Introduction Artemis Sportswear Company (ASC) is a newly established company that is proving to be a competitor in the distribution of athletic gear throughout the United States. ASC board members have determined that there is a need to increase profit margins to allow for expansion of the company to meet an increased demand. Increasing costs of their products is out of the question, cutting operational costs is the only solution.
Background
In an industry saturated with aggressive competition, it is vital for any business to take strategic measures to ensure that the business sustains itself into the future. ASC has proven itself to be the rising star in the sportswear market by making its mission "To be a leading provider of athlete-oriented apparel through innovation, design, and passion." Since ASC was founded in 2009; the company has managed an aggressive acquisition of market share. The steady increase for product demand has enabled the company to start expanding its enterprise to meet the market demand and remain competitive. ASC has decided it is imperative to generate the capital in anticipation of this expansion.
This case study reviews the current condition of the sportswear industry and identifies solutions to increase profit margins for ASC by restructuring operational expenses. An examination of the sportswear market will identify the sectors with the most potential for long-term revenue generation. With the market data, a strategic approach can be implemented to adjust the operational processes with the goal of achieving effective increases in the profit margins. This report will focus on the central issues of streamlining the operational processes on profit margins, productivity, and the workforce in order to facilitate the long-term sustainability and competitiveness of ASC.
Through this study, the most profit-sustainable market sector is identifiable. Strategic advices to aid the company in attaining sustainable long-term profits, through the streamlining of the operational processes, are proposed. This study will close a subjective analysis and conclusion on the subject, which will include the limitations of the theories that have been used in this study.
Key Problems
Upon initial review by the team of specialists brought in by Phoenix Enterprise Consultants, Inc., one of the main issues observed; Artemis is not operating at an efficient or competitive level in comparison to it's closest competitors. The fundamental problems that have been identified and need to be addressed before ASC can see an increase in profit margins consist of the following elements: * Streamlining the manufacturing process * Seasonal labor cost
Streamlining the Manufacturing Process
According to the market research conducted by the team of specialists, Artemis' closest competitor, Adidex, is on pace to closing the retail revenue gap with ASC within two years. The results for Adidex in Q3 of 2013 show a $5.85 billion revenue which is on pace for them to close the fiscal year at $7.0 billion. Adidex has shown 22% increase in revenue over the past two years. In comparison, ABC has shown a 34% increase in revenue in the past four years. ASC is being challenged as a leader in the sportswear market. In order to mitigate this development, fundamental changes have to be made in the manufacturing process to reduce operational expenses and increase revenue.
Seasonal Labor Cost
The athletic gear market fluctuates on a seasonal basis. All sports are played during certain seasons, and some sportswear is not in demand year-round. During these breaks between seasons, it is difficult to maintain a full workforce. Hours for each employee are reduced causing many to seek full time employments elsewhere. It is also extremely costly to maintain compensation and full benefits when there is a high turnover of employees during the slow portions of the season.
Historically, employees will seek new employment when their hours are cut due to down-time. Some employees will be resistance to changes in current processes. When employees walk away from the job, it creates a demand on the remaining workforce to work additional hours, creating overtime costs. A reduction in a permanent workforce will also affect the success of a new lean process. In most cases, it is the employees that are getting the higher salaries who stay employed with the company which creates higher expenses by having to pay them overtime.
When considering the cost of a direct hire employee on a part time basis, costs additional to basic wages can be extensive. The budget must include allowances for Social Security which is 6.2 percent on the first $90,000 of salary ("Social Security"). Unemployment cost is 6 percent of the first $7,000 of salary ("Unemployment Insurance Tax Topic"). If there is a high turnover rate with numerous unemployment compensation claims, the cost of unemployment insurance increases. Workman’s compensation premiums are higher for those working in a manufacturing environment which is where the highest turnover. Workman’s compensation claims are higher where a high turnover rate occurs due to lack of consistent training. These costs are a minimum to consider when hiring an employee direct.
Additional costs to consider are for benefits offered to employees which include life insurance, health coverage, short and long term disability insurance, dental plans, and retirement plans. Additional human resource personnel must also be hired to find new employees, track their benefits and compensation, train and orientate new personnel, and respond to unemployment and workman’s compensation claims.
