A manufacturer makes a line of women’s handbags. The company offers 600 different styles of handbags in its catalog. It sells almost 25,000 handbags per year, but it is not known which style is going to sell from one week to the next.

The company has both a JIT system and a mass-production system to make the same line of handbags. Both manufacturing systems work well, and both cost about the same to operate. The JIT system can make up to 100 handbags a day; however, it is very flexible. If necessary, it can produce 100 different styles in a single day of operation.

The mass production system takes half a day to set up and can make 1,000 handbags—all the same style—in the second half of the day. It is 10 times as fast as the JIT system.

Raw materials cost $4 per handbag and are the same whichever system is used to do the work. The company likes to order enough materials to make 2,000 handbags, which is usually enough to cover a month of orders.

The company has discovered a trick to run more than one style of handbag with the mass-production system. If it sets up in the morning and runs just one handbag until noon, it can use the afternoon to change over to a different style and still have time to run another handbag before closing at 5:00. This gives it two handbags produced in one day, if necessary.

a. Which system is more efficient? Why?

b. If the company could only keep one of these manufacturing systems, which do you think it should keep? Explain.

Transcribed Image Text:

The Average Day: 100 Handbags, Each of a Different Style, Are Ordered Units shipped Percentage of orders for the day filled Amount of unsold inventory created Raw materials available for future work Mass-Production System, Using the Regular Method 1 1% 999 Mass-Production System, Using the Two Setups Trick 2 2% 0 JIT System 100 100% 0 1,000 units/$4,000 value 1,998 units / $7,992 value 1,900 units/ $7,600 value