Kristen’s 4-hour night.We can see that the
Kristen’s Cookies Case What are the order winners and Qualifiers for Kristen’s Cookies? Kristen’s Cookies is conveniently located on campus and will cater to hungry students late at night.
The company will not only let the students customize their cookies, but also bake them fresh. Students will have a wide variety of ingredients to choose from and this bake to order concept will ensure that cookies are to consumer’s liking. Based on this model, order qualifiers are the physical location of the company and the order winners are the unique and freshly baked cookies.Assuming all orders are for one dozen cookies, how long will it take you to fill the first order of the night? For one dozen cookies, ignoring the requirement of preheating the oven, it will take twenty-six minutes to fill the first order of the night.
Reference Exhibit A. If you make a mistake on a batch of cookies, how long will it take to make a new order? The amount of time to make a new order will depend on where in the process a mistake is made. For instance, if a batch is dropped before the baking process, the batch will take an additional 8 minutes to be mixed and spooned again.
If the cookies are burnt or dropped coming out of the oven, then the additional time will be 18 minutes. However, if a mistake is made during the cooling steps, the entire process has to be started again and will take the entire 26 minutes. How many orders can you fill in a night assuming you are open four hours each night? What is the bottleneck? Should you use a capacity cushion? Kristen’s Cookies can fill 22 orders when running at full capacity during a 4-hour night.We can see that the upfront setup time to prepare the first order is 8 minutes before baking, while the first order is baking, subsequent orders can be processed. For the first batch, the initial step of mixing and spooning takes 8 minutes. While this first order is baking, subsequent orders may begin to be processed.
Once the first order is done baking, we are immediately ready to put the next order in the oven. This follows for all subsequent orders. Essentially, this means that after the initial 8 minutes a new order comes out of the oven every 10 minutes.While an order is baking (1+9= 10min), the previous order can be cooled, packed and paid for (5+2+1= 8mins).
This continues until the last order comes out of the oven. At this time, we need an additional 8 minutes (5+2+1=8mins) to complete the last order. So, this gives us a general formula of 6+2+(1+9)*n+5+2+1, this simplifies to 16+10n. This formula gives us the time it takes to process n orders. If we know we are open for 4 hours or 240 minutes, then we can solve for 16+10n=240mins, or n=22 orders (rounding down since fractional orders do not count as processed).Washing and Mixing| 6 minutes| Spooning| 2 minutes| Setting thermostat and Baking| 10 minutes| Cool off| 5 minutes| Pack| 2 minutes| Accept Payment| 1 minute| Total Time| 26 minutes| So, total time per order is 26 minutes for 1 dozen cookies, however, subsequent orders can be started in parallel to the first order. This is shown in exhibit A, which shows orders x,y, and z and the stages of the cookie baking process at any given time.
Reference Exhibit A The bottleneck is the oven, which can only bake one dozen cookies at a time.While maximum capacity is 22 orders for every 4 hour shift, given this is a start-up business and one driven by students where demand on some evenings of the week may be predictably higher or lower than other evenings, a capacity cushion should be used. Average utilization for any given resource is never 100% and although it may happen from time to time, it probably would not be true for this cookie venture — orders just won’t come in every 10 minutes on a routine or timely basis per the production schedule nor would you always receive 22 orders for every shift.Also, if any given batch of cookies were to burn, be dropped when removed from the oven, or suffer any other catastrophic failure in the process, without a capacity cushion in place there is zero buffer and you will absolutely need to meet the demands of 22 orders a shift. Capacity cushion = 100% – Average Utilization Rate (%) Given this is a small business with low capital intensity and only a 4-hour shift each night, a minimum of 10% cushion should be initially used to calculate capacity. That would place the capacity for cookie orders at closer to 20 dozen per shift.How much of you and your roommate’s time will it take to fill each order of one, two, or three dozen cookies assuming that all orders are for the respective order size? If all orders were for the respective order size of one, two, or three dozen cookies AND were all for the same specific type of cookie within a given order, then the mixing process would be the same, whether one, two, or three dozen cookies were ordered at a time because the mixing for the total number could be done at the same time.
