Efficiency of the “Made for You” system

The Parlor’s New “Made-for-You” System

The parlor is now testing the new “Made-for-You” system, which allows customers to create their milkshakes by selecting from a variety of flavors. The new system will take the place of the previous batch system. Customers appear to welcome the increased product selection, and the staff appears to be adapting. However, the effectiveness of this new system in terms of labor and material utilization is a source of concern that must be investigated.

Variance Analysis

The variance analysis reveals a negative direct labor efficiency variance, and this document suggests a training program to increase employee abilities. The direct material usage (efficiency) variance is $15 Favorable, meaning that the actual quantity of raw materials used is lower than the standard amount. Therefore, the new system has led to improved efficiency in the usage of ice cream, the direct raw material. Conger (2015, p.239) argues that automation helps in streamlining the value-added activities and eliminates to a large extent the non-value added ones. The new system minimizes wastage in the use of raw materials resulting in an actual material usage which is less than the expected amount. Also, the new system improves the handling of ice cream by the employees preventing damage or wastage.

Direct Labor Efficiency Variance

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 is a lower learning curve, that is, the employees are slow in gaining skills necessary to operate the system. Anzanello & Fogliatto (2011, p.573) points out that a learning curve is a tool for monitoring how workers perform a new task and organizations seek to improve the labor force learning curve in efforts to increase productivity and performance.

Impact on Employee Performance

The introduction of the “Made-for-You” system caused a change in how the employees performed their tasks, and as a result, they have to acquire and apply a new set of skills. Krausert, (2015, p.6) calls this “incomplete knowledge spillover” because the previously attained 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 also in its early stages of testing, the employees are relying on trial-and-error and are making mistakes, and the result is the number of hours to produce the 2,000 shakes will increase.

Addressing the Unfavorable Labor Efficiency Variance

From the above discussion, the unfavorable labor efficiency variance is unacceptable, and this is a critical issue of concern. My concern 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 customer orders and increase their waiting time. Keeping customers waiting for their milkshakes results in dissatisfaction with the service offered and this adversely affects the level of satisfaction and loyalty (Kumar, Batista, & Maull, 2011).

Training Program Solution

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 of its functioning. Also, the program will identify the skills of each employee and align them to the appropriate task. Such an action facilitates effective work scheduling since each person is optimally occupied, significantly reducing idle time. The training program will illuminate the full range of capabilities of the new system and improve the confidence of the employees. Of importance is the fact that the thinking ability and creativity will be developed resulting in better problem-solving and adoption of productive behaviors (Elnaga & Imran, 2013, p.139). Therefore, such a continuous program will build the skills, experience, and knowledge of the employees, and the parlor would benefit from a reduction in the direct labor hours 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 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