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Hawkesbury Cabinets Pty Ltd was established in the 2008 by two siblings Fung and Mei Chen. There are different operational issues existing in this manufacturing company. These issues are increasing production cost and working capital (Dima, 2013). These operational issues make the business less profitable.
This essay presented the operational aspects that are used by Hawkesbury Cabinets in its production system and process. This report discusses that there are different operation issues that are faced by the company. Further, it is evaluated that company has set up the new builders’ kitchen line that has a negative impact on the operation such as increases different production costs. Moreover, this essay explains that Hawkesbury Cabinets move to producing builders’ kitchen that has an unfavorable impact on the financial structure of the company like raises liabilities of the company.
According to the case study, Hawkesbury Cabinets is the fictitious company that manufactures both custom and standard kitchen cabinetry. Custom built kitchen cabinetry delivers the services as per the need of Chinese community in the Hawkesbury. Therefore, it had grown their reputation in the market. Due to the improve goodwill in the market, the company can build its strong financial performance in the long run. As the sales increased, Hawkesbury Cabinets has made low volume contract with the small ‘spec’ builders to deliver the standardized kitchen cabinetry services (Tako, and Robinson, 2012). There is limited batch sized from single to five kitchens with similar specifications. As a result, currently, Hawkesbury Cabinets obtains the 40 percent of factory volume and the 25 percent of revenue from the standardized kitchen.
On the other side, Hawkesbury Cabinets uses effective operational planning that increases demand and sales. For instance, Hawkesbury Cabinets uses same craftspeople and equipment for the both kitchen cabinetries to do the work in process. It also provides high-quality finished products because of using quality of raw material and skilled craftsmen in Hawkesbury.
Furthermore, sales of builders for the standardized kitchen cabinetry have raised that leads to more development of this work. But, in the case of scheduling trade-offs, Hawkesbury Cabinets gives priority to the custom-built kitchen cabinetry because of higher sales and profit margin. However, it increases the idle cost of standard kitchen cabinetry. Consequently, standardized kitchen cabinetry production system has impeded in various stages of completion such as gathering raw material to final goods. Moreover, a large volume of work in process has blocked into the factory with the incomplete work (Oliveira, et al., 2014). There are three issues mainly associated with the financial, production and warehouse that concerned by the Hawkesbury Cabinets Pty Ltd.
Although, Hawkesbury Cabinets Pty Ltd has raised its sales for both products such as Custom built kitchen cabinetry and standardized kitchen cabinetry but company has concerned about the profit margin. Because there is several production costs that are associated with the standardized kitchen cabinetry.
According to the Jane, M. (2016), there are mainly three types of costs that have used in the manufacturing the products. These costs are labor costs, material costs, and overhead costs. Labor costs are the compensation that given by the company to labor who produces the products. Further, the material cost associated with the raw material that used to make the final product. Overhead costs that associated to the manufacturing process excluding the labor and material costs (Farahani, et al., 2014). In the given case study, there are different cost related to the raw material inventory, work in process and finished goods and services. Besides this, to keep the volume of inventory, the company has hired the warehouse space in the rent. It is stated that high production costs affect the company’s profitability and demand.
Further, there are several factors that can affect the profit of the company such as high fixed and overhead cost (Dekker, et al., 2012). As a result, ‘the new builders’ kitchen line has negative effects on Hawkesbury Cabinet’s operations due to obtaining higher production cost.
Another issue that faced by Hawkesbury Cabinets is, both products (i.e. Custom built kitchen cabinetry and standardized kitchen cabinetry) takes a long time from initiation to completion of the production process. Additionally, the current operation system of Hawkesbury Cabinets is slow down because there is no space in the lodge for expansion. Therefore, it has a negative impact on the revenue and cash flow of the company.
Hawkesbury Cabinets can use the different methods to decline its products costs. These techniques are optimization of the production process, optimize the workforce, monitor and manage the energy consumption, manage the inventory carrying cost, and consider the management of transportation and freight (Robinson, 2014). Moreover, to reduce the inventory cost, the company can use different techniques such as just in time inventory management practices, reduce the lead time, and reduces the surplus inventory by selling it to other companies, and endorse and sell at the discounted prices.
