Kristen’s Cookie Company Case Study and Analysis Forecasting and Operations Management Saint Mary’s College of California Executive MBA Program
Jessica Marie – www.jessicamariemba.com
Kristen’s Cookie Company Agenda Introduction and Preliminary Modeling Key Questions and Problems for Further Thought Recommendations for Improvement Q & A Session and Discussion
Kristen’s Cookie Company Introduction Kristen’s Cookie Company Mission Statement: Born from a hunger to feed the student body and the craving brain…
This presentation will evaluate the preliminary design for the Company’s production process to make policy and pricing decisions, equipment needed, how many orders can be accepted, and whether the business can be profitable.
Kristen’s Cookie Company The Service Triangle The Service Strategy
The Customer
The Systems
The People
Kristen’s Cookie Company Process Flow Chart Order and Reply (Roommate) 0 minutes
Cooling 5 minutes
Hold
Wash and Mix (kristen) 6 minutes
Baking (Oven) 9 minutes
Pack/Colle ct Money 3 minutes
Spooning 2 minutes
Heat Oven 1 minutes
Kristen’s Cookie Company Key Question 1: How long will it take to fulfill a rush order? Activity
Resource
Cycle Time Start Time
Finish Time
Order Entry
E-mail
0 minutes
00:00
00:00
Wash/Mix
Kristen
6 minutes
00:00
06:00
Spooning
Kristen
2 minutes
06:00
08:00
Heat Oven
Roommate
1 minute
08:00
09:00
Oven
9 minutes
09:00
18:00
0 minutes
18:00
18:00
Tray
5 minutes
18:00
23:00
Roommate
3 minutes
23:00
26:00
Bake
Remove Cookies Roommate Cool
Pack/Collect $$
Kristen’s Cookie Company Key Question 2 How many orders can you fill in a night, assuming you are open four hours each night? Task Order Entry 1 Wash and Mix 1 Spooning Start Oven 1 Baking Time 1 Remove from Oven 1 Cooling Time 1 Pack and Collect Money 1 Order Entry 2 Wash and Mix 2 Fill Tray 2 Start Oven 2 Baking Time 2 Remove from Oven 2 Cooling Time 2 Pack and Collect Money 2
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
Kristen’s Cookie Company Group 2 Order Size 1 dozen 2 dozen 3 dozen 4 dozen 5 dozen 6 dozen 7 dozen 8 dozen 9 dozen 10 dozen 11 dozen 12 dozen 13 dozen 14 dozen 15 dozen 16 dozen 17 dozen 18 dozen 19 dozen 20 dozen 21 dozen
Order Completion Time 26 minutes 36 minutes 46 minutes 56 minutes 66 minutes 76 minutes 86 minutes 96 minutes 106 minutes 116 minutes 126 minutes 136 minutes 146 minutes 156 minutes 166 minutes 176 minutes 186 minutes 196 minutes 206 minutes 216 minutes 226 minutes
22 dozen
236 minutes
• Operating time = 240 minutes (4 hours) • Solution • 22 dozen cookies in 4 hours. • From the table, a formula can be generalized: The number of minutes to produce n one-dozen batches is given by this expression: 16 + 10n<=4x60, so we get N(max) = 22.
Kristen’s Cookie Company Key Question 3 How much of your own and your roommate’s valuable time will it take to fill each order? Kristen
Roommate
Activity
Cycle Time
Wash, Mix and Spoon
6+2=
Total
8 minutes
Activity Heat Oven, Remove Cookies, Pack and Collect Money Total
Cycle Time
1+0+3=
4 minutes
Kristen’s Cookie Company Key Question 4 Because your baking trays can hold exactly one dozen cookies, you will produce and sell cookies by the dozen. Should you give any discount for people who order two or more dozen? If so, how much? Will it take you any longer to fill a two-dozen order than a one-dozen order? All costs of ingredients and boxes for each dozen are the same. With that said, total valuable time is 6 (wash and mix) + 2 (spooning) + 1 (set timer on oven) + 2 (packing time) + 1 (process payment) = 12 minutes. For a two dozen order, total time is 6 + 2 + 1 + 2 x 2 + 1 = 17 minutes. For a three dozen order, total time is 6 + 2 + 1 + 2 x 3 + 1 = 22 minutes.
