KU Consulting Proposal for Albatross Anchor
MT435 Operations Management
October 4, 2013
Albatross Anchor is a small business located in Smalltown, USA. This small business started in 1976 manufacturing bell and mushroom anchors. There is no retail services because they only deal with wholesalers. Administrative office, shipping and receiving, raw materials, finish materials, and manufacturing are all in the same building. The company is facing problems with the outdated equipment and some issues with the floor plan that may be causing some safety hazards. Being a KU Consultant I am here to help Albatross Anchor in revamping their manufacturing facility and make sure they are going by the US standards and staying up with the latest technology being that it is vital in today’s competitive market and I am here to do just that.
Based on the information presented in the scenario/case study discuss Albatross Anchor’s competitiveness in relation to (please address all items in the below list and provide support for your conclusions):
a) Cost of Production: The cost of manufacturing at Albatross Anchor is $8.00 per pound for mushroom/bell anchors and $11.00 per pound for snag hook anchors, which is the same amount the competitors charge. Since Albatross operates out of one building it keeps the fixed cost down. The housing of all departments in one location brings down the profit margin and causes them to see a lesser profit. Since the competitors aren’t housing all departments in the same location they will see a larger profit. This also means that Albatross Anchor is unable to reduce their costs. A vertically integrated company, Albatross plant is antiquated and technology with non-compliant on environment and safe issues. Quality and speed can help Albatross Anchors with outsourcing. “Standardization of parts, supplier certification, and supplier involvement in design can improve the quality of supplied parts” (Linux Information Project, 2006), are forms of quality. Adaptability, flexibility, and reliability are speeds that produces components quicker. The industry and customer demands is lacking production capabilities for outputting products in relation. Albatross manufacturing process is a drawback due to the downtime it takes to switch one manufacturing process to another, resulting in wasted time from the actual production. Outsourcing of customized with specific anchors and valuable assets would benefit for action being put into place to be able to keep the competitive edge. Albatross needs to implement with fewer less costly needs. Also by Albatross making improvements on their operations will keep profit along with other competitors. Albatross must keep all cost such as capital, operating, and labor cost lower than their competitors.
b) Economies of Scale in material purchasing:
“Economies of scale, also called increasing returns to scale, is a term used by economists to refer to the situation in which the cost of producing an additional unit of output (i.e., the marginal cost) of a product (i.e., a good or service) decreases as the volume of output (i.e., the scale of production) increases” (Linux Information Project, 2006). There is no way for Albatross Anchor to realize their economies scale due to production is done in small batches. However sitting in the warehouse in finished goods inventory could be terms of material purchased but have cost disadvantages. KU Consulting will make the suggestion that Albatross Anchor increases output of anchors by ordering larger quantities of material. Also by doing this Albatross may get a discount from vendors by making larger quantity orders and due to the increase in their business the companies that ships the products to them may also offer a cheaper rate. By increasing production output may cause Albatross to hire more employees resulting in a…