Solutions
There are feasible options to solve these problems. The team brought in by Phoenix Enterprise Consultants conducted extensive research to determine the most effective solutions so that ASC will remain a leader in the sportswear industry. Streamlining the Manufacturing Process
A comprehensive inspection of ASC's manufacturing process revealed that ASC is utilizing an inefficient and outmoded functional production layout. The functional production layout uses variable route structures necessitating the need for a fleet of cargo handling devices such as forklifts and pallet trucks. The utilization of this route structure is complex, time consuming, and high maintenance. This layout is also scattered, requiring any problems that occur to be solved across departmental boundaries. This makes the information coordination from many sources difficult. The implementation of a functional layout requires large lots, infrequent deliveries, and extensive finished goods inventories, which inherently equates to complex management resources.
The manufacturing process at ASC must be streamlined if it is to remain at the forefront of the market. This can be achieved by implementing the latest production techniques into its process by instituting a cellular manufacturing layout. A cellular layout will improve the material handling by simplifying it from a complex route structure to a fixed route structure. This layout will also improve the method in which problem solving is handled. This will translate into an overall reduction in quality control issues by creating built-in problem solving teams in the manufacturing cell. In a cellular manufacturing layout, manufacturing is done in small, frequent lots, therefore easier and less costly.
Cellular Manufacturing
Material Handling Benefits * 50%-90% reduction in inter-department moves * 70%-90% reduction in material movement distance * 60%-80% reduction in cargo handling equipment
Quality Benefits * Because responsibility is focused within the cell, a 50%-90% improvement in quality is expected * Pride in workmanship is instilled, which encourages workforce peak performance * Team-based problem solving in a cellular environment promotes permanent solutions
General Benefits * Reduction in floor space needs * Reduction in support services (HVAC, Electricity, Maintenance) * Reduction in required inventory management * Elimination of overproduction and its related expenses * Reduction in product defects * Production scalability
It is estimated an overall investment of $156.3 million is required to reconfigure the production process and train the necessary employees with a time of completion of 12 months. The current Year-to-Date revenue for ASC is $70.4 billion. The expected revenue per annum after the reconfiguration is $75.8 billion with the capability for increased revenue depending on production demands. The scalable nature of the new production layout will allow ASC to scale its production output to the demands of the market. The potential for increased revenue will be available on demand.
Once the reconfiguration is completed, ASC can expect an efficiency-driven operation. The current annual operational expense is $3.3 billion. A $536 million savings in operational expenses will be achieved. Seasonal Labor Cost
Jobs where a full-time employee is not necessary should be outsourced to a staffing agency. Utilizing staffing agencies reduces stress and strain to the workforce and increase profits. ASC will benefit by taking fifteen percent of the workforce out of direct hire funding and will utilize a staffing agency to fill these roles. This will prevent any reduction in working hours for the direct hire workforce. ASC will also be able to reduce the personnel requirements in the human resources department as the staffing agency will fill this role for the temporary employees without having the overhead. ASC will also get the right type of employee who understands that they are temporary and must be able to prove to be productive and an asset in order to be considered for direct hire employment with benefits.
Staffing agency utilization will eliminate turnover and reduce the cost of training new staff. A reduction in workforce altogether is not the right answer as it creates more room for error when the remaining personnel due to being overworked and over stressed. Outsourced staffing will reduce the overhead costs of benefits and having to payout overtime during peak seasons.

Hiring college students or interns through internship programs is a win-win for both sides. Ambitious employees are obtained who will do monotonous work while getting college credit, experience, and an excellent reference.
Conclusion
ASC has a need to reduce operating costs in order to allow for expansion of the company to meet an increased demand for their product. Streamlining the operations utilizing a lean process is in demand but may be affected due to high turnover of lower wage employees in the off-peak periods. Utilizing a staffing service will reduce the high turnover and the cost of direct hire personnel in logistics and human resources. Incorporating the two solutions will increase the profit margin and reduce the overhead expenses allowing for expansion of the company allowing it to compete on a higher level attracting investor for continued growth.