Kristen’s Cookie Company Key Question 4 continued… We can also solve this problem by calculating labor costs. Let’s assume $10 per hour = $0.16667 per minute
# Cookies in Batch
Minutes
Cost
Cost per Dozen
Potential Discount
1 dozen 2 dozen 3 dozen
12 17 22
$2.00 $2.83 $3.66
$2.00 $1.41 $1.22
0 $0.59 $0.78
Perhaps offering a 10% - 20% discount (or set dollar amount) on orders of two dozen and above is an option.
Kristen’s Cookie Company Key Question 4 continued… When applying materials costs with labor costs, we find that the cost also decreases with larger orders. From both analyses, a discount is advised. (10% - 20% discount or dollar amount) # Cookies in Batch Minutes
Cost
Labor Cost per Dozen
1 dozen
12
$2.00
$2.00
2 dozen
17
$2.83
$1.41
3 dozen
22
$3.66
$1.22
Material Cost per Dozen
$0.60/dozen, ingredients $0.10/dozen, box
$ 0.70 $ 0.70 $ 0.70
Total
Potential Discount
$2.70
0
$2.11
$0.59
$1.92
$0.08
Kristen’s Cookie Company Key Question 5 How many electric mixers and baking trays will you need? As the charts and tables have shown, the electric mixer is idle for a long time during the production process, so only one is needed. Because the mixer can only contain 3 dozens of ingredients, during the whole process, at least 3 trays are needed. Note: We have suggested process improvements regarding equipment in recommendation segment.
Kristen’s Cookie Company Key Question 6 Are there any changes you can make in your production plans that will allow you to make better cookies or more cookies in less time or at lower cost? For example, is there a bottleneck operation in your production process that you can expand cheaply? What is the effect of adding another oven? How much would you be willing to pay to rent an additional oven?
Kristen’s Cookie Company Process Flow Diagram With Two Ovens Load & Bake
Mix & Spoon
Cool
Pack & Pay
Load & Bake
The speed with which you can produce cookies is dependent upon the cycle time for baking, the bottleneck operation.
Kristen’s Cookie Company Increasing capacity of the oven makes it so we can start a new order every 5 minutes. New capacity is 7.5 dozen/hour (if all orders are one dozen. 7.5 = 60/8
Throughput Time
6+2 = 8 minutes
1+9 = 10 minutes
5 minutes
2+1 = 3 minutes
Hourly Capacity
7.5 Dozen
12 Dozen
12 Dozen
20 Dozen
Cycle Time
8 minutes
5 minutes
5 minutes
3 minutes
Kristen’s Cookie Company Problems for Further Thought: 1 What happens if you are trying to do this by yourself without your roommate? We must calculate the amount of time it takes to begin a new batch of cookies with their selected ingredients, to the time when the dozen cookies are packed into a box and paid for.
Kristen’s Cookie Company Problems for Further Thought: 1 Because all the tasks have to be done by Kristen alone, her time for one dozen cookies becomes 12 minutes (8 + 4), which exceeds the previous 10 minute cycle time for one dozen cookies. In this case, Kristen becomes the bottleneck, rather than the baking process. However, if the order contains two dozens of the same kind of cookie, the washing and mixing can be done together, so her time for this order becomes 17 minutes (6 + 2 x 2 + 2 x 1 + 2 x 2 + 1), which is less than the previous of 20 minutes. If the order is 3 dozen, it becomes 22 minutes.
Kristen’s Cookie Company Problems for Further Thought: 2 Should you offer special rates for rush orders? Suppose you have just put a tray of cookies into the oven and someone calls up with a “crash priority” order for a dozen cookies of a different flavor. Can you fill the priority order while still fulfilling the order for the cookies that are already in the oven? If not, how much of a premium should you charge for filling the rush order?
