Reference no: EM132271277
(C-1): Productivity Improvement at the Heavenly Coffee Shop
The Heavenly Coffee Shop offers high quality and unique coffee beverages in a “down home”, casual atmosphere. They are located in a rural area of Geneva, Indiana. The closest Starbucks is 23 miles away - so Heavenly regards itself as the closest thing to a Starbucks in the Geneva area and, in fact, patterns their product / service / atmosphere after Starbucks.
Heavenly offers a variety of coffee drinks, including several types of Frappuccino, espresso, lattes and, of course, a plain old cup of coffee, which they call a “JOE”. Heavenly sold an average of 56 cups of “JOE” per day during the early shift (6 am to 2 pm) Monday thru Fridays. “JOE” was the largest seller, approximately equaling the total unit sales of all other coffee products combined during the early shift.
But, like any other business, Heavenly needs to constantly pay attention to cost and productivity. On the early shift, Heavenly employs three (3) persons; a cashier, a coffee engineer and a server. While each is cross-trained to do the other jobs, they each take one of the roles. Each of the three employees is paid $12/hr, works an 8 hour shift and is paid for lunch. Therefore, in a five day week (Monday - Friday) each of the three employees earns $480 (5 days X 8 hours X $12/hour). Therefore, Heavenly’s total direct employee cost, per week, is $1440 (3 X $480).
A summary of each of the jobs is as follows: The cashier takes the customer’s order, handles the exchange of money and calls out the order to the coffee engineer. The coffee engineer makes the product, from scratch. When completed, the server, picks up the finished product, puts a lid on it, wipes it dry then delvers it to the customer. Each of these three jobs are done “in series”, meaning that the total time to procure the product, from point of order placement to delivery to the customer, is the sum of each of the three employees time. In 2012, that total time equaled, 478 seconds (see details below).
Heavenly has standardized the process for each of the three jobs and has developed “expected times” to do each task. Employees closely monitor the time it takes to do the three tasks and are constantly looking for ways to improve productivity. The average time per operation during all of 2012, was as follows:
Cashier = 90 seconds, Coffee engineer = 326 seconds, Server = 62 seconds
Total time = 478 seconds (7 minutes, 58 seconds).
As a result of studying the coffee engineer’s job, Heavenly was able to remove 19 seconds from the coffee making process for a cup of “JOE”. They will enact this new process with the start of the new calendar year, 2013. This 19 second productivity savings resulted in an overall 4.0% (19 sec. / 478 sec) reduction in total time. This means that the team is able to fill an order for a cup of “JOE” in 459 seconds (versus the 2012 time of 478 seconds).
Question: How much in direct employee cost will Heavenly save per week starting in 2013 as a result of the 4% productivity improvement? Assume everything else remains the same as in 2012, except for the 4% productivity improvement, i.e., 4% less labor time to deliver a cup of “JOE”?
State your answer in two (2) parts:
State, “How much in direct employee cost will Heavenly save per week starting in 2013 as a result of the 4% productivity improvement”. (For example: “They saved $XXX.”
Explain how you arrived/calculated your answer. Explain the logic you used to arrive at your answer.