Five Star Tools Case Study

Executive Summary

Five Star Tools is a small business which produces diamond-coated cutting tools. In the past couple of years the company has become constrained by means of capacity of production with regards to their most profitable line of business. They have outgrown their current process and need to create a new process by which they can produce more.

Analysis

Betty Spence, VP of marketing is concerned that they might need to turn away customers in light of saving their brand name in the marketplace. Maxfield Turner, founder of Five Star Tools, believes that the solution is not turning away business, rather becoming more efficient in coating and sharpening. They must begin the process by identifying the constraint of coating and sharpening and figure out a way of freeing up more production time. In our analysis we would want to follow these guidelines from Goldratt's Theory of Constraints.

• IDENTIFY the system's constraint.

• Decide how to EXPLOIT the system's constraint.

• SUBORDINATE everything else to the above decision.

• ELEVATE the system's constraint.

• If in the previous step the constraint has been broken, go back to Step 1.

Maxfield Turner has identified the "bottleneck" or constraint at hand. We can now begin step two of deciding how to exploit the constraint.

To free up time, management plans on forming a separate inspection station that will allow for an additional 240 hours of coating and sharpening. Five Star will need to decide which model has the highest contribution margin per hour. This is done by dividing the contribution margin by time used to produce. In performing this analysis we find