Plastech, Inc.
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Chung Ngoc Hieu – Mai Thanh ThaoCASE STUDY /P.429 PLASTECH, INC.[pic 1]SummaryPLASTECH, INC.Plastech was a producer of plastic pellets for use as raw material in molded plastic products. It was primarily a ser ice firm. Its niche was that it has the speciali!ed e”uipment and e#pertise for $lendin% a ariety of in%redients.It operated si# machine&paced $lendin% lines which had feedin% hopper, $lendin% machine, water $ath, and pelleti!er. thers two lines had additional speciali!ed e”uipment to properly handle ha!ardous chemicals.The orders were in small “uantities $ecause customers did not want to (eep hi%h in entory. Thus, that necessitated relati ely small production $atch si!es and a lar%e num$er of setups. In )**+, the a era%e $atch si!e was ) ,— pounds and there were +- setup. The a era%e setup time was + hours.In )**+, it lost + si%nificant customers which comprised /0 total pounds of the plastic. Plastic then de ised a new mar(etin% strate%y see(in% additional wor( from all of its e#istin% customers and $roadenin% its product line.To meet the challen%es arose in )** , a third shift was added to meet the increase in production and setup olume.Althou%h the firm had increased re enue +-0, the profit were down 1 0 from fiscal )**+.Smith, operation mana%er, wanted to find out the reasons for this.Question 1: Which factors contributed to the decline in profits?Answer:[pic 2]The factors contri$uted to the decline in profits21. T e e!”ense #$ %&re( )a*#r &nreas&n+The e#pense of direct la$or increased from ) .10 to )1.30. The direct la$or was resposi$le for all production and setup. And it ali%ned with the addition of the third shift.Pa%e ) of 1Chung Ngoc Hieu – Mai Thanh ThaoIn fiscal year )**+, )** we can see the details of some fi%ures as follow2The e#pense of direct la$or in fiscal yearE45L6)**+ 7 3+1,—8 ,3/ ,+11 7 ) .10E45L6)** 7 9*+,—8 ,+1 ,+11 7 )1.30Another way to see the increasin% of e#pense of direct la$or in fiscal year is computin% it on eachunit $y de i ed with production.E45L6)**+ 7 3+1,—8 ,)* ,+1- 7 -.)+/E45L6)** 7 9*+,—83,-/*,)9 7 -.)3/2. T e se))&n+ e!”enses &nreas&n+The sellin% e#penses increased from ++.*0 to +9.*0.In fiscal year )**+, )** we can see the details of some fi%ures as follow2The sellin% e#penses in fiscal yearE4S6)**+ 7 1)*,91/8 ,3/ ,+11 7 ++.*0E4S6)** 7 ),)**, //8 ,+1 ,+11 7 +9.*0r we can see the chan%e $y de i ed the sellin% e#penses with production.E4S6)**+ 7 1)*,91/8 ,)* ,+1- 7 -.)*3E4S6)** 7 ),)**, //83,-/*,)9 7 -.+ 9. A-era+e sa)es “r&e %r#””&n+A era%e sales price droped a little from -.13- to -.1 3. As a result, the net profit after ta#es feltthe amount of :+3, / in )** .[pic 3]
Conclution2The increasin% in direct la$or and sellin% costs and the decreasin% in sale price are the reasons e#plain for the decline in profits.Question 2: What did Lincoln Smith find when he computed the direct and indirect laborproductivity figures?Answer:[pic 4]In fiscal year )**+, )** we can see the details of some fi%ures as follow2 ;atio of producti e time to total time in fiscal yearPa%e + of 1Chung Ngoc Hieu – Mai Thanh Thao;)**+ 7 )/, +-8+ ,— 7 /10;)** 7 )1, /-8 /,— 7 3)0The ratio $etween direct > indirect la$or producti ity as follow2 5irect la$or producti ity)**+ 7 3+1,—8)13,— 7 +.13[pic 5]Indirect la$or producti ity5irect la$or producti ity[pic 6] )** 7 9*+,—8+++, +9 7 .3/Indirect la$or producti ityThe differential amount is -.9)[pic 7]Linlcon Smith sees the increasin% num$er of direct la$or producti ity from 3+1,— to 9*+,—? 06. The indirect la$or producti ity increases )90. Pa%e of 1Chung Ngoc Hieu – Mai Thanh Thao[pic 8]QU S!”#$ %: “dentify and describe the root cause of the decline in operating profits&ecommend a plan of action for plastech&Pa%e of 1Chung Ngoc Hieu – Mai Thanh ThaoThere are three pro$lems which ma(e operatin% profit is down2 ). Low %ross profit mar%in+. Poor e#pense control. Insufficient re enue olume 5etails21. L#w +r#ss “r#$&( mar+&n 1992 199 0In )**+, the annual %ross profit is ),9-*, +1:, and in )** , the %ross profit is increasin% than last year + ,*// 4 ) 06. @ut, if we ta(e a loo( in the total percenta%e, this alue will $e minus.