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## SUPREME INC OPERATIONS CASE Solution

Introduction

In this report, we attempt to analyze and evaluate the change in the manufacturing strategy of Supreme Incorporation. Supreme Incorporation has shifted its manufacturing strategy from in-house manufacturing to buying most of the subassemblies and building the subassemblies to customers’ order. The sales of the company had reduced and the volumes were also expected to reduce significantly in the future therefore, in order to increase the profitability, decrease the prices and maintain the same volume, the management of Supreme Inc has implemented the new strategy. The new manufacturing strategy had been approved in September of 2004 and the first build to order shipments had been scheduled for January 2005. My job, being a financial analyst for Supreme Inc, is to report to the controller about the performance of the company because of the change in this strategy.

Case Analysis

First of all, we begin with the computations of the indices for all the costs incurred during the manufacturing of the subassemblies.

Labor, Material & Total Productivity Indices

The labor, material and total productivity indices have been computed in the excel spreadsheet. These are presented in the table below for each month:

 INDICES Period Labor Material Total Productivity Jan-04 3.97 2.40 1.08 Feb 4.03 2.45 1.09 Mar 3.85 2.43 1.08 April 3.91 2.36 1.06 May 3.79 2.43 1.08 June 3.62 2.40 1.05 July 3.68 2.45 1.07 Aug 3.79 2.31 1.04 Sept 3.62 2.34 1.03 Oct 3.33 2.29 1.00 Nov. 3.29 2.17 0.96 Dec 3.25 2.08 0.94 Jan-05 4.90 1.60 0.92 Feb 5.32 1.67 0.96 Mar 7.14 1.68 1.01 April 8.06 1.74 1.04 May 8.33 1.71 1.05 June 8.06 1.70 1.03 July 8.62 1.69 1.04 Aug 8.62 1.69 1.04 Sept 8.06 1.67 1.02

Table 1: Productivity Indices

Line Graph for Indices

The line graphs for each of the three indices are shown below:

Labor Indices Graph

Material Indices Graph

Total Productivity Indices Graph

Comparison of Productivity Indices

The comparison of the 3 productivity indices for the whole of 2004 has been performed with only 3 months of 2005, which are July-September. The comparison and the change in percentage for each productivity indices are shown in the table below:

 3 INDICE AVERAGES 2004(12 months) 2005 (3 months) Percentage Change 3 INDICE AVERAGES) Labor 3.68 8.44 129.42% Material 2.34 1.68 -28.25% Total Productivity 1.04 1.03 -0.71%

a).

It could be only seen that the labor productivity index has increased and the other two have decreased. The percentage change for labor, material and total productivity indices are 129.42%, -28.25% and -0.71% respectively.

b).

We have used only 3 late months for 2005 for comparison purposes because, the new manufacturing strategy had been just approved in September of 2004, however the first build to order shipment had been made in January 2005. This means that the effect of the new manufacturing strategy could be realized over the couple of months ahead of January 2005. The effect of new strategy would be clear for the late 3 months of 2005 therefore, we have used July-September of 2005 for comparison purposes.

Management Strategy Evaluation

If we evaluate the overall change in the management strategy, then the new strategy has delivered improvements and this is evident by the increases in the sales in 2005. For instance, the sales in September 2005 are \$ 301,000, which are all time high sales for the company. Moreover, if we compare the trends or patterns of change for each of the three indices, then their performance is as follows:

Labor Productivity: The labor productivity has increased because the labor index has increased in 2005 as compared to 2004. The change is positive, which means labor productivity improved in 2005. This might be because as the new strategy is implemented, the company would have implemented the personnel layoff plans in 2005. Therefore, as the labor hours decreased, the total labor costs would have also decreased and as a result, the labor productivity increased.

Material Productivity: The material productivity has decreased because the material index has decreased in 2005 as compared to 2004. The change is negative which means material productivity decreased in 2005. This is because the part of the new manufacturing strategy was to build the final products based on the customer order. This means that the customers would have different requirements and the material costs will have to vary. Overall, the costs of materials have increased. For instance, if we look at the historical trend of material costs, then it started to increase rapidly in 2005. This resulted in a decline in material productivity...........................................................................

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