1. As discussed in Chapter 2, a key to profitability is getting a sufficient financial return on expensive resources. This is particularly true with production equipment used in manufacturing processes. The volume of output must be sufficient to warrant the financial investment in the equipment. More sophisticated equipment often replaces labor, reducing labor costs, and adding to product consistency, but it may also reduce the customer-perceived value added by craftsmen and artists. Guitar production provides an excellent example of manufacturing that must balance sophisticated machinery needed to maintain production volumes and quality with the craftsmanship and knowledge possible only in hand-work. Rickenbacker, a guitar producer, provides an excellent example of this phenomenon. Take the Rickenbacker Factory Tour (Click on Factory).

a. Which of Rickenbacker's production processes have been mechanized or automated?

b. How do the mechanized and automated processes improve profitability? Which of Rickenbacker's processes do you think were mechanized to reduce costs? Which do you think were mechanized to improve product quality?

c. Which production processes have been left to be completed by hand by skilled craftsmen?. How does this handwork add to the value of the finished product? Is the value added "real" in that it actually makes the product better? Or is it merely perceived to be better by the customer? Does it matter?

2. Automated equipment is often used as a way to reduce the variable processing costs per unit by investing more money up front. Take the plant tour of the Coffman Company. Coffman makes stairways for use in new home construction. While you are taking the tour, pay particular attention to uses of automation.

a. How does Coffman's use of automation impact profitability through cost reduction?

b. How does Coffman's use of automation impact profitability through value enhancement?