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 many variables, including what
prices to charge, whether you will be able to make a profit, and
how many orders to accept.
BUSINESS CONCEPT
Your idea is to bake fresh cookies to order, using any
combination of ingredients that the 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, like Steve's Ice Cream,7 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 PRODUCTION 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.
KEY QUESTIONS TO ANSWER BEFORE YOU LAUNCH
THE BUSINESS
To launch the business, you need to set prices and rules for
accepting orders. 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 much money you can expect
to 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
attached operational questions should help you:
Kristen's Cookie Company
Variables Provided:
Labor $12/hour or .20/minute
Shift 4 hours/night
Cookies are produced by the dozen
Variable costs are .70 per dozen (.60 for ingredients and .10 for box)
Process Flow as Follows:
Step
Clean bowls and mix ingredients
Place dough on tray
Place cookies in oven and set timer
Bake cookies
Cool cookies
Pack cookies
Accept payment
Time (minutes)
6
2
1
9
5
2
1
Total Time for Full Process
26
Question #1: How long will it take to fill a rush order?
The minimum time to fill an order is 26 minutes. The limitation is the availability of the oven. If a rush order was received, i
cookies that went into the oven right before the order was started, there could be a wait time of 2 minutes for the oven. Thi
Question#2: How many orders can you fill in a night, assuming you are open four hours each night?
The limiting factor (bottleneck) in the process is the baking time (10 minutes including setting the oven thermostat, timer, pla
but the next batch can be started while the baking process is occurring. If they are working 4 hours per night, there is a total
from the previous batch's baking process. After the initial batch processing time of 18 minutes (through baking), a batch can
Orders after initial batch: (240 minutes (total time)- 18 minutes (initial batch start-up)-8 minutes (final batch completion))/10
We have to add 1 to this to account for the initial batch so maximum orders per night is 22.4 or 22 (assuming no partial orde
Question #3: How much of your own and your roommates' valuable time will it take to fill each order?
From the chart above, my time is 6+2= 8 minutes. My roommate's time is 1+2+1= 4 minutes. Total work time is 12 minutes
Question #4: Should a discount be given for people who order more cookies? Will it take longer to fill a two-dozen cookie
As can be seen from the chart above, the only steps that can account for a quantity higher than one dozen are the first and la
Also, the mixer holds a maximum of ingredients for 3 dozen cookies so cost is not reduced incrementally for quantities larger
From a cost perspective, the below chart outlines the potential savings for higher quantity orders of the same cookie flavor:
Quantity
Variable Cost
Labor Minutes
Labor Cost (.20 per minute)
Total Cost per Dozen
1 dozen
2 dozen
3 dozen
$0.70
$1.40
$2.10
12
17
22
$2.40
$3.40
$4.40
$3.10
$2.40
$2.17
The question of how much discount to offer is a judgment call. Given the above percentages, I would probably offer a 10% d
It will take you longer to fill a two-dozen cookie order than a one dozen cookie order as only one dozen cookies can be baked
versus making the same quantity but with different flavors.
There are many variables that may determine whether or not a discount is offered. One might be demand. If your maximum
However, if business is slow or you are trying to build repeat patronage, you may want to offer a discount. You may also wan
There may also be value in having some "extra" time between batches. Perhaps this reduces the likelihood of error or allows
With any new business, there will be some degree of trial and error in determining what optimizes sales and profit.
nd .10 for box)
Max Output
Person Handling
3 dozen
You
1 dozen
You
1 dozen
Roommate
1 dozen
N/A
1 dozen
N/A
1 dozen
Roommate
3 dozen
Roommate
rush order was received, it could be prepped for baking in 8 minutes. However, if there was a batch of
minutes for the oven. This means a rush order could take up to 28 minutes.
oven thermostat, timer, placing the cookies in the oven, and baking), and the fact that only one dozen cookies can bake at a time. The fir
s per night, there is a total of 240 minutes of work time.
Once you prep the dough and give it to your roommate, you ca
rough baking), a batch can be produced every 10 minutes. It's important to keep in mind that the last batch will also need the final steps
inal batch completion))/10 minute limiting factor (bottleneck)= 21.4.
(assuming no partial orders). This also assumes that each order is one dozen cookies.
al work time is 12 minutes per dozen.
The exception to this is explained in question 4, but it should be assumed that the tim
to fill a two-dozen cookie order than a one dozen cookie order?
e dozen are the first and last steps. A critical determinant of savings in step one is whether or not the customer is ordering the same flav
entally for quantities larger than 3 dozen.
of the same cookie flavor:
% Difference
N/A
22.58%
30.11%
uld probably offer a 10% discount for two dozen of the same flavor and 15% for three dozen.
ozen cookies can be baked at a time (limiting factor). However, there is still a labor savings when comparing the effort to make two or th
demand. If your maximum number of cookies per night is 22 dozen and you can easily sell that many, you may not want to offer a discou
iscount. You may also want to offer a discount if you have excess ingredients that may go to waste if you don't use them soon.
kelihood of error or allows more time to interact with the customer to provide an exceptional experience.
sales and profit.
How long will it take you to fill a rush order?
