Case Study 1 – Arva Furniture Ron Hill and his wife Debora have are the founders of Arva Furniture, a small-sized compan
Posted: Wed Jul 06, 2022 6:16 am
Case Study 1 – Arva Furniture
Ron Hill and his wife Debora have are the founders of ArvaFurniture, a small-sized company in Arva, north of London Ontariothat produces wooden yard and patio furniture. Since itsestablishment in 1975, they have had small orders from ruralretailers, which they have managed with their existing equipmentand staff. A close church friend introduced Ron to Larry Maywho was visiting his sister in Arva during the Christmas holidays.Larry is a major maintenance contractor for parks and recreationfacilities of many municipalities in Southwestern Ontario. Thesocial conversation between Ron and Larry soon led to a businesstalk ending in Larry visiting Arva Furniture workshop. Impressed bythe quality of their products, Larry told Ron and Deborah that atthe right price he would like to sign a one year contact foran order of 500 benches to be delivered in the following yearpending on two conditions: a) the shape of bench legs are slightlychanged as per his ordered, b) the bench legs are made of treatedmaple. He also mentioned that if the order is handledsatisfactorily it might be repeated in the future. While theywelcomed this business opportunity, Ron and Debora requested a weekto evaluate the offer before signing the contract. Larry agreed ashe was planning to stay in Arva for ten days.
Next morning at breakfast Debora found Ron quiet and worried soshe asked him if it was because of this new business offer. “Idon’t know, Deb”, Ron said “it is a heck of deal for us, but I amworried because delivering 500 benches a year with the specs Larrywants could be challenging! I am not worried about timelyproduction and delivery of this order over a year, but we need tobe very careful about ordering the material because we cannotafford to put a lot of money in our inventory. What’s more, we mayneed to buy new machinery to do the custom cutting of the benchlegs as per order specs!” Debra suggested they talk to theirforeman, Alex to evaluate the operational challenges they may face.They called Alex to inform him of the offer and asked him to meetthem the next day so that they could discuss it.
In their next day meeting Alex outlined two concerns with thenew order: 1) timely ordering of the new material (treated maple)for the bench legs to minimize inventory cost, prevent interruptionin production and hinder delivery of benches and b) the newcutting/shaping of the legs that introduces changes in process. “Ilet you look after the ordering, Debora, but for the new legs weneed to revise our equipment a bit. Alex believed the company hadthree options: a) buy and refurbish a used multi-purpose saw at acost of $60,000, b) add some new blades matrices to their existingtable saw at a cost of $ 90,000 or c) buy a new computerizeduniversal table saw at a cost of $100,000. The three options wouldbe associated with $120, $90 and $60 in operating costs (labor,inventory and maintenance) per bench respectively. Examiningtheir suppliers and their ordering practice Debora estimated $2(per leg set) for carrying the new material as it has to be keptunder indoor condition (temperature/moisture controlled warehouse)and the best supplier she found would charge $40 admin fee perorder. She intuitively figured with an expected $ 100,000 profitthey should be able to handle this order and conducting the rest oftheir business as usual.
With the above information Ron and Debora have hired your groupas consultants to help them with the following:
Would your recommendations on machinery change if the order sizedoubles? How and why?
Also, provide the following:
1) Synopsis and Challenges
2) Analysis and Solution
3) Conclusion and Reccomendation
Ron Hill and his wife Debora have are the founders of ArvaFurniture, a small-sized company in Arva, north of London Ontariothat produces wooden yard and patio furniture. Since itsestablishment in 1975, they have had small orders from ruralretailers, which they have managed with their existing equipmentand staff. A close church friend introduced Ron to Larry Maywho was visiting his sister in Arva during the Christmas holidays.Larry is a major maintenance contractor for parks and recreationfacilities of many municipalities in Southwestern Ontario. Thesocial conversation between Ron and Larry soon led to a businesstalk ending in Larry visiting Arva Furniture workshop. Impressed bythe quality of their products, Larry told Ron and Deborah that atthe right price he would like to sign a one year contact foran order of 500 benches to be delivered in the following yearpending on two conditions: a) the shape of bench legs are slightlychanged as per his ordered, b) the bench legs are made of treatedmaple. He also mentioned that if the order is handledsatisfactorily it might be repeated in the future. While theywelcomed this business opportunity, Ron and Debora requested a weekto evaluate the offer before signing the contract. Larry agreed ashe was planning to stay in Arva for ten days.
Next morning at breakfast Debora found Ron quiet and worried soshe asked him if it was because of this new business offer. “Idon’t know, Deb”, Ron said “it is a heck of deal for us, but I amworried because delivering 500 benches a year with the specs Larrywants could be challenging! I am not worried about timelyproduction and delivery of this order over a year, but we need tobe very careful about ordering the material because we cannotafford to put a lot of money in our inventory. What’s more, we mayneed to buy new machinery to do the custom cutting of the benchlegs as per order specs!” Debra suggested they talk to theirforeman, Alex to evaluate the operational challenges they may face.They called Alex to inform him of the offer and asked him to meetthem the next day so that they could discuss it.
In their next day meeting Alex outlined two concerns with thenew order: 1) timely ordering of the new material (treated maple)for the bench legs to minimize inventory cost, prevent interruptionin production and hinder delivery of benches and b) the newcutting/shaping of the legs that introduces changes in process. “Ilet you look after the ordering, Debora, but for the new legs weneed to revise our equipment a bit. Alex believed the company hadthree options: a) buy and refurbish a used multi-purpose saw at acost of $60,000, b) add some new blades matrices to their existingtable saw at a cost of $ 90,000 or c) buy a new computerizeduniversal table saw at a cost of $100,000. The three options wouldbe associated with $120, $90 and $60 in operating costs (labor,inventory and maintenance) per bench respectively. Examiningtheir suppliers and their ordering practice Debora estimated $2(per leg set) for carrying the new material as it has to be keptunder indoor condition (temperature/moisture controlled warehouse)and the best supplier she found would charge $40 admin fee perorder. She intuitively figured with an expected $ 100,000 profitthey should be able to handle this order and conducting the rest oftheir business as usual.
With the above information Ron and Debora have hired your groupas consultants to help them with the following:
Would your recommendations on machinery change if the order sizedoubles? How and why?
Also, provide the following:
1) Synopsis and Challenges
2) Analysis and Solution
3) Conclusion and Reccomendation