CASE Chad\'s Creative Concepts Chad\'s Creative Concepts designs and manufacture

Question

CASE Chad's Creative Concepts Chad's Creative Concepts designs and manufactures wood furniture hen scheduling trade-offs had to be made, custom furniture Founded by Chad Thomas on the banks of Lake Erie in Sandusky, Ohio, the given priority because of its higher sales and profit mar company began by producing custom-made wooden furniture for vacation lots of standard furniture pieces were left sitting around the plant cabins located along the coast of Lake Erie and on nearby Kelly's Island and stages of complet orn Bass island. Being an "outdoors" type himself, Thomas originally wanted to bring "a bit of the outdoors" inside. Chad's Creative Concepts developed a pased to note that the company has grown. Sales of custom furniture solid reputation for creative designs and high-quality workmanship. Sales main strong, and sales of standard pieces are steadily increasing. Howeven gins. Thus, scheduled As he reviews the progress of Chad's Creative Concepts, Thomas is ssed the entire Great Lakes reg on. Along w th growth finance and accounting indicate that prof ts are not what they should be. Costs associated with the standard line are ri encompa came additional opportunities Traditionally, the company focused entirely on custom-made furniture, inventory, both in raw materials and work-in-process. Expensive public ware- with the customer specitying the kind of wood from which the piece would be house space has to be rented to accommodate the inventory volume. Thomas made. As the company's reputation grew and sales increased, the sales force also is concerned with increased lead times for both custom and standard some of the more popular pieces to retail furniture out ets. This orders, which are causing longer promised delivery times. Capacity is being move into retail outlets led Chad's Creative Concepts into the production of a pushed, and no space is left in the plant for expansion. Thomas begins more standard line of furniture. Buyers of this line were much more price-sen careful assessment of the overall impact that the new standard line is having sitive and imposed more stringent delivery requirements than did clients for on his manufacturing process the custorn line. Custom-designed furniture, however, continued to dominate sales, accounting for 60 percent of volume and 75 percent of dollar sales Currentiy, the company operates a single manufacturing process in Sandusky, QUESTIONS where both custom furniture and standard furniture are manufactured. The equipment is mainly general purpose in nature to provide the flexibility needed for producing custom pieces of furniture. The layout puts together saws in one section of the facility, lathes in another, and so on. The quality of the finished product reflects the quality of the wood chosen and the craftsmanship of in dividual workers. Both custom and standard furniture compete for processing 3. How has the move to producing standard furmiture affected the conm 1. What types of decisions must Chad Thomas make daily for his com- pany's operations to run effectively? Over the long run? standard pieces to retail outlets? pany's financial structure? What might Chad Thomas have done differently to avoid some of the 2. How did sales and marketing affect operations when they began to sell time on the same equipment by the same craftspeople During the past few months, sales of the standard line steadily in- creased, leading to more regular scheduling of this product line. However 4. problems he now faces? Source. This case was prepared by Dr. Brooke Saladin, Wake Forest University, as a basis for classroom discussion. Copyright O Brooke Saladin. Reprinted by pemiss

Explanation / Answer

1.
Chad must take the following decisions on a daily basis to run the operations effectively:
A.   Scheduling decisions so that the work of custom furniture should not conflict with the work of standard furniture
B.   Product mix decision as the proportion of standard and custom furniture to be delivered to the customers
C.   Inventory decisions to prevent over stocking or understocking of the raw materials

Besides, Chad has to make following decisions on a long term basis for effective operations:
A.   Focus upon the layout decisions to prevent the waste in the organization and cost will also come down.
B.   Building tie up with the suppliers to develop an inventory system where the investment in inventory is minimized. Selection of suppliers in the nearby areas without compromise in quality is important to reduce the cost.
C.   Investment decisions for the specialized tools for the custom as well as the standard furniture to speedup the work and reduce the lead time of delivery

2.
Sales and marketing team gives inputs regarding the standard design of the furniture demanded in the market, the difficulty faced by the shops due to the longer time of delivery and the quality concerns related to the furniture. It makes the operations to adapt the work and deliver as per the feedback from the market and demand created by the market.

3.
Sale of standard furniture takes place mostly to those people that are price sensitive. It has created downward pressure upon the profit margin and the profit from the sale of standard furniture has come down. Besides, it requires a maintenance of huge inventory that means that a huge investment is always trapped in the inventory as current assets. It has created an additional burden to the financial structure of the company as the company is unable to channelize the investment in inventory as of now. Further, the rise in cost of making of a standard furniture, investment trapped in work in progress and rent cost of warehouse also demand the additional funds and the financial structure of the company suffers.

4.
Chad should have clearly demarcated the product mix the investment in each product category and their separate accounting. It will help the company to know what each product, either custom or standard furniture demands in terms of cost and how it can be reduced without affecting the price. A long term tie up with the suppliers to deliver material on time, will also help to reduce the cost. The inventory management can follow the JIT strategy to reduce the cost.

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