2. Please refer to the Aprons “R” Us case (starting on the next page), and answer the following questions: a) What is ARU’s current production capacity? If ARU is to increase its in-house capacity, where should it invest? b) With the current production rate, what is ARU’s total cost per apron? To do this you need to include material, freight, contractor, and the labor cost per apron*. c) Suppose ARU adds a worker at the bottleneck station, what is the total cost per apron now?
Aprons “R” Us*
Aprons “R” Us (ARU) is a third generation, family-owned company with annual sales of about $3 million. It has a solid reputation for quality, building long-term personal relationships, and customer service. The company produces vinyl aprons (primary product) that eliminate cloth apron laundering costs for the supermarket industry in four countries. While ARU has six primary customers and offers a variety of products including rain coats, vinyl aprons, signage and corporate apparel, this case will be focused specifically on vinyl aprons for its largest customer, V-Mart.
Currently, V-Mart has a need for 36,000 aprons per month from ARU, but its ordering quantity is lower than that because of the production bottleneck at ARU. ARU’s management is considering increasing its production capacity to capture more of V-Mart’s demand, but it is unsure where to invest.
The Production Process
V-Mart orders aprons of three different colors – red, blue, and white – from ARU. ARU purchases vinyl material of these three colors, cuts it into the shape of apron, and then adds the V-Mart name and logo to the front of the apron. Additionally, ARU reinforces the apron ties using a stitching process known as bar-tacking. The production flow is given in Figure 1.
In performing your analysis, assume that all equipments have been fully paid for (i.e., consider only the variable labor, material, freight, and contract costs). Moreover, assume that each worker is paid $14/hour. ARU is running one shift of 8 hours each day (i.e., ignore breaks), and there are 22 work days in each month.
Raw Material
Red, blue, and white vinyl material is purchased from an outside vendor at a cost of $1.38 per apron. The supplier is very reliable and has ample capacity to satisfy ARU’s demand even if it increases significantly.
* Professor Yong-Pin Zhou prepared this case for discussion only. The company identities as well as the operational data have been disguised.
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Station 2a Hot Stamping
Inventory
Inventory
V-Mart Receives Order
Vinyl material is cut on a forty-foot long table into the form of an apron. One worker is employed and on average he can cut and stack 300 aprons each hour. Material cost is negligible.
Once the aprons are cut on the table, they are placed on a rolling cart and sent to the next station for labeling. Depending on the color of the apron, one of two labeling processes is used: the red and blue aprons can be hot stamped (Station 2a), and the white apron requires silk screening (Station 2b). V-Mart’s orders always consist of 38.7% red, 17.3% blue, and 44% white aprons.
Station 2a - Hot Stamping
The carts containing the red and blue cut aprons are rolled over to the hot stamp area and each apron is pulled from the cart. As the aprons are hot stamped, they are stacked on the table in the hot stamp area. Once one cart has been hot stamped and is empty, the aprons are stacked back onto the cart and stored until the sewing contractors come to pick them up (see Station 3).
There is one worker in the hot stamping area that can stamp 150 aprons each hour. The material cost of the foil used is $0.03/apron.
V-Mart Places P .O.
Raw Material Inventory
Inventory
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Station 1 Cutting |
Station 2b Silk Screen
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Station 5 Bar Tacking |
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Station 4 Bundling |
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Station 3 Sewing |
Inventory
Inventory
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Station 6 Finishing |
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Station 7 Shipping |
Station 1 - Cutting
Inventory
Inventory
Figure 1: V-Mart Apron Manufacturing Work Flow Diagram
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Station 2b – Silk Screening
The white aprons are silkscreened because they do not hold the hot stamp very well. The aprons are stacked as they come down the drying belt and placed onto another cart. Once the aprons are screened, they are also stored until the sewing contractors come to pick them up (see Station 3).
While hot stamping only requires one worker, silk screening uses two workers – a screener and a puller to stack the aprons. Together they can process 200 aprons each hour. Ink cost for the silk screening is approximately $0.05/apron.
Station 3 – Contract Sewing
Once hot stamping or silk screening is completed, the aprons are stored and wait for sewing contractors to pick them up. Six different contract sewing operations are used (their pickup dates are staggered). Three of the contractors are large enough to produce approximately 10,000 per month (each) of the V-Mart style aprons while the remaining three contractors are capable of approximately 6,000 per month (each). The cost for the contract sewing is approximately $0.45 per apron. Along with the aprons, the neckbands, ties, and thread are provided with each batch that is picked up. The cost of this material is approximately $0.26 per apron.
Station 4 - Bundling
The contractors return the aprons in quantities of twenty rolled-up aprons. The contractors unload the rolled-up aprons onto a cart and then the bundler unties and unrolls the aprons. In preparation for bar tacking, the bundler stacks up the aprons in pallets of 1,728. There is one bundler, and it takes approximately 2 hours to bundle each pallet for the bar tacker. The material cost is negligible.
