Question

Indicate how each of the following might promote or 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     

Answer 1

a) Decrease average cycle time : Increases profitability in the long run. As we reduce cycle time, the product will reach customer at right time where the demand is peak and the profitability will be more.

b) Decrease WIP : Increases the profitability in long run. Material in WIP is considered as current asset but its contribution to the profits is nil. The final product should reach the customer as fast as possible.

c) Increase product diversity : Increases the profitability in long run as the product diversification will give the company a possibility to operate in various segments of the market and optimize its profits. .

d) Improve product quality : Product quality costs in the initial days might reduce the profitability but in the long run, the goodwill created in the market will give competitive advantage to the product overs its competitors and enhances the profitability.

e) Improve machine reliability : It reduces the waste and defect products in production. The efficiency will increase and the production is more in the same costs thus, increasing the profitability.

f) Reduce setup times : Once we reduce the setup costs by using operational efficiency, the investment capital will be optimized and helps in reducing the cycle time as well, thus increasing profitability in long run.

g) Enhance worker cross-training : The employees cross-training initially increases the S&GA expenses but in the long run, the employee turnover will be reduced and the employees can be deployed into cross functional roles, thus hiring costs will be minimum, increasing the profitability.

h) Increase Machine Utilization: Increasing Machine utilization but implementing automation practices will reduce the labor costs and increases the profitability. Though over utilization might cause the defect rate to increase, in general it increases the profitability.