The 9 minutes for the baking and 5 minutes for the cooling can be taken out from the total 26 minutes and that would leave the time spent by Kristen and her roommate on the rest of the steps. Process steps that require manual intervention| Time per 1 Dozen (min)| Time per 2 Dozen| Time per 3 Dozen| Washing and Mixing(Kristen)| 6| 6 (2 dozen can be mixed at the same time)| 6 (3 dozen can be mixed at the same time)| Spooning(Kristen)| 2| 2+2| 2+2+2| Setting temp(roommate)| 1| 1+1| 1+1+1| Packing(roommate)| 2| 2+2| 2+2+2| Payment(roommate)| 1| 1| 1|Total| 12 min| 17 min| 22 min| In a 4 hour shift, if 20 orders of 1 dozen cookies came in, Kristen would be working 160 minutes (8 minutes * 20 dozen) while her roommate would be working only 80 minutes (4 minutes * 20 dozen). Kristen would be working 67% of the 240 minutes during a 4 hour shift and her roommate would be working 33% of the time. In a 4 hour shift, if every order was for 2 dozen cookies, Kristen would be working 100 minutes (10 minutes for every 2 dozen * 10 batches of 2 dozen) but her roommate would be working 70 minutes (7 minutes * 10 batches of 2 dozen).Kristen would be working 42% of the 240 minutes during a 4 hour shift while the roommate worked 29%.
In a 4 hour shift, if every order was for 3 dozen cookies (and presuming they were running at maximum capacity with no cushion and the total orders for the evening was 7 orders of 3 dozen cookies or 21 dozen cookies), Kristen would be working 84 minutes (12 minutes * 7 batches of 3 dozen) while her roommate still worked only 70 minutes (10 minutes * 7 batches of 3 dozen). Under this final scenario, Kristen would be working 35% of the 240 minutes during a 4 hour shift while her roommate still worked 29% of the time period.This is the only scenario that begins to show closer parity between the amount of labor spent by each individual on this business venture.
Assuming you are not at capacity, what type and how much of a discount would you use to increase demand? At a price point of $5. 00 per dozen, it would be difficult to discount the cookies any further. $6. 00 per dozen may be a better price point for the cookies, which equates to $. 50 per cookie.
This pricing would be solely based on demand by students. Pricing at $6. 0 per dozen would allow more room for discounting and also would cushion the profitability. It may be beneficial for Kristen’s Cookies to allow for customers to prepay online, which may eliminate 1 minute on orders for paying.
Also, they could allow customers to provide requested times to have orders ready and allow them to be ordered in advance by up to 24 hours. This would enable Kristen’s cookies to mix and spoon dough during slower traffic times. Essentially, it would help significantly with scheduling. Given a $6. 00 per dozen price point, and a $4.
0 per dozen break even, Kristen’s cookies could easily give a discount of up to $1. 00 per dozen and still turn a profit on each dozen. Giving discounts on ordering in advance by more than 2 hours would not only help scheduling, but could be a way to offer a discount to customers for doing so. Given a $5.
00 price point, they are much more restricted in their discounting. What is the effect of adding another oven? How much would you be willing to pay to rent an additional oven? The effect of adding an additional oven seems to be insignificant.With the current operations, the bottleneck is the oven, which allows for 20 dozen cookies in a 4 hour shift including a 10% cushion. By doubling the oven capacity, the logical conclusion would be that our total orders would be doubled as well.
This, however, is not the case because after the oven is added Kristen’s mixing and spooning step would quickly become the bottleneck in the operation. Given 240 minutes in a shift and 18 minutes to finish the last batch after being mixed and spooned, Kristen can only mix and spoon 27 whole batches in a 4 hour shift (240-18)/(6+2)=27.With a 10% buffer, the total number of batches would become 24 batches.
Because the maximum production of batches is only 4 more after adding a second oven, the cost of adding a second oven seems not to be a wise financial decision. So, the question becomes, is the rental of the second oven worth the potential income of 4 dozen more cookies? Presuming that Kristen and her roommate are paid $10/hour for their labor (MA minimum wage is currently $8/hour), labor costs are $80 per shift. Add to that the cost of ingredients and packing box ($. 0 + $.
10) per dozen, the following table represents total costs per dozen cookies with 1 oven versus 2 ovens. | Capacity| Ingredients + box Costs($. 60 + $. 10) per dozen| Labor Costs| Total Costs| 1 oven| 20 dozen (22 dozen – 10% capacity cushion)| $14. 00| $80.
