Reference no: EM131200022

Kristen’s Cookie Company You and your roommate are preparing to start Kristen’s Cookie Company in your on-campus apartment. The company will provide fresh cookies to starving students late at night. You need to evaluate the preliminary design for the company’s production process to figure out how many orders to accept and how effectively your time, and that of your room mate, will be utilized. BUSINESS CONCEPT Your idea is to bake fresh cookies to order, using any combination of ingredients that they buyer wants. The cookies will be ready for pickup at your apartment within an hour. Several factors will set you apart from competing products such as store-bought cookies. First, your cookies will be completely fresh. You will not bake any cookies before receiving the order; therefore, the buyer will be getting cookies that are literally hot out of the oven. Second, you will have a variety of ingredients available to add to the basic dough, including chocolate chips, M&M’s, chopped Heath bars, coconut, walnuts, and raisins. Buyers will telephone in their orders and specify which of these ingredients they want in their cookies. You guarantee completely fresh cookies. In short, you will have the freshest, most exotic cookies anywhere, available right on campus. THE PRODCUTION PROCESS Baking cookies is simple: mix all the ingredients in a food processor; spoon out the cookie dough onto a tray; put the cookies into the oven; bake them; take the tray of cookies out of the oven; let the cookies cool; and, finally, take the cookies off the tray and carefully pack them in a box. You and your roommate already own all the necessary capital equipment: one food processor, cookie trays, and spoons. Your apartment has a small oven that will hold one tray at a time. Your landlord pays for all the electricity. The variable costs, therefore, are merely the cost of the ingredients (estimated to be $0.60/dozen), the cost of the box in which the cookies are packed ($0.10 per box; each box holds a dozen cookies), and your time (what value do you place on your time?). A detailed examination of the production process, which specifies how long each of the steps will take, follows. The first step is to take an order, which your roommate has figured out how to do quickly and with 100 percent accuracy. (Actually, you and your roommate devised a method using the campus electronic mail system to accept orders and to inform customers when their orders will be ready for pickup. Because this runs automatically on your personal computer, it does not take any of your time.) Therefore, this step will be ignored in further analysis. You and your roommate have timed the necessary physical operations. The first physical production step is to wash out the mixing bowl from the previous batch, add all of the ingredients, and mix them in your food processor. The mixing bowls hold ingredients for up to 3 dozen cookies. You then dish up the cookies, one dozen at a time, onto a cookie tray. These activities take six minutes for the washing and mixing steps, regardless of how many cookies are being made in the batch. That is, to mix enough dough and ingredients for two dozen cookies takes the same six minutes as one dozen cookies. However, dishing up the cookies onto the tray takes two minutes per tray. The next step, performed by your roommate, is to put the cookies in the oven and set the thermostat and timer, which takes about one minute. The cookies bake for the next nine minutes. So total baking time is 10 minutes, during the first minute of which your roommate is busy setting the oven. Because the oven holds only one tray, a second dozen takes an additional 10 minutes to bake. Your roommate also performs the last steps of the process by first removing the cookies from the oven and putting them aside to cool for 5 minutes, then carefully packing them in a box and accepting payment. Removing the cookies from the oven takes only a negligible amount of time, but it must be done promptly. It takes two minutes to pack each dozen and about one minute to accept payment for the order. That is the process for producing cookies by the dozen in Kristen’s Cookie Company. (As experienced bakers know, a few simplifications were made in the actual cookie production process. For example, the first batch of cookies for the night requires preheating the oven. However, such complexities will be put aside for now.) Begin your analysis by developing a process flow diagram of the cookie-making process. Show this flow chart in your submission ahead of question 1. KEY QUESTIONS TO ANSWER BEFORE YOU LAUNCH THE BUSINESS To launch the business, you need to set prices and rules for accepting orders. (In this analysis, we will not consider the issue of setting prices.) Some issues will be resolved only after you get started and try out different ways of producing the cookies. Before you start, however, you at least want a preliminary plan, with as much as possible specified, so that you can do a careful calculation of how much time you will have to devote to this business each night and how many cookies you can make. For example, when you conduct a market survey to determine the likely demand, you will want to specify exactly what your order policies will be. Therefore, answering the following operational questions should help you: 1 How long will it take you to fill an order? 2 How many orders can you fill in a night, assuming you are open four hours each night (show your calculations)? 3 How much of your own and your roommate’s valuable time will it take to fill each order? 4 Because your baking trays can hold exactly one dozen cookies, you will produce and sell cookies by the dozen. Should you give any discount for people who order two dozen cookies, three dozen cookies, or more? Why or why not? Should you charge a premium to fill a “rush order”? 5 What is the minimum number of food processors and baking trays that you will need to maximize output with the one oven that you have? (Explain your reasoning and/or show your calculations.) 6 Suppose that demand for your cookies exceeds your capacity, what would you have to do to increase the number of cookies that you can produce in the four hours of operation each night? Be as specific as possible. Show a revised flow chart and/or calculations as you think appropriate.