Five Star Case Analysis

Case 7-2 Five Star Tools

Sam Saman

Executive Summary

Five Star Tools is a family-owned firm that manufactures diamond-coated tools (chisels and saws) used by jewelers.  Tools are produced utilizing a 3 step process.  In the past two years, the company has experienced significant growth and growing pains, and has reached its capacity in the coating and sharpening process, causing them to miss deadlines on orders from several important customers.

Overview  

Maxfield Turner, the president of the company, and Betty Spence, vice president of marketing, distribution discuss the missed deadlines and production constraints.  During their meeting Betty states that they should stop accepting any new orders they can’t fulfill or they will develop a bad reputation as an unreliable supplier.

Maxfiled, thinks that they should review all their products offerings. Focus on the products that exceptionally profitable and drop some of the less profitable products.  He wants the accounting department to prepare product profitability analysis to determine potential impact of eliminating less profitable product offerings.

Issues Addressed

Five Star Tools as to identify what is causing the bottlenecks in their coating and sharpening operation that are causing them to miss deadlines on customer orders.

Suggested Resolution

There are several steps that can be taken to help elevate and loosen the constraints in coating and sharpening.  These may include:

• Five Star should add an inspection station before the coating and sharpening process, so valuable time is being utilized to work on defective units.
• Seeks a third party or subcontractor to absorb some of the internal work performed by the coating and sharpening department.
• Review the coating and sharpening process to determine if their more efficient ways perform the process.
• Replace outdated machinery and replace with the latest technology in machinery
• Implement a cross training program within other departments to help out and elevate the pressure in the coating and sharpening process.

Model C210 should emphasized if the constraint in coating and sharpening cannot be loosened.  Model C210 produces $1,250 per hour in incremental profits compared to $537.50 produced by Model D400

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Conclusion

If Five Star management was able to minimize the constraints to gain an additional hour of production time.  They would gain an additional $1,250 of profit focusing only on Model C210.