Unit 3 Business Operations

Introduction

Question One

Based on the information presented in the scenario/case study discuss Albatross Anchor’s competitiveness in relation to (please address all items in the below list and provide support for your conclusions):

1. Cost

a) Cost of Production: The cost of manufacturing for the mushroom/bell anchors are $8.00 per pound and $11.00 per pound for the snag hook anchors.

b) Economies of Scale in material purchasing: (Disadvantage) The basic notion behind economies of scale is well known: As a plant gets larger and volume increases, the average cost per unit of output is expected to drop (Economies of Scale and Economies). Albatross Anchor does production in small batches; there is really no way to realize the economies of scale. Since all departments are housed under one building, there are operations inefficiencies. This can bring down their profit margins.

c) Cost of Raw Materials Sitting Idle in the Warehouse: (Disadvantage) Albatross Anchor only produces small batches. The raw materials are in the warehouse sitting idle and this creates a huge cost to store materials that are not being used during production.

d) Cost of Finished Goods Sitting Idle in the Warehouse: (Disadvantage) The goods that are sitting idle in the warehouse and must wait to be shipped creates huge holding cost for Albatross Anchor. “A buffer of inventory on hand is comforting – and costly. If you hold a lot of items in inventory, you're locking away a huge amount of cash unnecessarily. These items can be lost, stolen, or damaged, or they can deteriorate. They occupy space, which could otherwise be devoted to operations.” (Just In Time (JIT) Reducing Inventory, Minimizing Waste, and Responding to Your Customers)

2. Speed of manufacturing process from order to finished product. (Advantage) The production of the raw materials is produced as the marketplace determines for them to be produced. Due to limited number of products the manufacturing processes are...