First, it is important to understand the breakdown of the process. According to the production
process layout, the electric mixer has the capacity to hold and mix up to 3 dozen cookies
additionally taking orders using the campus electronic mail system is timeless. Washing bowls
and mixing ingredients takes 6 minutes, dishing the cookies onto the tray takes 2 minutes per
tray, heating the oven and putting the cookies in takes 1 minute, baking the cookies in the oven
takes 9 minutes, taking the cookies out and letting them cool takes 5 minutes, finally it takes 2
minutes to pack each dozen and 1 minute to accept payment. Considering this timeline, it takes
an average of 26 minutes (throughput time) to fill an order of one dozen. The potential quantity
of the system is based on the output of the bottleneck, in this case the oven. Reading through the
production process layout, we can conclude that the cycle time is 10 minutes long. So, the oven
can process 6 dozen orders per hour, 60 minutes/10 minutes = 6, assuming one-dozen order
sizes.
How many orders can you fill in a night, assuming you are open four hours each night?
Considering the cycle time is 10 minutes, one would assume the order capacity in a four-hour
shift is 24 dozen cookies, 60 minutes/10 minutes = 6 and 6*4 = 24. However, looking at the
production process layout, there is a startup time of 8 minutes and a cleanup time of 8 minutes
which should be deducted from the 4 hours, 4*60minutes = 240 minutes – 16 minutes = 224
minutes. Thus, the available processing time is 3.73 hours, 224 minutes/60minutes = 3.73 hours.
This means in a four-hour shift approximately 22.4 dozen cookies can be produced per night,
6*3.73=22.4.
How much of your own and your roommate's valuable time will it take to fill each order?
Reviewing the production process layout, it would take me 8 minutes to fill each order, 6
minutes to wash out bowls and mix the ingredients and an additional 2 minutes to dish out the
cookies onto each tray. Additionally, it would take my roommate 4 minutes to fill each order, 1
minute to heat the oven, 0 minutes to remove cookies from oven, 2 minutes to package up the
cookies and 1 minute to except payment.
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? If so, how much? Will it take you longer to fill a
two-dozen cookie order than a one-dozen cookie order - and how does the level of effort
compare?
First, we must figure out how much labor time it would take to fill an order of 1, 2 and 3 dozen
cookies. As previously stated, it would take me 8 minutes and my roommate 4 minutes to fill an
order of one dozen cookies, which would mean a total labor time of 12 minutes for me and my
roommate. For an order of 2 dozen it would take 6 minutes to mix, 4 minutes to dish out the
cookies on the tray (2 minutes per dozen), 2 minutes to heat the oven (1 minutes per dozen), 4
minutes to package up the cookies (2 minutes per dozen) and 1 minute to except the payment.
This means it takes a total of 17 minutes to complete an order of 2 dozen. Similarly, for an order
of 3 dozen it would take 6 minutes to mix, 6 minutes to dish out the cookies on the tray (2
minutes per dozen), 3 minutes to heat the oven (1 minutes per dozen), 6 minutes to package up
the cookies (2 minutes per dozen) and 1 minute to except the payment, which gives us a total
time of 22 minutes to complete an order of 3 dozen cookies.
Now that we know how much labor time it will take to fill an order of 1, 2, and 3 dozen cookies,
we can calculate the production cost, production cost = material cost + labor cost. Material cost
is $0.70 per dozen, $0.60 for ingredients + $0.10 for the box. Assuming a labor rate of $12 per
hour or $0.20 per minute (12/60 minutes=0.2), we can calculate the production cost for 1 dozen
as $0.70+(0.20*12 minutes)=$3.10. The production cost for 2 dozen is $4.80,
($0.70*2)+(0.20*17 minutes), and production cost for 3 dozen is $6.50, ($0.70*3)+(0.20*22
minutes).
Looking at the above calculations, it would be a good idea to offer a discount on orders of 2 or 3
dozen. This is because it takes less time to make the second and third batch of cookies because
the ingredients are already mixed, as previously mentioned the mixing bowls hold ingredients for
up to 3 dozen cookies. The ingredients would have to be mixed again for an order of 4 dozen
which would require more time and labor to complete the order. Given this, a discount should
not be offered for orders more than 3 dozen. To calculate how much of a discount should be
applied for an order of 2 or 3 dozen, we must first find the total time it takes to fill an order of 2
or 3 dozen. If it takes 26 minutes to fill an order of 1 dozen, then it takes 45 minutes to complete
an order of 2 dozen: 6 minutes to mix, 4 minutes to dish out the cookies on the tray (2 minutes
per dozen), 2 minutes to heat the oven (1 minutes per dozen), 18 minutes to bake (9 minutes per
dozen), 10 minutes to cool (5 minutes per dozen), 4 minutes to package up the cookies (2
minutes per dozen) and 1 minute to except the payment. To complete an order of 3 dozen it
would take a total of 64 minutes: 6 minutes to mix, 6 minutes to dish out the cookies on the tray
(2 minutes per dozen), 3 minutes to heat the oven (1 minutes per dozen), 27 minutes to bake (9
minutes per dozen), 15 minutes to cool (5 minutes per dozen), 6 minutes to package up the
cookies (2 minutes per dozen) and 1 minute to except the payment. The time saved on an order
of 2 dozen is 7 minutes, (26*2)-45=7 minutes or approximately 15% and the time saved on a
order of 3 dozen is 14 minutes, (26*3)-64=14 minutes or approximately 22%. Given this
information, the maximum discount that can be offered for an order of 2 dozen is 15% and 22%
for an order of 3 dozen. For rush order, you would not be able to fill other orders as quickly so
you should be charging a premium when these orders come in.
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