Competitiveness of Albatross Anchor Company - Case Study Example

? KU Consulting Introduction Albatross Anchor is a small-sized family owned business that was commenced in 1976 engaging four members from the family. The company is based on twelve acres in a rural suburb area of a small town in USA. Primarily, the company produces two kinds of anchors which include the bell anchor and the snag hook anchor. However, the company is confronted with many limitations and challenges with respect to its manufacturing operations. Eventually, the company’s administrative offices are examined to be disorganized and consequently are learnt to run inefficiently which in turn gives rise to various issues concerning the operational processes of the organization. Moreover, the company’s surroundings and equipments used for the manufacturing process are also old-fashioned, technology-deprived and unhealthy as well. Consequently, the company with its obsolete plant and pathetic surroundings fails to satisfy the US safety and environmental standards. Contextually, the company is required to improve and upgrade its plants and equipments substantially in order to ensure greater profitability along with increasing production of quality products. Competitiveness of Albatross Anchor 1. Cost A) Cost of Production Cost of production can be sub-divided into two general categories namely, fixed costs and variable costs which accumulatively represent the value of total costs. Different companies operate in a market place; however they can be distinguished upon their level of cost efficiency examining their variable and fixed cost attributes which further determine their production efficiency. For instance, a higher level of cost-efficiency can be determined with the assistance of a comparatively lower cost of production. Contextually, Albatross’ current manufacturing costs of mushroom anchors and snag hook anchors are accounted to be $8.00 per pound and $11.00 per pound respectively. It is in this context that the company charges the same per unit as that of its competitors. Notably, the profit margin of the company in certain instances is recorded to be approximately 35 percent less on its outputs produced. The major cause behind the limitation of the company to earn adequate profit can be identified with reference to its operational inefficiencies (Article Directory, 2012). B) Economies of Scale in Material Purchasing The company purchases the required raw materials in bulk from its suppliers that help in acquiring advantages in terms of discounts. The bulk purchases of the raw materials also assist the company to attain competitive advantages from economies of scale. However, the current limitations of the company has been witnessed to incur large volumes of wastes as the raw materials purchased in bulk remain unused for a long time period owing to its inefficient and time consuming production process. Hence, the company can avail the benefits of bulk purchase if it is able to produce products at faster rates (Byrns, 2001). C) Cost of Raw Materials Sitting Idle In the Warehouse The production process of the company is witnessed to be quite time-consuming, as a result of which, the only small units of outputs are produced at a given period of time. This leads toward increased volumes of unused raw materials. Consequently, such activities contribute towards an increase in costs as well as wastage of raw materials to a substantial extent. In such circumstances the company should strive to avoid the unnecessary costs associated with the raw materials and its deterioration. The company can thus invest in productive equipments and raw materials preserving efficient inventory system that can ultimately enhance the production process, rather than investing in unnecessary purchases of raw materials which are kept idle for a long period of time. D) Cost of Finished Goods Sitting Idle In the Warehouse The company’s warehouses are located far away from the main production area that contributes towards an increase in the carrying costs and thereby consumes substantial time and efforts of the employees. It is in this context that to avoid such frequent travelling costs, the company tends to store large volumes of finished goods in the warehouses which further increases maintenance costs and the inventory costs as well. It can be avoided by the company if the finished products are stored near the west end of the building which is close to the rail transportation as well as the production area. 2. Speed of Manufacturing Process from Order to Finished Product The company can be further examined as inefficient in relation to its slow or time-consuming process of manufacturing finished goods. It is in this context that the company lacks in attaining the competitive advantages of serving the customers in a time-efficient way which can not only enhance the satisfaction level amid the customers, but also decrease the cost burden associated with the inventory operations of the company. Therefore, the company should intend to predict the demand/order of the customers and accordingly produce goods which would ultimately augment the entire supply process (Collinsion Grant, 2011). 3. Flexibility in Filling Order(s) The company intends to manufacture the products in batches which requires minimum of 36 hours to switch on another operation. On the whole, this procedure requires three-four weeks for producing bulk orders. Subsequently, the manufacturing process is relatively time-consuming, where the shipping and receiving of raw materials and finished goods is also located in two different ends of the company’s building which further tends to incur a huge amount of travelling and inventory costs. Hence, the company should strive to enhance its production process with the help of better layout that shall assists in quicker shipment of the raw materials and finished goods along with a better prediction of the customer demand and the production capacity of its factory (Kaplinsky, & Morris, 2000). 