Situation Analysis
Elizabeth Hine’s “Elizabeth’s Country Wares (ECW)” deals in decorative country housewares and ceramic pottery business. Although ceramic pieces of equal/better functionality and lower price are easily available in the market, product differentiation has helped ECW’s products appeal to its customers. The firm’s products, mainly targeted at middle to upper-income households, have a country theme out of which, 3 “burst” themes are very successful: the “appleburst”, the “heartburst” and “the heart sideburst”. Also, the flexibility in designs and a wide array of choices has helped ECW to cater to the ever-changing consumer preferences.
Currently, Country Pitchers (CP) is the primary seller of ECW featuring the hand painted design but also, the least profitable one. Due to the growing interest of some of the firm’s primary sellers in CP, the demand of CP for the next year is forecasted at 3000 pieces. The availability of Elizabeth limits the process that ECW currently uses in the CP production, thereby limiting the current CP production rate to 1996 pieces a year (Exhibit 1.1). Also, out of the two kilns being used (each having a capacity of 12 CPs); one is available for 225 days in CP production, and the other for 275 days in CP production.
Digitally designed/ screen printed decals can be used to replace Elizabeth’s hand painted designs. By using Decals, the firm can, not only increase its capacity (Exhibit 1.1) but also earn more profits by making use of Elizabeth’s time in marketing and production of higher margin items like Butter Churn Lamps that feature unique designs. By producing 2 or 3 additional Butter Churn lamps per week, the firm has the potential to earn extra $27300 (Exhibit 1.2).
To utilise Elizabeth's time efficiently, the firm may consider purchasing the Decal equipment, an additional kiln and training a replacement worker for the underglazing step (Exhibit 0) of the CP Production line. Else, the firm can also consider outsourcing either already familiar screen-printed decals, known for the unmatched colourful designs, from a supplier based in New York state or entire CP production from Ceramics Manufacturing Company, China. However, there are concerns related to the Chinese supplier that given the lack of strong manufacturing regulations coupled with weak enforcement in China, he may falter in his assurance of using lead-free glazes which, in turn, may pose serious health concerns for the end user. Also, the supplier will require 40 day lead time to supply the committed 3000-unit demand.

The Problem Statement
How can ECW, efficiently, utilise Elizabeth's time currently spent in the production of Country Pitchers (CP) to work on higher margin items like Butter Churn Lamps and at the same time, make more profits by meeting the forecasted demand of 3000 units of CP?

Options
Following options can be considered to fulfil the desired requirements: 1. Purchase Decal Equipment and take help of an additional worker. 2. Outsource Decal Production from a supplier based in New York State. 3. Outsource CP production from a Ceramics Manufacturing Company in China.
Criteria for Evaluation
Criteria in decreasing order of importance 1. The quality of CP. 2. High return on the investment. 3. Flexibility in production and change of designs. 4. Familiarity with the equipment.
Evaluation of Options
Option 1 a. Although the pieces will no longer be hand painted, CPs would maintain their unique and country appeal. Since decals will be digitally designed, the designs will become more consistent. b. For the next year, net profits come out to be $55,650 (Exhibit 1.5). Since the investment is a long term one, profits will only increase in the upcoming years. c. Since the designs for the decals can be easily stored on a computer, and then printed whenever needed. It provides ECW with the flexibility to change the designs as per the customer's needs without any additional costs. d. Although digitally produced designs have become a trend in the industry, Elizabeth’s inexperience with the equipment might pose some problems.

Option 2 a. The screen printed decals have a reputation for yielding unmatchable colour designs. Thus, the overall quality of the CP will be improved. b. For the next year, net profits come out to be $51,720 (Exhibit 1.6). c. The supplier uses screen printing method, which requires a single upfront cost of $500 for each design. Thus, each time design changes, a setup cost is required to fulfil the requirement. Hence, it can be said that this option provides flexibility in design but at an expense of $500 per design. d. Since Elizabeth has already worked on the method of screen printing, this option provides the assurance of work.

Option 3 a. Lack of strong manufacturing regulations coupled with weak enforcement in China may falter the supplier’s assurance of lead-free glaze. Thereby, it may pose serious health concerns for the end user. b. For the next year, net profits come out to be $76,950 (Exhibit 1.7). c. The 40-day lead time the supplier requires for order might become an issue later on. Also, ECW will need to commit for entire 3000-unit demand. Any alteration in the forecast of demands might incur losses for ECW. Thus, this option is highly inflexible for ECW. d. Since the supplier will be responsible for the entire CP production, ECW need not worry about Elizabeth’s unfamiliarity with the equipment.

The Recommendation
It is recommended that ECW should purchase Decal equipment to make higher profits without compromising on the quality of the product, the flexibility of the firm and meeting the forecasted demand. Also, with the help of an additional worker, the firm will be able to utilise Elizabeth's time efficiently on larger, higher margin items.
Action Plan 1. Purchase the decal equipment which consist of computer system, specialized decal scanner/printer and laminator and an additional kiln. 2. Get all the systems installed. 3. Train the replacement worker on border painting, loading and applying a decal to both sides of the CP.
Contingency Plan
In case the unfamiliarity with equipment poses challenge to ECW in CP production, ECW can consider hiring an expert on a short term to ensure that there’s no hindrance in the CP production process. Word Count- 1019

EXHIBITS
EXHIBIT 0 (CP Production Process)

