Efficiency of the “Made-for-You” system

The parlor is currently involved in the testing of the new “Made-for-You” system, which allows the customers to customize their milkshakes by choosing the different flavors. The new system replaces the old batch system. The staff seems to be adapting, and the customers seem to like the wider product variety. However, the efficiency of this new system regarding its usage on the labor and the materials is an issue of the concern that needs to be investigated. The variance analysis shows an unfavorable direct labor efficiency variance, and this memo recommends a training program to improve the employee skills.

The direct material usage (efficiency) variance is $15 Favorable, meaning that the actual quantity of the raw materials that are used is lower than the standard amount. Therefore, the new system has led to the improved efficiency in the usage of the ice cream, the direct raw material. Conger (2015) argues that automation helps in the streamlining of the value-added activities and eliminates to a large extent the non-value added ones. The new system minimizes the wastage in the use of the raw materials resulting in an actual material usage, which is less than the expected amount. Also, the new system improves the handling of the ice cream by the employees, thus preventing the damage or the wastage.

The direct labor efficiency variance is $96 unfavorable, meaning that the actual time used to manufacture the milkshakes is higher than the hours allowed by the standards. Therefore, despite the fact that the parlor has a favorable direct material usage variance, the employee’s productivity has declined since the introduction of the “Made-for-You” system. A possible explanation behind this aspect is a lower learning curve, which, in turn, means that the employees are slow in gaining the skills that are necessary to operate the system. Anzanello and Fogliatto (2011) point out that a learning curve is a tool for monitoring how the workers perform a new task and organizations seek to improve the labor force learning curve in the efforts to increase the productivity as well as the performance.

The introduction of the “Made-for-You” system caused a change in the way how the employees performed their tasks, and as a result, they have to acquire and apply a new set of the skills. Krausert (2015) refers to this aspect as the “incomplete knowledge spillover”, because the previously attained the skills of using a batch system are no longer relevant for the “Made-for-You”. As a result, their performance will decline as they seek to adapt and acquire the new skill set. Also, since the system is in its early stages of testing as well, the employees are relying on the trial-and-error technique and are making the mistakes, and the result is the number of the hours to produce the 2,000 shakes will increase.

From the above discussion, it is evident that the unfavorable labor efficiency variance is unacceptable, and it is a critical issue of concern. The disturbing point is that failure to address this issue will result in the parlor taking a long time to produce the milkshakes. The effect is a delay in meeting the customer orders, and thus, the increase of their waiting time. Keeping the customers waiting their milkshakes results in dissatisfaction with the service offered, and this aspect adversely affects the level of the satisfaction and the loyalty (Kumar, Batista, & Maull, 2011).

The remedy for the unfavorable direct labor efficiency variance is conducting a thorough training program. The comprehensive training program should address the purpose of the new system and clarify the expected outcomes to enhance the employees understanding its functioning. Also, the program will identify the skills of each employee and align them to the appropriate task. Such an action facilitates the effective work scheduling, since each person is optimally occupied, significantly reducing the idle time. The training program will illuminate the full range of the capabilities of the new system and improve the confidence of the employees. Of importance is the fact that the thinking ability and the creativity will be developed resulting in the better problem-solving as well as the adoption of the productive behaviors (Elnaga & Imran, 2013). Therefore, such a continuous program will build the skills, the experience, and the knowledge of the employees, and the parlor would benefit from a reduction in the direct labor hours that are needed to produce the milkshakes.

References

Anzanello, M. J., & Fogliatto, F. S. (2011). Learning curve models and applications: Literature review and research directions. International Journal of Industrial Ergonomics, 41(5), 573-583.

Conger, S. (2015). Six sigma and business process management. Handbook on Business Process Management 1, 127-146.

Elnaga, A., & Imran, A. (2013). The effect of training on employee performance. European Journal of Business and Management, 5(4), 137-147.

Krausert, A. (2015). The timing of training effects: A learning curve perspective. Warwick Business School. Retrieved on September 18, 2017 from https://www2.warwick.ac.uk/fac/soc/wbs/.../irru/.../achim_krausert_-_irru_seminar.pdf

Kumar, V., Batista, L., & Maull, R. (2011). The impact of operations performance on customer loyalty. Service Science, 3(2), 158-171.

Appendix

Direct material usage/efficiency variance=standard quantity at standard cost-actual quantity at standard cost:

• Actual quantity of ice cream used=390 pounds
• Actual quantity at standard cost: 390*1.5=$585
• Standard quantity of ice cream: 2000*0.2=400 pounds
• Standard quantity at standard cost: 400*1.5=$600
•  Therefore, the material usage variance: 600-585=$15 Favorable
•  Direct labor efficiency variance:
•  Actual labor hours used=72
•  Standard cost of the actual hours:8*72=$576
•  Standard direct labor hours:0.03*2000=60 
•  Standard cost:60*8=$480
•  Therefore, the direct labor efficiency variance: 576-480=$96 Unfavorable