Case Study: Hawkesbury Cabinets Pty Ltd

Hawkesbury Cabinets Pty Ltd designs and manufactures custom-built kitchen cabinetry. The company was founded in Mulgrave, Sydney in 2008 by siblings Fung and Mei Chen. Fung is a master cabinetmaker and Mei is a qualified interior designer. The company had originally set out to service the needs of the growing Chinese community in the Hawkesbury. As the reputation of the company grew however, Fung and Mei found that their client base became more and more diverse. Fung’s duties had evolved over time, and he now fulfilled the role of production and operations manager. Mei, on the other hand, had found an interest in the financial and overall management of the enterprise and so she had effectively taken on the role of general manager. So while there was no formal identification of roles for the two owners, there was a fairly comfortable distribution of managerial responsibilities. Traditionally, Hawkesbury Cabinets had focused entirely on custom-made kitchens, with the customer consulting with Mei to develop a unique kitchen designed specifically for the client’s needs. As the company’s reputation grew and sales increased however, several low volume contracts had been signed to supply small ‘spec’ builders1 with a range of high quality, but standardised kitchen cabinetry. These contracts required Hawkesbury Cabinets to manufacture a limited range of kitchen cabinets in small batches. Batch sizes ranged from a single kitchen up to five kitchens of similar specifications. The client builders imposed more stringent delivery requirements and were far more price sensitive than custom-made kitchen buyers. Whilst the custom-designed cabinetry continued to account for the majority of the company’s sales, the builders’ kitchens were becoming increasingly important. Currently, the standardised kitchens accounted for 40 percent of factory volume and 25 percent of revenue. Hawkesbury Cabinets operates a single manufacturing facility in Mulgrave, where both custom and standard kitchen cabinets are manufactured. The cabinet-making equipment consists mainly of high quality general purpose machines in order to provide the flexibility needed for producing a wide variety of custom designed cabinets. The factory layout has various types of equipment grouped together. Saws and cutting tables are in one section, routers and shapers in another, whilst lathes and other less frequently used machines are kept away from the work area in their own section. There are also several assembly areas located strategically throughout the factory. Painting and finishing is done in an environmentally controlled section towards the rear of the facility. The quality of Hawkesbury Cabinets’ finished products is held in high esteem, and reflects the quality of the materials chosen and the craftsmanship of the individual cabinetmakers. Both the custom and the standard cabinets had to compete for processing time on the same equipment by the same craftspeople. During the past few months, sales of the builders’ line of kitchens had steadily increased, leading to more regular scheduling of this work. However, when scheduling trade-offs had to be made, the custom kitchens were always given priority because of the higher sales and profit margins. Thus scheduled lots of standard cabinet components were left sitting around the plant in various stages of completion. This increase in the volume of work in process had changed the previously spacious manufacturing area into a factory clogged up with partially completed work. As she reviewed the progress of Hawkesbury Cabinets, Mei Chen was pleased to note that the company has grown. Sales of custom kitchens remained strong, and sales of the builders’ line were steadily increasing. However, the company accountant argued that profit margins were not 1 The NSW Department of Fair Trading defines a ‘spec’ builder thus: “A ‘spec’ builder is the general term for an individual, company or partnership who carries out residential building work on land that they own. The ‘spec’ builder is a licensed builder and therefore does not need to contract out the work, but can do their own residential building work. The building work is speculative, meaning the property is generally intended to be sold at completion.” (Source: http://www.fairtrading.nsw.gov.au/Tradespeople/Developers.html) MGMT20130 3 Term 2, 2016 what they should be. Costs associated with the standard builders’ line were rising. An increasing amount of capital was being tied up in raw materials inventory, work in process and finished product. To accommodate the increased volume of inventory, nearby warehouse space was now being rented. Mei Chen was also concerned with increasing lead times for both custom and standard orders. This was resulting in longer promised delivery times. The current operations systems were pushing manufacturing capacity to the limit, and with the current layout, no space was left in the plant for expansion. Mei Chen decided that the time has come for her and her brother to take a careful look at the overall impact that the new line of standard builders’ kitchens was having on their operations. Assessment Task After you have carefully read and analysed the case study, write an essay discussing the operational issues facing Hawkesbury Cabinets. The essay should identify and discuss the operational aspects that are affecting the organisation, paying attention to both medium-term and day-to-day implications. Your argument should address the following three issues with responses integrated within the essay. 1. The current production systems and processes used by Hawkesbury Cabinets (a technical analysis). 2. The effect of the new builders’ kitchen line on Hawkesbury Cabinets’ operations (problem definition). 3. The effect the move to producing builders’ kitchens might have on the company’s financial structure2 . (broader organisational issues caused by operational problems). Your essay should be a properly constructed academic essay. It should contain an effective introduction, body and conclusion. The introduction should introduce the essay and include your argument. The body should present the evidence you have collected to support your argument, and the conclusion should restate your argument, summarise the evidence and make a conclusion regarding your argument. The essay should contain a coherent, but necessarily restricted review of the academic literature on the Production and Operations Management topics in question. The literature review should be integrated into the essay, not a separate section. Do not use headings or include an abstract. A reference list is compulsory. Do not include a bibliography. Further information regarding formatting of assignments is available on the course website.