+ mins/shirt
Direct labour Utilization is how much the labour services utilized of the total capacity
Total workers
= 6g
Total time
= z6. s mins/shirt
Actual productions (shirts)
= 8oo shirts
Production ti me
= 8oo X z6. S+ = 2zzo8 mins
Total worker time available
= 6g X 8 X 6o mins = 3O} 2O MiDS
DIrect la bour UtiIizatiOn %
= 21208/d 7* = 690/0
Direct labour cost is the cost paid to the worker per shh rt
Money paid to worker in a day
= 6g X $6 X 8 Hours = s3O7• /day
Actual productions (shirts)
= 8oo shirts
Therefore Direct labour cost
= 3O72/8oo = $3 84 /shirt
Mike Process
Actual cycle time — it is the time required to make one shirt.
Total available time in a month (mins)
= zo days X 8 hours X 6o mins = 96oo mins
Total number of shirt produced in a month
= z8ooo shirts
Therefore the actual cycle time would be
- 96oo mins/z8ooo shirts = S3 in/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
= s mins/shirt
Production capacit Y — is the number of shirts produced
Number of mins available in a day
Ideal cycle time
Therefore the production capacity is
in the ideal cycle time
= 8 X 6o = g8o mins
= o. $ mins/shirt
= g8o mins/ S inS = 96o shirts
Actual Production capacity — is the num ber of shirts produced in the actual cycle time
Therefore the actual production capacity is
= g®
^^l S3 MiDS z 900 Shirts
Submitted by : Vinod Kumar Singh
Operation Management
IIM PGPMX 2Oz8 - zo
Work in Progress Inventory — Inventory (shirts) held up at different stage of operations
Average WIP — 396 batches with § ShiFtS= 98o shh rts
Manufacturing Lead time (days) is the time clear the WIP in the given production capacity
WIP Inventory (shirts)
= 9+O shirts
ProduCtion capacity
= 900 shirts/day
Manufactur1ng Lead time
- 98o/ 9OO = 2. z days
Capacity utilization is the how much of the total capacity utilized
Actual Production capacit
= 900 Shirts
I deal production capacity
= 96o Shirts
CapaCity UtiliZatiOn
= 900/96o = 9z 7S@o
Direct labour Content is the time taken by all wa rkers to complete the job
Cutting time by § workers
= z min/shirt
Cutting time by z worker (Laser machine)
= z. ç min/ç shirts = o s mins
Assembly time
= •s s mins/shirt
TOtäI time
- •7 Oz mins/shirt
Direct labour Utilization is how much the labour services utilized of the total capacity
Total workers
= 6s
TOtaI time
= •7 Oz mins/shirt
Actual productions (shirts)
= 900 shirts
Production ti me
- 900 X +7
- *43Og MiDS
Total worker time available
= 6 s X 8 X 6o mins = 3**OO minS
Direct labour UtiIizatiOn to
' *43 9/312OO = 77 990
Direct labour cost is the cost paid to the worker per shirt
Money paid to worker in a day
= 6 s X $6 X 8 Hours = $g:zzo/day
Actual productions (shirts)
= 900 shirts
Therefore Direct labour cost
= gzzo/goo = $ z 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)
= zo days X 8 hours X 6o mins = g6oo mins
Total number of shirt produced in a month
= z6ooo shirts
Therefore the actual cycle time would be
= 96oo mins/z6ooo shirts = o. 6 min/shirts
Ideal cycle time — it is the time required to produce one shirt in the given environment considering the
bottleneck. 0 ne worker is less in each operation.
Maximum time required (mins) in a job
= o.6 7 inS/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 6o = g8o mins
I deal cycle time
= o. 67 ins/shirt
Therefore the production capacity iS
= g8o mins/o.6 7 ins = 7 2O Shirts
Actual Production capacity — is the num ber of shirts produced in the actual cycle ti me
Therefore the actual production capacity is
= gBo mins/o.6 mins = 8oo shirts
Submitted by : Vinod Kumar Singh
IIM PGPMX 2Oz8 - zo
Operation Management
Work in Progress Inventory — Inventory (shirts) held up at different stage of operations
Average WIP — s batches with 6o shirts
= 9O6o shirts
Manufacturing Lead time (days) is the time clear the WIP in the given production capacity
WIP Inventory (shirts)
= 9O6o shirts
Production capacity
= 8oo shirts/day
Manufactur1ng Lead time
- 9O6o/8oo = » 33 days
Capacity utilization is the how much of the total capacity utilized
Actual Production capacity
= 8oo shirts
I deal production capacit
= 7*O Shirts
CapaC ity Uti liZatiOn
= 800/7*
= **+ +*%
Since capacity utilization is zoo% that means worker are doing overtime.