As we saw in the previous gantt chart, there would be no need to stop baking of the previous cookie. The time that the rush order will delay is only at most 1 minute. And the previous order can be finished on time. There is no need to offer a special rate.
Kristen’s Cookie Company Problems for Further Thought: 3 When should you promise delivery? How can you look quickly at your order board and tell a caller when his or her order will be ready? How much of a safety margin for timing should you allow? Looking at the order board will tell us when we finish and become idle. The finish time, will be that time, plus 26 minutes it takes to finish a one dozen order. At that time, they can promise delivery.
We suggest an 8 minute safety margin for rush orders. If we begin a wash and mix process, then a rush order comes in, we have to stop and process that order. The previous order would be delayed by a max of 8 minutes to wash and mix the rush order. Time is 6 + 2 = 8 minutes.
Kristen’s Cookie Company Problems for Further Thought: 4 What other factors should you consider at this stage of planning your business? Market: Is this attractive to potential customers? Cost: How can we get cheaper materials with good quality? Labor: Can I do this alone? Should I hire people? Product: How can we make the cookies better? Services: Can I provide other services, such as delivery? Hazards: How should I handle an accident? Laws: Am I violating any laws? Capital: What kind of equipment will I need? Investment: What kind of initial and/or further investment is required?
Kristen’s Cookie Company Problems for Further Thought: 4 FACTORS TO CONSIDER Market: Is this attractive to potential customer COLLEGE NIGHT STUDY
Kristen’s Cookie Company Problems for Further Thought: 4 FACTORS TO CONSIDER Cost: How can we get cheaper materials with good quality? Price point: What price point are students willing to pay? 6.00 Per dozen (.50) per cookie **TEST IT** Pay: What is Kristen and her roommate’s time worth?
Kristen’s Cookie Company Problems for Further Thought: 4 FACTORS TO CONSIDER Labor: Can I do this alone? Should I hire people? Demand should determine the Labor force and potential increase in equipment.
Kristen’s Cookie Company Problems for Further Thought: 4 FACTORS TO CONSIDER Product: How can we make the cookies better? Services: Can I provide other services, such as delivery? Hazards: How should I handle an accident? Laws: Am I violating any laws?
Kristen’s Cookie Company Problems for Further Thought: 5 Your product must be made to order because each order is potentially unique. If you decide to sell standard cookies instead, how should you change the production system? The order-taking process? Other policies? At the beginning, the cookies are unique. If we sell standard cookies, the value added products of the company change. - Bake cookies before receiving order. - order-taking process needs to change, as the customers don’t need to call/email and wait for pickup. They can visit the apartment directly to buy the product. - If a large sum is needed, customers can make order earlier, and provide deposit.
Kristen’s Cookie Company Problems for Further Thought: 5 Your product must be made to order because each order is potentially unique. If you decide to sell standard cookies instead, how should you change the production system? The order-taking process? Other policies? - Create your own cookie menu - Freeze balled cookies. - Cookies can be ordered by number, and pulled from a freezer - Cookies cooked and served fresh from the menu
Kristen’s Cookie Company Recommendations for Improvement Increase Total Production Capacity Per Night
• Purchase or rent an additional oven. - Increase capacity of the bottleneck. - Increases cookie-making capacity. • Purchase several additional baking trays. - These items are inexpensive - Buying more ensures they are never a binding constraint.
Kristen’s Cookie Company Recommendations for Improvement continued… Decrease Total Time Spent in Activity • Premixing in advance - eliminates the mixing step for these popular cookies - work-in-process inventory would eliminate mixing step for those cookies and thus increase capacity to 12 dozen per hour. • Require immediate payment - Payment through PayPal, or similar service to eliminate the ending “collect payment” phase.
Kristen’s Cookie Company
Thank you.
