Albatrass Anchor

Topics: Manufacturing, Costs, Variable cost Pages: 8 (2436 words) Published: June 6, 2013

In regards to Albatross Anchors manufacturing processes, there is a current need for consulting assistance. The business was established in 1976 as a family owned and operated business of four people, and is still up and running with a team of 130 that all work in the same building, creating two different types of boat anchors. This shows 37 years of hard work and dedication that has continued the manufacturing of these anchors over the years. This proposal shows what is currently taking place and a few ideas as to how changes in the operational management processes will give improvements to create not only a break-even point but a future that holds positive revenue for the company.

1. Cost
a) Cost of Production
The cost of production is based on the manufacturing costs of $8 for the bell anchor and $11 for the snag hook anchor. The profit losses of 35% due to operational inefficiencies stand out to be a main concern. Many companies have adopted a lean six sigma (LSS) approach by uncovering waste in process and reducing non-value adding activity. This will assist in increasing productivity (IBM, 2009). Also company’s in the twenty-first century are now showing more concern for the environment by going greener and updating technology within the company for international communications and sales.

b) Economies of Scale in material purchasing:
The basics behind economies of scale are well known and easy to retain. As a plant gets larger and volume increases, the average cost per unit of output is expected to drop, with the costs of fixed expenses staying the same. When looking at Albatross Anchor, in 1976 it started small but with demand, has increased in size over the years. In the beginning it manufactured only the mushroom/bell anchors but to keep up with competitors it began to produce the snag hook anchor as well (Kaplan, n.d). The company currently has a three to four week hold until a larger order can be manufactured. This is a loss of many sales. The main reason can be understandable that it takes thirty-six hours to switch over production to the correct process for the anchor in demand. In reality though this should be a concern that needs to be addressed as to what changes can be made to the company to lessen or even eliminate the down time. The extended amount of time it takes to do the changeover could also lose customers, because the company cannot meet the demand in a timely fashion (Mind Tools, n.d).

c) Cost of Raw Materials Sitting Idle in the Warehouse:
The raw material that is sitting idle in the warehouse not in use is costing the company money beyond its original purchase price. The warehouse is at its maximum capacity and only has limited space for each area. When an order comes in that is not extremely large but would require a switch in production, I would suggest doing a by hand assembly if possible.

The location of the raw material area in the facility is not in a location of ease or sensibility. If the raw materials are brought in on the rail, they should be easily moved from the receiving department to their holding place without the need to cross the whole plant to do it.

d) Cost of Finished Goods Sitting Idle in the Warehouse:
The cost of the finished goods that are sitting idle is assisting in having a lower profit margin. One way to help make sales with these finished products would be to open the possibility to selling beyond wholesale. Also, utilizing a cost analysis to find what the breakeven point for the idle products, could allow offering a discount to current customers with their next order. The thought of not making profit off of those anchors may seem unrealistic but a further analysis would show how not having those finished goods in the warehouse will actually save the company money. The products that are finished and waiting to be shipped should not take up as much room as what is being used in the...

References: Herman, Justin (2011). Types and benefits of technologies used in manufacturing industry. Retrieved on March 15, 2013 from:
IBM (2009). Aligning business process management, service oriented architecture, and lean six sigma for real business results. Retrieved on March 10, 2013 from:
Interlake (2013). Mecalux warehouse solutions. Mezzanines. Retrieved on March 19, 2013 from: 2iLYCFYSe4AodoGYADA
Kaplan University (n.d) Albatross Anchor. Retrieved on March 9, 2013 from:
Mind Tools (n.d). Achieving economies of scale. Understanding why bigger can be better. Retrieved on March 12, 2013 from: STR_63.htm#.
Russell, R. Taylor, B. (2011). Operations Management: Creating Value along the Supply Chain, 7th Edition. Hoboken, New Jersey: John Wiley and Sons
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