Hence, it is stated that optimization of production process effective to manage the scheduling trade-offs of the production activities to the Hawkesbury Cabinets. Moreover, just in time inventory management practices is used to provide right material on right time and at the right place that helps to decline the unnecessary cost incurred on inventory (Serdarasan, 2013).
Though, sales of both products (i.e. custom build kitchen cabinetry and standardization kitchen cabinetry) have increased but still company unable to obtain expected profit margin. Hence, it affected the financial structure of the company. There is a various cost involved in developing the builder’s line that affected the profit margin. Due to higher demand, the company has need for more tools and machinery in order to manufacture more products. For procuring the machinery, the company needs more capital. Therefore, Hawkesbury Cabinets assess the different sources of finance to get the funds (Bhamu and Singh Sangwan, 2014). Consequently, it has an impact on the financial statement of the company such as increases the liabilities in the balance sheet and also increases the cash inflow in the cash flow statement.
Hawkesbury Cabinets has required more working capital to run the day to day activities and to expand its operating activities. In addition to this, maintenance cost has raised that has a negative impact on its revenue. Consequently, it can decline the market share of the company. On the other side, Hawkesbury Cabinets move to producing builders’ kitchens that might have an impact on the company’s financial structure (Dima, 2013). Because there is high cost to move so, the company needs to obtain sound working capital in order to meet the short run and long run financial objectives.
From the above analysis, it is summarized that Hawkesbury Cabinets uses high quality raw material and craftsmanship in its production system and process. Furthermore, this company faces several operational issues in new builder’s kitchen line such as high cost involved to obtain the raw material, work in process and finished goods and another issue is increased lead time. Hence, profit margin has declined (Hill and Hill, 2012). Moreover, it is concluded that Hawkesbury Cabinets’ move to producing the standardized kitchen cabinetry will have impact on the financial structure of the company like it needs to obtain more capital from different sources of finance in order to expand the operating activities.
Bhamu, J., and Singh Sangwan, K. (2014) ‘Lean manufacturing: literature review and research issues’, International Journal of Operations & Production Management, 34(7), pp. 876-940.
Dekker, R., Bloemhof, J., and Mallidis, I. (2012) ‘Operations Research for green logistics–An overview of aspects, issues, contributions and challenges’, European Journal of Operational Research, 219(3), pp. 671-679.
Dima, I. C. (2013) Industrial production management in flexible manufacturing systems. USA: IGI Global.
Farahani, R. Z., Rezapour, S., Drezner, T., and Fallah, S. (2014) ‘Competitive supply chain network design: An overview of classifications, models, solution techniques and applications’, Omega, 45, pp. 92-118.
Hill, A., and Hill, T. (2012) Operations management. UK: Palgrave Macmillan.
Jane, M. (2016) What Are the Three Types of Costs Used in Manufacturing Products? [Online]. Available at: http://smallbusiness.chron.com/three-types-costs-used-manufacturing-products-20588.html (Accessed: 29 August 2016).
Oliveira, T., Thomas, M., and Espadanal, M. (2014) ‘Assessing the determinants of cloud computing adoption: An analysis of the manufacturing and services sectors’, Information & Management, 51(5), pp. 497-510.
Robinson, A. (2014) 6 Ways to Lower Your Manufacturing Costs to Gain a Competitive Edge. [Online]. Available at: http://cerasis.com/2014/08/20/manufacturing-costs/ (Accessed: 29 August 2016).
Serdarasan, S. (2013) ‘A review of supply chain complexity drivers’, Computers & Industrial Engineering, 66(3), pp. 533-540.
Tako, A. A., and Robinson, S. (2012) ‘The application of discrete event simulation and system dynamics in the logistics and supply chain context’, Decision support systems, 52(4), pp. 802-815.
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