Chapter 6: Problem 7

Indicate how each of the following might promote and impede the objective to maximize long-run profitability: (a) Decrease average cycle time (b) Decrease WIP (c) Increase product diversity (d) Improve product quality (e) Improve machine reliability (f) Reduce setup times (g) Enhance worker cross-training (h) Increase machine utilization

Short Answer

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Answer: Decreasing WIP can promote long-run profitability by reducing inventory costs and improving cash flow. With less inventory in the system, there are fewer materials, labor, and overhead costs associated with maintaining and managing that inventory. However, decreasing WIP too much might impede profitability if it creates shortages of finished products, leading to lost sales, unhappy customers, and potentially damage to the company's reputation.

Step by step solution

(a) Decrease average cycle time

Decreasing the average cycle time can promote long-run profitability by increasing productivity and reducing production costs. When cycle times are shorter, more products can be produced in a given time period, which may lead to increased sales and revenue. However, if the decrease in cycle time results in quality issues or increased wear and tear on the machinery, it may impede long-run profitability by raising maintenance costs and potentially damaging the company's reputation.

(b) Decrease Work in Progress (WIP)

Decreasing WIP can promote long-run profitability by reducing inventory costs and improving cash flow. When there is less inventory in the system, there are fewer materials, labor, and overhead costs associated with maintaining and managing that inventory. However, decreasing WIP too much might impede profitability if it creates shortages of finished products, leading to lost sales, unhappy customers, and potentially damage to the company's reputation.

(c) Increase product diversity

Increasing product diversity can promote long-run profitability by appealing to a wider range of consumers and capturing more market share. Diverse product offerings often lead to increased sales and a larger customer base. However, offering a multitude of products might impede profitability by increasing costs, such as higher setup times, more complex supply chain management, and increased need for quality control.

(d) Improve product quality

Improving product quality can promote long-run profitability by enhancing the company's reputation, customer satisfaction, and brand value. High-quality products can command higher prices in the marketplace and lead to customer loyalty. However, increasing product quality may also raise production costs, depending on the investments needed for quality improvement (e.g., more skilled labor, better materials, or upgraded equipment).

(e) Improve machine reliability

Improving machine reliability can promote long-run profitability by minimizing downtime, reducing maintenance costs, and increasing overall productivity. More reliable machines typically result in fewer production interruptions, which will lead to cost savings and a more efficient production process. However, investing in machine reliability might be expensive in the short term due to the cost of new equipment or upgrades.

(f) Reduce setup times

Reducing setup times can promote long-run profitability by boosting productivity, minimizing downtime, and lowering production costs. Faster setup times lead to quicker transitions between product runs, allowing for more products to be produced in a given time period. On the other hand, reducing setup times too much might impede long-run profitability if it introduces quality issues or if it requires significant investments in new equipment.

(g) Enhance worker cross-training

Enhancing worker cross-training can promote long-run profitability by improving flexibility and adaptability in the production process. Cross-trained workers can quickly switch tasks and help prevent production bottlenecks, increasing overall productivity. Additionally, worker cross-training can reduce labor costs by enabling companies to maintain a leaner workforce. However, it might take time and resources to train workers, and during that transition period, productivity might suffer.

(h) Increase machine utilization

Increasing machine utilization can promote long-run profitability by getting more output from existing resources and potentially postponing the need for new equipment investments. Higher machine utilization might require shorter lead times and streamlined production processes. However, excessively high machine utilization rates could impede profitability by increasing wear and tear on machines, requiring more frequent maintenance, or resulting in higher energy consumption.

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Short Answer

Step by step solution

(a) Decrease average cycle time

(b) Decrease Work in Progress (WIP)

(c) Increase product diversity

(d) Improve product quality

(e) Improve machine reliability

(f) Reduce setup times

(g) Enhance worker cross-training

(h) Increase machine utilization

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