00 ($10/hr *2)*4 | $94. 00| 2 ovens| 24 dozen (27 dozen – 10% capacity cushion)| $16. 80| $80.
00 ($10/hr *2)*4| $96. 80| Break-even indicates the cost of cookies is at least $4. 70/dozen with only 1 oven baking at a time and $4. 03 if two ovens are baking.Presuming $5/dozen was the amount charged, profits earned for a 4 hour shift (beyond costs listed above) would be $6 with 1 oven and $23.
28 with 2 ovens. However, with the 2 oven scenario an oven rental cost would be added. Given this new profit margin, it might be better (cheaper) to buy that second oven! That said, a rental could be used for 1 month @ $100/month and a second oven could then be purchased at the end of the month out of the profits earned utilizing 2 ovens vs. 1. (Profits for 30 shifts = (30*$23. 8)-$100 oven rental or $598. 40).
Alternatively, 1 oven would net $180 in profit for the month with no oven rental costs. Although it seems that 1 oven is the safe way to go, by buying a second oven the profits for the month would be $518. 40 more with a second oven, and assuming that the oven is purchased outright and not leased.
But, technically, you could rent the oven for up to $518. 40 per month and still be more profitable than operating with one oven. Of course, selling the cookies at $6. 00 per dozen would net even higher profits.Kristen thinks she may be better off running the business alone, what is the affect of Kristen firing her roommate? Assuming one dozen orders, how many orders can Kristen complete on her own? Would you recommend that Kristen work alone? Given that Kristen has one oven currently and can only bake one dozen cookies at a time, she can run the business alone without impacting the number of orders. The time spent on baking is 9 minutes itself and while the cookies are baking, she can wash/mix and spoon the next order on to the cookie tray and get it ready for bake.
The washing/mixing and spooning only takes 8 minutes. Because of this, she can work alone and does not need roommate’s help (lowered labor costs) and keep all the profits to herself. However, if all orders coming in were for only 1 dozen, this would represent a 100% labor effort with very little capacity cushion on Kristen’s part.
While she could take this on by herself, recommending that she do so would be fraught with potential problems in true production capacity and also leave zero room for potential growth in her business.The bottleneck in this scenario is Kristen. Without a roommate, the entire process for one dozen cookies would slow down. She would be able to complete the washing, mixing, and spooning (8 minutes) while another dozen cookies was being baked, but would need to set the oven, pack the cookies, and take payment as well.
This is 4 additional minutes outside of the current bottleneck of the oven’s 10 minutes. Because there are not 2 people to do these tasks concurrently, the entire process will take longer. Kristen will become the bottleneck.How should Kristen plan on scheduling orders on a day to day basis? Kristen promises 60 minute delivery. How does it affect scheduling? With both workers, can Kristen keep this promise? Should she keep this promise? Kristen should take orders on a first come first served basis.
Her promise of 60 minute delivery when she has only 1 oven and can only produce 4 dozen cookies in the first hour and 6 dozen in each subsequent hour (without a capacity cushion), is an unreasonable promise that she may be unable to keep on a consistent basis.For example, if orders for more than 4 dozen cookies came in within the first 10 minutes, Kristen would be unable to fulfill this promise and the shift would only decline in her ability to keep that promise as it progressed through the evening. Even with two workers, the constraint of 1 oven dictates a potential problem in making/keeping a 60 minute delivery promise. Kristen should not make this promise to her customers. Exhibit A Each row is a step in the cookie-making process as follows: Step 1: Mixing (6 mins) Step 2: Spooning (2 mins) Step 3: Set the thermostat (1 min) Step 4: Baking (9 mins)Step 5: Cooling (5 mins) Step 6: Packing (2 mins) Step 7: Payment (1 min) Note that Steps 4 and 5 do not consume a person’s time. All other steps consume a person’s time. Each column on the table represents a minute of time (according to the column header), and each order (x, y, z) is marked at where it is in the cookie-making process – “where” meaning (time, step) coordinates on the table.
From mins. 1 through 6 order x is in washing and mixing stage. While order x is being spooned and baked, washing and mixing is underway for order y from min. 7 through 12.