Business Processes

Contents Page

1.0 PRELIMINARY FORMULATION 3

1.1 PROBLEMS IDENTIFIED: 3

1.3 ASSUMPTIONS 3

2.0 MODEL DESCRIPTION 4

3.0 MODEL SOLUTION 5

4.0 PROFITABILITY 5

4.1 SETTING SELLING PRICE 5

4.2 DISCOUNTS FOR ORDERS IN BULK 6

5.0 RATES FOR RUSH ORDER 9

5.1 SCENARIO 1: LOST IN OPERATIONAL EFFICIENCY 9

5.2 SCENARIO 2: LOST DUE TO INABILITY TO MEET CURRENT ORDER 10

6.0 ORDER FUNCTION: PROMISE OF DELIVERY 11

6.1 CONDITION 1: TOTAL NUMBER OF ORDERS 11

5.2 CONDITION 2: TIME LATEST WIP HAS SPENT IN THE FOOD PROCESSOR 12

5.3 SUSTAINABLE DELIVERY OF THE 1 HOUR PROMISE 13

7.0 OPERATIONAL EFFICIENCY 14

7.1 NUMBER OF EQUIPMENT TO BUY & IDENTIFICATION OF BOTTLENECK 14

8.0 CONCLUSION 15

Kristen's Cookie Company

1.0 Preliminary Formulation

1.1 Problems identified:

Kristen's Cookie Company (KCC) concept is a novel idea, one which correctly identifies students' needs and wants. Its freshly baked concept sets it apart from other competitors. Furthermore, one attractive feature of the business concept is its low capital requirement and hence fast payback time period. Although the production process has been firmed, KCC has to answer three key issues:

1) Profitability: How profitable would KCC be? That would mean answering the question of setting the selling price. Consideration will be given to setting a competitive price similar to that of store-bought cookies. Setting too high a price would lower demand whilst setting too low a price would damper profitability of KCC. To correctly identify the selling price, we will conduct a market survey to find out expected demand and use cost accounting method such that KCC would be able to recoup its variable costs. We will also consider the selling prices when orders come in bulk (2,3 batches of 1 dozen) and for crash priority orders.

2) Order Function: We have to determine how many cookies can be baked in a night, how many orders to accept and when to accept orders. This is a key aspect as unfulfilled orders might imply potential loss of customer permanently (shortage costs). As production only begins when order is received, variable production and holding costs are deemed negligible.

3) Operational Efficiency: We will identify bottleneck in the production process to improve operational efficiency. This entails deciding on how many equipment to buy to improve cycle time and to decide on how many persons to be involved in the process. Once cycle time improves, this helps the order function as more orders can be accepted. This will increase profitability of the company. Lastly, we'll use sensitivity analysis and recommend an alternative production model.

1.2 Approach to Solve the Problem

We will focus on the operations management approach using a process flow diagram to determine the time taken to produce 1 batch of cookies and ultimately, the costs it takes to produce 1 batch of cookies. This will set a reference for our selling price. The process flow chart also answers our questions of how many orders to accept and when to accept these orders. Lastly, bottlenecks can be easily identified using a process-flow diagram.

1.3 Assumptions

1) All orders are of one dozen cookies, unless specified.

2) KCC will operate 4 hours each night.

3) Accepting of orders takes negligible time and hence ignored in further analysis.

4) Rate of the orders is the same as production rate. Thus, system is in steady state.

2.0 Model Description

As observed from the process flowchart, you will be handling the 1st and 2nd step of the production process which entails the washing, adding and mixing of ingredients as ordered by customers (6min); followed by dishing cookies into a tray (2min). Your roommate will be in charge of handling the 3rd to 7th step of the production process which consists of: putting cookie tray in oven (1min); baking (9min); removing cookie tray from oven and cooling (5min); packing into box (2min) and lastly accepting payment (1min).

Figure 1 Process Model

3.0 Model Solution

From the process flow diagram, we find that it takes a minimum of 26 minutes to rush a fill order. This is the minimum manufacturing lead time for the whole process.

As the bottleneck of the process is the maximum time of the tasks in the production process, baking stage (inclusive of preheating) is identified as the bottleneck. It takes 10 min to accomplish this task. Thus, cycle time is 10 min.

In addition, because the first order will take 26min (process is not in steady stage), and thereafter there will be 1 order in every 10 min, we can accept only 22 orders per night.

From the Gantt chart, it is observe that the minimal number of required equipments is as follow:

1. One food processor

2. Three baking trays

3. One baking oven

4.0 Profitability

4.1 Setting Selling Price

Using a cost accounting method, we have to determine all costs before we can set the selling price.

Cost of ingredients is fixed at $0.60 per dozen and cost of packaging is $0.10 per box for each dozen. Labor cost is determined at $12.00 per hour. To determine your labor cost for each order of 1 dozen of cookies, we have to determine the valuable