Rowe Potter Works - An Analysis

Running Head: ROWE POTTERY WORKS

Rowe Pottery Works: Putting a Pottery Business Back on Track

Margaret Jones

Baker College

Abstract

In the past two and half years, Rowe Pottery Works has experienced financial losses despite the ever-growing demand for salt-glazed pottery. The pottery production department is mainly responsible for the losses. A new controller was recently hired to evaluate the processes and make recommendations that will bring this once profitable business back on track. This paper provides an overview of the pottery business by detailing the process of making salt-glazed pottery. The concerns and issues surrounding the pottery operation are discussed. Problems such as inventory, labor, productivity, accounting system, and sales are assessed. Recommendations are made, which will address the concerns and problems of the pottery operation. Rowe Pottery Works was once a profitable business but somewhere along this path, they got lost. With the right processes, procedures, and systems in place RPW can get back on track and return to profitability.

Rowe Pottery Works: Putting a Pottery Business Back on Track

Business Overview

Rowe Pottery Works (RPW) emerged into the pottery business world in 1975. Founded by Jim and Tina Rowe, this once small blacksmith shop is now one of the largest suppliers for salt-glazed pottery. Jim, being an art student, knew secretive techniques for making 19th century salt-glazed pottery. He added his personal touch and created unique salt-glazed pieces that were sold only in art fairs and their small shop. The Rowes decided to change their product line during the 1980s, hence the rebirth of the Early American crocks and jugs. The demand for quality Early American crockery was increasing rapidly. With limited competition, Rowe Pottery Works went into production with their new product line (Rowe Pottery Works, 2003).

All of the pottery at RPW is handmade. Unlike pottery from production lines, each piece is unique in pattern, shape, size, and design. The firing process in the kiln also adds distinct qualities to each piece that cannot be duplicated. Some pieces are even custom made to customer's specifications. The unique, natural, and durable characteristics of Rowe pottery are very appealing to buyers.

The business is operated out of Cambridge, Wisconsin. Their pottery operation staff consists of potters, decorators, workers, kiln operators, shipping, and sales clerks. Despite the ever-growing demand for salt-glazed pottery, RPW has suffered losses for a couple of years. The pottery operation is mainly responsible for the losses. A new controller was recently hired to evaluate the processes and make recommendations that will bring this once profitable business back on track.

The controller has completed the initial walk through of the pottery operation and compiled a summary of the processes. With limited inventory, the production process begins when an order is received from the sales. Workers start with the manual mixing of clay and water. Potters then form each piece on the potter's wheel. The formed pieces must dry at room temperature for up to 48 hours. The decorators paint designs and apply glaze to each piece. Once dried, the pieces are fired in a kiln. The kiln reaches 2,000 degrees and must be cooled to room temperature prior to removal of pottery. The last step is the inspection of each piece before shipment. It takes approximately two weeks to complete a piece of pottery. In addition, the production department staff consists of very skilled artisans. The potters require extensive skills when working the potter's wheel. Training for a new potter is at a minimum of six months. The decorators also require artistic skills when adding designs to each piece. The kiln operators require extensive training on the operation and maintenance of the two kilns. The production process for making salt-glazed pottery is time and labor intensive.

Current Concerns and Issues

The current concern for the company's president is the continuous loss over the past two and half years. The losses originate from many factors, the primary being the pottery operation. The controller will evaluate the current operation structure, the effectiveness of the current accounting system, and the productivity of the sales and distribution.

The process of making Rowe pottery from customer order to shipping is approximately two weeks. RPW uses a just-in-time (JIT) system, which is based on demand and pull. The products are pulled or produced based on the current demand (Hansen & Mowen, 2003). JIT results in limited inventory and lower associated costs. Limited inventory can often result in production backlogs, which can cause delays. There is also a concern regarding the productivity of the existing kilns. RPW currently operates two kilns, each kiln is designed to produce $10,000 in sales each firing. It takes 36 hours for each batch of firing resulting in approximately four batches per week. If both kilns operate at full capacity, the maximum production should be $2 million in sales (2 kilns x 10,000 x 2 batches per week x 50 weeks). The income statements do not reflect sales anywhere near this amount. RPW is looking at the possibility of purchasing another kiln, which will increase production levels by another million dollars. The addition of the third kiln will provide a production capacity of $3 million each year.

The next concern is the ability of the potters and decorators to make enough pottery to align with the capacity of the kilns. The controller noticed that even though the potters are being paid a handsome salary, they are making pottery only half the time. The other half is spent doing medial tasks. With only twenty hours dedicated to the pottery wheel, the average production per potter is $6,000 in sales. There are currently six full time potters and one part time. At the current rate, approximately $1.95 million (6.5 potters x $6,000 x 50 weeks) worth of pottery should be made each year. This is equivalent to the production capacity of the existing two kilns. As indicated previously, these capacity levels are not being met. If the decision is made to purchase the third kiln, then the production level needs to increase to $3 million.

RPW currently uses a standard costing system. A standard cost is assigned to each product costs based on