4. Technology According to the current status of the company, its production plant is examined as old-fashioned and technology-deprived which further lacks in satisfying the fundamental criteria for US safety and environmental standards. Consequently, the products are manufactured in relatively small volumes causing a gap between the quantity demanded and the quantity produced. The production process further consumes substantial time which leads to delay in meeting the customers’ orders efficiently. Hence, the company should install modern equipments that shall aid in increasing the time-efficiency of its entire production process. Additionally, the company should make purchases of those equipments are eco-friendly and are set in accordance with the US safety and environmental standards. 5. Capacity and Facilities The company’s floor plan lacks in several aspects. Additionally, the space for storing raw materials and finished goods are insufficient that increases the possibility of finished goods and raw material deteriorations. The company also does not provide healthy environment facilities to its employees. In such circumstances it becomes quite challenging for the employees to contribute their best towards the organizational objectives which further results in small and deteriorated quality of the outputs produced. Hence, the company should strategically focus on re-assessing the actual capacity of its assets including machineries and its human resources as well which would further assist in enhancing the efficiency of its overall organizational process and identifying the actual facilities required by the employees and the customers at large (Article Directory, 2012). 6. Service to Customers The company sells its products only through distributors and through OEM (Original Equipment Manufacturer) customers acting as a completely wholesaling company. This indicates that the company is dependent on the performance of its distributors and OEM customers. Consequently, the company’s profit gets distributed to distributors and OEM customers. Thus, the company should also divert or change its selling process involving retail customers. From a long-run perspective, this strategy can be expected to help the company in earning a greater share of its targeted market along with a stronger brand image. Break-Even Analysis In order to minimize the strategic limitations of its production process, Albatross intends to consider either of the two processes which have been described in terms of its costs incurred in the table below: Anchor and Process Process A Process B Sale price per anchor (SP per unit) $45.00 $45.00 Total Fixed Cost (TFC) $ 650,000.00 $950,000.00 Variable cost per anchor (VP per unit) $ 36.00 $ 29.99 As can be witnessed, the two processes tend to vary in terms of its fixed costs and variable costs, with a given selling price per unit. Therefore, to evaluate the most efficient process among the two suggested above, a break-even analysis is being considered which would further contribute to the organizational decision making efficiency. For instance, the formula used to calculate the Break-Even Point (BEP) is as follows: BEP = TFC/( SP per unit - VP per unit) Hence, the obtained results are as follows: Anchor and Process Process A Process B (a) Fixed costs per anchor $9  $15  (b) The total number of anchors to attain break–even point for Process A and Process B 72,222 (approx) 63,291(approx) From the above calculations, the BEP graph has been further illustrated as below: Based on the above calculations, it can be determined that Process B provides the company with better alternative than the Process A offering the competitive advantage to attain the BEP by producing lower units. Conclusion Albatross is currently confronted with several challenges. To put among the foremost concerns, the company equipments and plants are obsolete and antiquated. At the same time, the company’s administrative offices are not well organized and are inefficiently managed. Thus, all these factors deter the company from functioning at its best. Consequently, such factors have drastically reduced the production capacity of the company which advocates the essentiality to introduce vital changes in its strategies so as to make the company highly productive. In this course, the company should focus on key areas such as installation of modern and eco-friendly equipments, along with designing floor layouts in the best possible manner with the intention of reducing shipment and inventory costs substantially. The other major changes include, ensuring the most suitable environment for the employees to work, decrease in the costs associated with the idle raw materials and ensuring the quick delivery of the finished goods yielding highest possible satisfaction from its customers. References Article Directory. (2012). The factors that affect labor productivity. Retrieved from http://www.centrorisorse.org/the-factors-that-affect-labor-productivity.html Byrns, R. T. (2001). The costs of production. Modern Microeconomics, pp. 1-5. Collinsion Grant. (2011). what improves productivity. Managing productivity, pp. 1-115. Kaplinsky, R. & Morris, M. (2000). An important health warning or a guide for using this handbook. Retrieved from http://www.srp-guinee.org/download/valuechain-handbook.pdf Read More