EXHIBIT- 1.1 (Rate of CP Production): a. Current Rate of Production: Amount of time Elizabeth can give to CP production | 8 hrs/week | Time taken by Elizabeth to complete her part in one CP | 12.5 min | Weekly Production Rate | 8*60/12.5 = 38.4 pieces/ week | Yearly Production rate | 38.4*52 ~ 1996 pieces |

b. If Elizabeth uses Decal designs instead of hand-printed designs, predicted rate of production: Availability of 1st kiln ( in days/year) | 365-90 = 275 | Availability of 2nd kiln ( in days/year) | 365-140 = 225 | No. of days where both kilns can be used | 225 | No. of CPs that can be prepared in a day while both kilns are in use | 12 | No. of days when a single kiln is use | 50 | Time needed for a batch of 12 CPs to complete (in days) | 2 | Max. Number of CPs that could be produced in a year | (225*12) + (50*12/2) = 3000 |

EXHIBIT -1.2 (Additional Profits in Lamp production)

Selling Price of Butter Churn Lamps | $350 | Margin on butter churn lamps | 60% | Net income on each lamp | 350*0.6 = $210 | No. of additional units that can be sold per week | 2-3 | Taking the average of the two, we have;No. of additional units that can be sold per year | 2.5*52 = 130 | Additional profits that can be generated yearly | 130*210 = $27300 |

EXHIBIT- 1.3 (Worker’s Salary) Salary of the workers | $15/hr | Time spent by Greenware worker on 1 CP | 20 min. | Salary of Greenware worker per CP | $5 | Time spent by the Glaze worker on 1 batch of CPs i.e. 12 CP | 1.75hrs = 105 min.+ 24 min. =129 min. | Salary of the Greenware worker per CP | $(15*129/60*12)= $2.68 | Time taken by the replacement worker to remove 12 CPs from the kiln, apply the decals and place them into the new kiln | ~2 min. | Time taken by the replacement worker to paint borders and load each CP | 2.5 min. | Time spent by replacement worker on 1 CP | 2.67 min. | Salary of the Replacement worker per CP | $(15*2.67/60)= $0.67 |

EXHIBIT – 1.4 ( Current level of profits from CP Production) Current cost per CP | $2.92 | Greenware worker's salary (per piece) | $5.00 | Glaze worker's salary ( per piece) | $2.68 | Total Cost per CP | $10.60 | | | Current Rate of production of CP | 1996 | Selling price per CP | $25.00 | Net Profits | $28,742.40 |

EXHIBIT-1.5 (Net profits from option 1)
Assumption- One decal is being used on both sides of the CP. Slip | | | $0.65 | Border Underglaze | | | $0.68 | Design underglaze | | | $0.32 | Glaze | | | $0.80 | Energy cost per CP (from two old kilns) | | | $0.47 | Additional Energy cost of the new kiln | | $2.40 | | Energy cost per CP (from the new kiln) | | | $0.20 | Cost of Decal used per CP | | | $1.88 | Worker | | | | | Greenware worker's salary (per piece) | | $5.00 | | Glaze worker's salary ( per piece) | | $2.68 | | Replacement worker's salary (per piece) | | $0.67 | Total cost per CP | | | $13.35 | Total Cost incurred in 3000 CP | | $40,050.00 | | Total Revenue from 3000 CP | | $75,000.00 | | Net Income from CPs | | | $34,950.00 | Additional Revenue generated by Butter Churn Lamps | $45,500.00 | | Production Cost of Butter Churn Lamps | | $18,200.00 | | Profits from Butter Churn Lamps | | | $27,300.00 | | | | | Long term investments | | | | Computer System | | $700.00 | | Decal scanner and laminator | | $3,000.00 | | Additional kiln+ installation cost | | $2,900.00 | | Total investments | | $6,600.00 | | | | | | Net Profits (including investment costs) for the next year | | | $55,650.00 | | | | |

EXHIBIT- 1.6
Assumption- the demand will consist of 3 designs. Net Profits from option 2 | Slip | | | $0.65 | Border Underglaze | | | $0.68 | Design underglaze | | | $0.32 | Glaze | | | $0.80 | Energy cost per CP (from two old kilns) | | | $0.47 | Cost per Decal used | | | $5.76 | Worker | | | | | Worker's Salary (per hour) | $15.00 | | | Greenware worker's salary (per piece) | | $5.00 | | Glaze Worker's salary (per piece) | | $2.68 | | | | | Total cost per CP | | | $16.36 | Total Cost incurred in 3000 CP | | $49,080.00 | | Total Revenue from 3000 CP | | $75,000.00 | | Net Income from CPs | | | $25,920.00 | Additional Revenue generated by Butter Churn Lamps | | $45,500.00 | | Production Cost of Butter Churn Lamps | | $18,200.00 | | Profits from Butter Churn Lamps | | | $27,300.00 | | | | | Long term investments | | | | Screens and proofing cost for setting three designs | | $1,500.00 | | Total investments | | $1,500.00 | | | | | | Net Profits | | | $51,720.00 |

EXHIBIT-1.7
Assumption – the demand of CP for the next year remains at 3000 pieces. Net Income from CP outsourcing (option 3) | Cost per CP | $8.45 | Selling Price of CP | $25.00 | No. of CPs to be ordered | $3,000.00 | Net Profits from the sale of CPs | $49,650.00 | Additional Revenue generated by Butter Churn Lamps | $45,500.00 | Production Cost of Butter Churn Lamps | $18,200.00 | Profits from Butter Churn Lamps | $27,300.00 | Net Profits | $76,950.00 |