Task 1- SWOT Analysis Strengths

To: Darren Helton

From: CPA

Re: Heritage Cabinets

Task 1- SWOT Analysis Strengths Most of HCI’s employees have been with the company for more than five years which means employee retention is good Located close to sawmills and purchased enough quality lumber from these suppliers Weaknesses HCI struggled to meet production deadlines in 2020 as it took longer to manufacture cabinets Assemblers have to spend too much time searching for right hardware Cabinets require specific hardware which is small gets lost in storage bins Increasing number of pieces are sent back to rework due to lack of maintenance of older cutting machines Raw materials and work in progress are often sitting on factory floor between stages and employees found it difficult to manoeuvre Multiple supervisors initiate order for materials which results in excess inventory Opportunities Low interest rates and declining unemployment over five years led to increased spending means more house purchases and more contracts for HCI to increase revenue Cabinets with improved amenities as charging ports will increase growth It is difficult to step into the existing manufacture network but once HCI can establish a network, they can generate a lot of business Threats Competition in industry increased as many businesses are importing from overseas Imported cabinets are priced lower which increases competition whereas Canadian manufactured are priced higher Price of lumber is constantly increasing which may increase costs As per the SWOT analysis, there are many weaknesses in HCI’s operations which need to be rectified to improve efficiency. The improvements will result in betterment of operations for manufacturing Task 2 – Manufacturing issues and related to lean management The following issues are related to efficiency

Weaknesses:

I.Assemblers have to spend too much time searching for right hardware This study source was downloaded by 100000834091502 from CourseHero.com on 11-08-2022 17:03:02 GMT -06:00

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II.Cabinets require specific hardware which is small gets lost in storage bins III.Increasing number of pieces are sent back to rework due to lack of maintenance of older cutting machines IV.Raw materials and work in progress are often sitting on factory floor between stages and employees found it difficult to manoeuvre V.Multiple supervisors initiate order for materials which results in excess inventory

Implications:

I.This means that there is labour hours increasing and time being wasted to find the correct hardware and attach to cabinets. This means that a cabinet that may be ready in less time is taking longer now and affects capacity II.This means that there is no one monitoring the small hardware parts organization which are getting lost in storage bins means the labour has to spend time locating the correct hardware. Assembling with wrong hardware will result in quality issues and product being returned III.With more pieces being sent back for rework due to older cutting machines shows that the machines are not at par with the industry standards hence the customers are not satisfied with the service IV.There is excess inventory sitting on the floor which increases risk for inventory loss which means expenses will be high and net income will suffer.V.Due to lack of separation of duties, multiple people are ordering for inventory leading to excess inventory which can increase loss or wastage. This increases cost of inventory as well Related to lean management Lean management relates to delivering value to the customer while removing things that are causing hinderance in process improvement I.By applying the lean management concept, HCI needs to develop a process for efficiency where the hardware products should be organized so working labour does not have to spend time looking for hardware. This will reduce labour hours to manufacture products II.Specific hardware is getting lost in storage bins so by applying the lean management concept, HCI needs to eliminate the storage bins process and implement another method of sorting out the specific hardware items. HCI can consider assigning an individual that is in charge of sorting out the hardware. This will bring efficiency to the process III.HCI is receiving pieces back for rework due to old machines cutting the pieces which are not up to the quality. By apply the lean management concept, HCI should either invest money in repairing the old machines or replace them with new machines so that the labour does not have to spend extra time repairing the piece that have already been shipped IV.The raw materials sitting on the factory floor can be fixed using lean management concept by allocating an area of factory where raw materials can be stored so that it is not This study source was downloaded by 100000834091502 from CourseHero.com on 11-08-2022 17:03:02 GMT -06:00

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left in the middle which can be hazardous for the employees as well. The lean management concept allows HCI to make efficiencies for the process V.Currently they have multiple people placing order for inventories resulting in an excess which means by applying lean management process, HCI should assign one person the task of ordering inventory for the factory so that excess inventory is not ordered and reduce cash spending which is beneficial for the company Task 3 – Pricing Strategies There are three different types of pricing strategies with many advantages and disadvantages

• Cost based pricing: This is based on setting prices for cost of goods sold or services being sold

which means the seller is using their cost as a base to set a selling price Advantages It does not require a lot of resources to research and set up a price There is full coverage of cost and keeps constant rate of return for the item The seller has no information on price the buyer is willing to pay Disadvantages There is no price differentiation in the market because the price remains constant and the product doesn’t stand out The company may lose out on profit that can be generated if the price of the items are placed correctly There is no consideration of value of the product as customer preference is not taken into account when setting the price of the item

• Demand based pricing: In this pricing method, the seller takes into account the consideration

of the customer rather than production costs. It also considers the competition in the market which means if demand increases then price can increase as well whereas if the sales decrease then prices can decrease as well Advantages The company can earn higher profitability because the company is basing the price on the demand of the product Allows the company to earn a net return on the investment of the product earlier when demand is high The high demand of the product makes the product earn a market share for itself which drives the price up resulting in the company earning higher profit margins in the initial phase of the product launch Disadvantages There is a lot of research and surveys required to find consumer preference to pay for an item before the price is set This study source was downloaded by 100000834091502 from CourseHero.com on 11-08-2022 17:03:02 GMT -06:00

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Prices may have to adjusted based on geographical locations as some communities maybe willing to pay a higher price for an item in comparison to other areas As the demand of the product decrease, the price has to be lowered too which will reduce the margin of profit earned by the selling that product

• Value based pricing: It is based on how the consumer perceives the product and the financial

benefit of the company making the product. It means that the seller has to reach a mid point where customer finds value in paying the set price of the product while it is also beneficial for the company Advantages The seller can charge the highest price initially when results in high return of profits for the company as the customer is more willing to pay a higher price If the customers find the product valuable then a loyalty factor is added which results in customers returning back to buy same or other products resulting in higher profits Understanding the market with the sales and allows the seller to develop more products that may interest in the customer in the future Disadvantages The company has to spent a lot of time and money in research to understand the market and what the customers are looking for.There is a lot of trial and error before the company can find a product that they can sell in the market to the people for which they would find value and be willing to pay to purchase There may be competitors in the market already launching a similar product with better price which can create a problem to attract a customer base to chose your product over others. This can require extensive marketing costs which may drive the cost of the product high as well.Recommendation of strategy: It is recommended that HCI should opt for value based pricing because it is known in the market to see products that are of high quality and service. By doing so it will built a loyal customer base who is willing to pay a high price for a product that can benefit them in the long run. HCI has the means to invest in the research to develop a strategy that allows them to invest time and money in building products which can generate revenue in the future Minimum Price calculated As per Exhibit 1, the cost of the cabinet is $230.85 which means the minimum price should be at least $213.00 which covers the cost of production for the company The average price of the cabinet is $210.00 but HCI has made a name for itself in the market for high quality products so consumers will be willing to pay a high price for good quality. Hence in my opinion they should charge around $250.00 per unit which allows HCI to cover the cost of This study source was downloaded by 100000834091502 from CourseHero.com on 11-08-2022 17:03:02 GMT -06:00

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