Station 5 – Bar tacking
Bar tacking introduces additional tie stitching to add strength to the ties. There is one bar tacker who takes approximately 18 hours to complete a pallet of product. The material cost is negligible.
Station 6 – Quality Check (folding), Finishing, and Bagging
The step to follow bar tacking is folding. The folder stacks up the aprons onto the table and begins the folding process. The folder stacks the aprons in a large stack if they are bagged individually,
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or she offset stacks them into three’s, six’s or twelve’s, whichever way they are bagged. After that, a bagger physically takes the aprons to the bagging table and does the bagging. At the same table, one other person places the bagged aprons into the shipping boxes, attaches the shipping labels, and stacks them on the pallet. Once the pallet is loaded, an automatic shrink wrap machine wraps the skid. The skid is then ready for the truck to pick it up.
Working together, it takes all three people approximately 7 hours to finish a pallet of V-Mart aprons in this station. The box and bag costs are roughly $0.04 for each apron.
Station 7 - Shipping
There is one shipper at this station and it takes him roughly half an hour to process each pallet. The freight cost per apron is approximately $0.25.
2. Please refer to the Aprons “R” Us case (starting on the next page), and answer the following questions:
a) What is ARU’s current production capacity? If ARU is to increase its in-house capacity, where should it invest?
ARU’s current production capacity is 16,896 aprons per month. ARU should invest in Bar Tacking station if it wants to increase its capacity.
b) With the current production rate, what is ARU’s total cost per apron? To do this you need to include material, freight, contractor, and the labor cost per apron*.
For Red and Blue aprons, ARU’s total cost per apron is $3.96. For White aprons, ARU’s total cost per apron is $4.11.
c) Suppose ARU adds a worker at the bottleneck station, what is the total cost per apron now?
If ARU adds one more employee in Bar Tacking station, then cost per Red/Blue apron will be $3.32 and cost per White apron will be $3.27.
Before adding one extra worker in Bar Tacking station:-
| Process | V Mart Places PO | Raw Material Inventory | Station 1: Cutting | Red | Station 2A: Hot Stamping | Contract Sewing | Bundling | Bar Tacking | Quality Check, Finishing & Bagging | Shipping | |
| Blue | |||||||||||
| White | Station 2B: Silk Screening | ||||||||||
| Capacity | V Mart Places PO | Infinite Capacity | 52,800 | 20,434 | 26,400 | 48,000 | 1,52,064 | 16,896 | 43,447 | 6,08,256 | |
| 9,134 | |||||||||||
| 23,232 | 35,200 | ||||||||||
| Actual Capacity | V Mart Places PO | Infinite Capacity | 16,896 | 6,539 | 9,462 | 16,896 | 16,896 | 16,896 | 16,896 | 16,896 | |
| 2,923 | |||||||||||
| 7,434 | 7,434 | ||||||||||
| Fixed Cost | V Mart Places PO | Infinite Capacity | 2,464 | 2,464 | - | 2,464 | 2,464 | 7,392 | 2,464 | ||
| 4,928 | |||||||||||
| Variable Cost | V Mart Places PO | 1.38 | - | 0.30 | 0.71 | - | - | 0.04 | 0.25 | ||
| 0.05 | |||||||||||
| Total Cost per Apron (for 16896 Aprons per month) | V Mart Places PO | 1.38 | 0.15 | 0.56 | 0.71 | 0.15 | 0.15 | 0.48 | 0.40 | 3.96 | |
| 0.71 | 4.11 |
After adding One Extra worker at Bar Tacking Station:-
| Process | V Mart Places PO | Raw Material Inventory | Station 1: Cutting | Red | Station 2A: Hot Stamping | Contract Sewing | Bundling | Bar Tacking | Quality Check, Finishing & Bagging | Shipping | |
| Blue | |||||||||||
| White | Station 2B: Silk Screening | ||||||||||
| Capacity | V Mart Places PO | Infinite Capacity | 52,800 | 20,434 | 26,400 | 48,000 | 1,52,064 | 33,792 | 43,447 | 6,08,256 | |
| 9,134 | |||||||||||
| 23,232 | 35,200 | ||||||||||
| Actual Capacity | V Mart Places PO | Infinite Capacity | 33,792 | 13,078 | 18,924 | 33,792 | 33,792 | 33,792 | 33,792 | 33,792 | |
| 5,846 | |||||||||||
| 14,868 | 14,868 | ||||||||||
| Fixed Cost | V Mart Places PO | Infinite Capacity | 2,464 | 2,464 | - | 2,464 | 2,464 | 7,392 | 2,464 | ||
| 4,928 | |||||||||||
| Variable Cost | V Mart Places PO | 1.38 | - | 0.30 | 0.71 | - | - | 0.04 | 0.25 | ||
| 0.05 | |||||||||||
| Total Cost per Apron (for 16896 Aprons per month) | V Mart Places PO | 1.38 | 0.07 | 0.43 | 0.71 | 0.07 | 0.07 | 0.26 | 0.32 | 3.32 | |
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