1. What kind of operating decisions are facing Chad Thomas’ business today?
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Read the case carefully and answer all the questions.
Chad’s Creative Concepts (Krajewski & Ritzman, 2002: 23)
Chad’s Creative Concepts designs and manufactures wood furniture. Founded by Chad Thomas on the banks of Lake Erie in Sandusky, Ohio, the company began by producing custom-made wooden furniture for vacation cabins located along the coast of Lake Erie and on nearby Kell’s Island and Bass Island. Being an ‘outdoors’ type of person himself, Chad Thomas originally wanted to bring ‘a bit of the outdoors’ inside. Chad’s creative concepts developed a solid reputation for its creative designs and high quality workmanship. Sales eventually encompassed the entire Great Lakes region. Along with its growth came additional opportunities.
Traditionally, the company had focused entirely on custom-made pieces of furniture, with the customer specifying the kind of wood from which the piece would be made. As the company’s reputation grew and sales increased, the sales force began selling some of the more popular types of furniture pieces to retail furniture outlets. This move into retail outlets led Chad’s Creative Concepts into the production of a more standard line of furniture. Buyers of this line were much more price sensitive and imposed more stringent delivery requirements than did clients for the custom line. The custom-designed furniture continued to dominate the company’s sales, accounting for 60% of the volume and 75% of dollar sales. Currently, the company operates a single manufacturing facility in Sandusky, where both custom and standard furniture pieces are manufactured. The equipment is mainly general purpose in nature in order to provide the flexibility needed for producing custom pieces of furniture. The layout groups saws together 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 the individual workers. Both the custom and the standard furniture pieces compete for processing time on the same equipment by the same craftspeople.
During the past few months, sales of the standard line steadily increased, leading to more regular scheduling of this line. However, when scheduling trade-offs had to be made, the custom furniture was always given priority because of its higher sales and profit margins. Thus, schedule lots of standards furniture pieces were left sitting around the plant in various stages of completion.
As he reviews the progress of Creative Concepts, Thomas is pleased to note that the company has grown. Sales of custom furniture remain strong, and sales of standard pieces are steadily increasing. However, finance and accounting have indicated that profits aren’t what they should be. Costs associated with the standard furniture line are rising. Dollars are being tied up in inventory, both of raw materials and work in process. Expensive public warehouse space has to be rented to accommodate the inventory volume. Thomas also is concerned with increased lead times for both custom and standard orders, which are causing longer promised delivery times. Capacity is being pushed and no space is left in the plant for expansion. Thomas decides that the time has come to take a careful look at the overall impact this new standard furniture line is having on his operations.
Answer the following questions.
- What kind of operating decisions are facing Chad Thomas’ business today?
- What might Thomas have done differently to avoid some of the problems he now faces?