Total Overtime (Day) = 8 X 60 X 11.+ = S3 33 mins/day
Direct labour Content is the time taken by all wa rkers to complete the job
Cutti ng time by g workers
= z min/shirt
Assembly time
= s s mins/shirt
Total time
= z6. s mins/shirt
Direct labour Utilization is how much the labour services utilized of the total capacity
Total workers
= kg (one less from each zç operation)
Total time
= z6. s mins/shirt
Actual p roductions (shirts)
= 8oo shirts
Production ti me
= 8oo X z6. Çz = 21208 mins
Total worker time available
= kg X 8 X 6o mins*zzz.zz% = 26z33 M105
Direct labour UtiIizatiOn No
= 212 0@/z6 *33 = * 1.1@0
Direct labour cost is the cost paid to the worker per shh rt
Money paid to worker in a day (regular)
= kg X $6 X 8 Hours = s • 35• /day
Money paid to worker in a day (overtime)
= kg X s9 X (53 33/6o) Hours = $z9• /day
Total Paid
= $*74g/day
Actual productions (shirts)
= 8oo shirts
Therefore Direct labour cost
- • 744 /8Oo = $ z ‹3 /ShiFt
Ike Process (Custom Shirt)
Actual cycle time — it is the time required to make one shirt.
Total available time in a month (mins)
= zo days X 8 hours X 6o mins = g6oo mins
Total number of shirt produced in a month
= zooo shirts
Therefore the actual cycle time would be
= 9600 taxi nS/2OOo shirts = a.8 min/shirts
Ideal cycle time — it is the time required to produce one shirt in the given environment considering the
bottleneck
Maximum time requ ired (mins) in a job
= 3 9 1ns/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 6o = g8o mins
I deal cycle time
= g.8 mins/shirt
Submitted by : Vinod Kumar Singh
IIM PGPMX 2Oz8 - zo
Operation Management
Therefore the production capacity is
= g8o mins/a.8 mins = zoo shirts
Actual Production capacity — is the number of shirts produced in the actual cycle time
Therefore the actual production capacity is
= g8O Mi• */3 9 mins = zz$ shirts
Work in Progress Inventory — inventory (shirts) held up at different stage of operations
Average WIP at cutting
= z worker X s Shirts = s shirts
Average WIP at assembling
- s workers X 3 Shirts = ‹s shirts
Total WIP
= $o shirts
Manufacturing Lead time (days) is the time clear the WIP in the given production capacity
WIP Inventory (shirts)
= so shirts
Production capacity
= zoo shirts/day
Manufacturing Lead time
= s /zoo = o. s days
Capacity utilization is the how much of the total capacity utilized
Actual Production capacity
= zoo shirts
I deal production capacity
= zz . z Shirts
Ca paCity UtiIiZatiOn
=
/**3 = BI. 2@0
Direct labour Content is the time taken by all workers to complete the job
Cutting time by z worker
= o s min/shirt
Assem bly time
= s s mins/shirt
Total time
= z6.oz mins/shirt
Direct labour Utilization is how much the labour services utilized of the total capacity
Total workers
= z6 (one from each :z operation + Cutter)
Total time
= z6.oz mins/shirt
Actual productions (shirts)
= zoo shirts
Production time
= zoo X z6.OF = 26oz mins
Total worker time available
= z6 X 8 X 6o mins = 768o mins
Direct labour Utilization %
= z6oz/768O = 33 9%
Direct labour cost is the cost paid to the worker per shirt
Money paid to worker in a day (regular)
= z6 X $6 X 8 Hours - s76B/day
Actual productions (shirts)
= zoo shirts
Therefore Direct labour cost
= 768/100 = $7 68/shirt
Let’s put it on the table
Operations
Actual Cycle time (min/shirt)
I deal Cycle ti me
Manufacturing lead time (days)
WIP (shirts)
Production Capacity (Shirt/day)
Actual Production Capacity
Capacity Utilization
Direct Labour Conte nt (Min/shirt)
Direct Labour Utilization (0/o)
Direct Labour Cost ($/S hirt)
Submitted by : Vinod Kumar Singh
Current
o. 67
0. TO
*4 7
* 76o
96o
8oo
83.33
z6 s
69
3 4
Mike
53
o. s
**
zg8o
g6o
goo
9375
zy. oz
77 9
3 47
Ike Regular
o.6o
o.6 7
+*33
go6o
7^
8oo
Ike Custom
g.8
3.9
5
$o
z23
zoo
z6. s+
*+
3 43
z6. oz
339
y.68
IIM PGPMX 2Oz8 - zo
Operation Management
N ow 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
Regular
Custom
:z6ooo
zooo
:z6ooO
2000
$7 0
$7 7“
$7
$4 5
$4 5
$S 0
$7 7’
$4 S
$*S
$35
$*5
$35
cOOO0O
7OOOO
§OOOOO
7°OOO
z56ooo
334°°
z6qoOO
i8o6oo
334 OO
i z6oo
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