Harvard Case - Equability by Jen Candle Company: A Manufacturing Inventory Exercise
"Equability by Jen Candle Company: A Manufacturing Inventory Exercise" Harvard business case study is written by Ian Dunn, Kaitlyn Oh. It deals with the challenges in the field of Accounting. The case study is 7 page(s) long and it was first published on : Mar 5, 2021
This case study solution recommends that Jen Candle Company implement a comprehensive inventory management system based on activity-based costing (ABC), just-in-time (JIT) principles, and lean manufacturing practices. This system will enable the company to optimize inventory levels, reduce waste, improve efficiency, and ultimately enhance profitability.
2. Background
Jen Candle Company, a small-scale candle manufacturer, is facing challenges with its inventory management. The company's current system relies on traditional cost accounting methods, which do not accurately reflect the true costs associated with each product. This results in inaccurate financial statements, leading to poor decision-making regarding pricing, production, and inventory levels.
The case study highlights the company's struggle with high inventory carrying costs, production delays, and difficulty in meeting customer demand. Jen, the founder and CEO, recognizes the need for a more efficient and accurate inventory management system.
3. Analysis of the Case Study
To analyze the situation, we can employ a strategic framework that considers the following aspects:
Internal Analysis:
- Financial Performance: The case study mentions high inventory carrying costs, indicating a need for improved asset management.
- Operations: The company's current system lacks transparency and leads to production delays, highlighting the need for improved manufacturing processes.
- Organizational Structure: Jen's limited resources and lack of dedicated staff for inventory management suggest a need for organizational restructuring and potential employee incentive programs to encourage efficiency.
External Analysis:
- Competition: The candle market is increasingly competitive, emphasizing the need for Jen Candle Company to differentiate itself through improved product quality, efficiency, and customer service.
- Customer Expectations: Customers demand timely delivery and high-quality products, highlighting the importance of performance indicators such as on-time delivery and product defect rates.
Financial Analysis:
- Cost Analysis: The case study emphasizes the need for a more accurate cost accounting system to identify the true costs associated with each product.
- Profitability: Improving inventory management can significantly impact the company's profitability by reducing carrying costs and improving efficiency.
Recommendations:
- Implement activity-based costing (ABC) to accurately allocate costs to products. This will provide a clearer picture of the true cost of each product, enabling better pricing decisions and inventory management.
- Adopt just-in-time (JIT) principles to minimize inventory levels and reduce carrying costs. This will require close collaboration with suppliers and efficient production planning.
- Implement lean manufacturing practices to identify and eliminate waste throughout the production process. This will optimize resource utilization and improve efficiency.
- Invest in an accounting information system to automate inventory tracking and reporting, reducing manual errors and improving efficiency.
4. Recommendations
Implementation Timeline:
Phase 1: (Months 1-3)
- Conduct a comprehensive cost analysis using ABC methodology to determine the true cost of each product.
- Identify and quantify waste in the production process.
- Develop a detailed inventory management plan incorporating JIT principles and lean manufacturing practices.
- Implement a new accounting information system to track inventory levels and automate reporting.
- Train employees on the new inventory management system and lean manufacturing practices.
Phase 2: (Months 4-6)
- Monitor and analyze inventory levels and production efficiency.
- Adjust the inventory management system and production processes based on data analysis.
- Evaluate the impact of the new system on financial performance and profitability.
- Implement continuous improvement measures to optimize the inventory management system.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core competencies and consistency with mission: The recommendations align with Jen Candle Company's mission to produce high-quality candles while minimizing environmental impact. Lean manufacturing practices and JIT principles support this mission by reducing waste and optimizing resource utilization.
- External customers and internal clients: The recommendations aim to improve customer satisfaction by ensuring timely delivery and consistent product quality. Internal clients, such as the production team, will benefit from improved efficiency and reduced workload.
- Competitors: The recommendations will enhance the company's competitiveness by improving efficiency, reducing costs, and enabling more flexible production to meet changing customer demands.
- Attractiveness ' quantitative measures: The implementation of ABC, JIT, and lean manufacturing practices is expected to lead to significant cost savings, improved profitability, and increased customer satisfaction.
- Assumptions: The recommendations assume that Jen Candle Company has the resources and commitment to implement the proposed changes. It also assumes that the company's suppliers are willing to collaborate on JIT principles.
6. Conclusion
By implementing a comprehensive inventory management system based on ABC, JIT, and lean manufacturing practices, Jen Candle Company can significantly improve its efficiency, reduce costs, and enhance its competitive position in the market. This will lead to improved financial performance, increased profitability, and enhanced customer satisfaction.
7. Discussion
Alternatives:
- Outsourcing production: This option could reduce the company's inventory burden but would require careful consideration of cost, quality control, and potential loss of control over the production process.
- Continuing with the current system: This option would not address the existing challenges and could lead to further decline in efficiency and profitability.
Risks:
- Resistance to change: Employees may resist the implementation of new systems and processes.
- Cost of implementation: Implementing a new inventory management system requires significant investment in technology and training.
- Supplier reliability: JIT principles rely on reliable suppliers, which could pose a risk if suppliers are unable to meet demand consistently.
Key Assumptions:
- Jen Candle Company has the financial resources to invest in the new system.
- The company's suppliers are willing to collaborate on JIT principles.
- Employees are willing to embrace the new system and adapt to lean manufacturing practices.
8. Next Steps
- Develop a detailed implementation plan: This plan should outline the specific steps, timelines, and resources required for each phase of the implementation.
- Secure funding: Identify the necessary funding sources to support the implementation of the new system.
- Communicate the changes to employees: Clearly explain the benefits of the new system and address any concerns or questions.
- Monitor progress and adjust as needed: Regularly track the progress of the implementation and adjust the plan as necessary to ensure success.
By taking these steps, Jen Candle Company can effectively implement a new inventory management system that will drive efficiency, reduce costs, and enhance its profitability.
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Case Description
In November 2020, the owner of Tranquility by Jen Candle Company located in Canmore, Alberta, Canada, was reviewing her company's financial performance for its third fiscal year. The company was a candle manufacturer located in Canmore, Alberta, Canada. The owner had gathered the company's statement of financial position for fiscal year 2018-19, the list of cash receipts and disbursements for 2019-20, and various related miscellaneous information. Her task was to record all necessary accounting transactions for the current fiscal year, ending October 31, 2020.
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