When examining The Executive Shirt Company’s (ESC) current system, we see room for production expansion through the firm’s relatively low direct labor utilization and capacity utilization, 69% and 83.3% respectively. In the current system we see a direct labor cost of $3.84 per shirt and a single bottleneck process; at the collar making process, 0.50 min/shirt. Mike’s plan produces more efficient labor utilization and capacity utilization, 77.91% and 93.
7% respectively. The increases in utilization of the line bring a decrease in the overall direct labor cost reducing it to $3.47 per shirt. The cuff bottleneck remains while an additional is seen at the custom sized cutting process. Overall, the actual cycle time is not affected, due to the new processes cycle time matching that of the original, and Manufacturing Lead Time is reduced for all shirts.
Considering the lower per shirt cost and $10 premium seen at the wholesale and retail levels, any increased material cost (10%) inherent in the new cutting process will be offset. Though there is a risk with such high labor utilization, we still consider these increases in utilization of the lines labor, capacity, and direct labor cost, to make Mike’s plan is advisable one for the ESC.