AGILA ART GLASS CASE

When Lito Domingo, a second year graduate student at the Asian Institute of Management, first visited Agila Glass in 1990, he found the business files in disarray and the owners wondering how much longer he can stay in business. Records of production and data on product costs were non-existent.and the only financial records were a checkbook, unreconciled bank statements and several tax returns. James Tan was a skilled glassblower who had recently moved his factory from Binondo to Malabon. Tan’s wife had always taken care of the company’s books and records, but the bookkeeping had been neglected since his wife passed away more than two years ago. Even if his glasswork had been selling very well since he moved to Malabon a year ago, he soon found himself draining his very limited resources. He did not expect a big salary, but estimated that he would need at least P 25,000 a year to tide him over. Notwithstanding his lack of organized financial information, he realized something had to change.if he was to avoid bankruptcy. In desperation, he contacted Lito, a longtime friend, who agreed to help him.

Production Process

Agila produced fine, handblown glassware in the form of tumblers, paperweights, patterned glasses and vases. In a refurbished garage, James fashioned handblown items from molten glass gathered on a long metal blowpipe. Using his own breath to shape the object, James formed each vessel by a process analogous to blowing honey at the end of a straw. Once the bottom was formed, a metal punty was attached, and the vessel was broken from the pipe. After reheating, the lip was trimmed, fire polished and formed. When the object was broken off from the punty, the characteristic “punty mark” was left. The glass was annealed ( a slow process of cooling) for several hours in an oven to relieve stress and was later ground, sanded and polished before being shipped.

Charging

Production began each week by melting a 200 lb batch of glass in the furnace. Each batch contained about 80% new materials and chemicals and no more than 20% cullet, which was clear, scrap glass from previous melts. James carefully monitored the proportion of ingredients in each batch, including he amount of cullet used, because he believed any deviation from the desired mix and batch size resulted in an inferior quality of glass. As a result, he usually had to dispose of a considerable amount of good unused glass at the end of each week, but he was reluctant to reduce the quantity of the batch to less than 200 lbs. Figure -1 shows the typical recipe for a batch.

Figure -1
Materials for a Batch

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Melting required an entire day, because the materials had to be put in the furnace gradually, the next day was lost to fining, a process that allowed the gas bubbles to esacpe from the molten batch. Typically, James charged the furnace on Sunday, fined on Monday, blew glass on Tuesday through Saturday. Since the furnace ran continuously, and daily oven use was known during the weeks glass was being blown, total gas used (one of his biggest cost items) was a predictable P 1,000 per month.

Blowing

Daily production began with lighting the glory hole, the area from which molten glass was gathered, to bring it from room temperature to 2.300 F, which took about two hours. Meanwhile, James turned up the furnace to raise the temperature of the molten glass to 1,800 F. About 40 minutes before glass blowing began, he turned on the annealing ovens so that they would reach 850 F, by the time everything else was ready. While the furnace and ovens were heating, James did miscellaneous chores, including grinding and polishing the previous day’s production, office work and general maintenance.

James usually blew paperweights first, because they were solid and needed more time to relieve stress. Approximately two hours were spent on these pieces and vases. After lunch, he began to make glasses. He worked approximately four hours in the afternoon, making a total of six hours glass blowing spent on a typical day. Finished items varied as to their content of glass, as shown in Figure 2. At week’s end, unused glass became cullet or was scrapped. On average, approximately 50 lbs of unused glass, called “dirty scrap”, was left that could not be recycled as cullet. Disposal costs were insignificant, although public concerns over environmental issues were expected to make glass disposal more difficult and more expensive in the future.

Figure -2
Glass Content

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During the forty production weeks a year, James worked in his grage almost everyday. He did, however, spend considerable time speaking to visitors and friends who dropped by to see him work. James typically, spent some time on Sundays and Mondays doing miscellaneous chores and catching up on grinding, sanding and polishing that had not been completed during the previous week.

Finishing and Shipping

Solid glass pieces had to be ground, sanded and polished prior to shipping. For one solid piece of glass, 40 % of the time required for finishing was spent on initial grinding, 15% on a second grinding, 20% on first sanding, 10% on a second sanding, 5% on a third sanding and 10% on final polishing. Total finishing averaged 15 minutes per piece. Holloware pieces needed only polishing, which required an average of 3 minutes per piece for glasses and 5 minutes for vases. The finishing procedure was refrred to as “cold time”, as contrasted with blowing, which was known to as “hot time”.

Orders were packed and shipped once or twice a week. Packaging involved wrapping, boxing and labelling. It took about 15 minutes to pack a case of twelve glasses and James used part time labor for packing, shipping and general shop cleaning.

Quality Control

During production runs, first, seconds, clean scrap and dirty scrap were produced. Firsts, were those objects meeting the artist’s criteria for a quality piece of art glass. Seconds, had some flaws, such as a lesser glass quality (too many glass bubbles) or a bad break from the punty rod. Some clean scrap became cullet and the excess was discarded; dirty scrap was always discarded. Seconds required the same “hot” and “cold” time as firsts. Seconds were sold only at the garage, and their number varied with the item being produced. Rarely were items of such inferior quality that they could not even be sold as seconds.

Production Time

By closely watching the business over a period of several weeks, Lito estimated that James spent the times shown on Figure-3 for each object blown. (Figure 3 also lists the typical production rate for a week.) As can be seen, wrapped tumblers were his biggest volume item, on average, taking 15 minutes to blow and another three minutes to “finish”. James did all the blowing and finishing himself, although, he mentioned to Lito that he was considering hiring additional part time labor to do some or all of the finishing.

Figure 3
Production Time and Weekly Output

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James worked a normal schedule from September to mid-June. During the summer, he spent about ten weeks traveling to trade shows where he exhibited his works, and he spent the remaining two weeks vacationing.

Sales

James first sold firsts directly from his garage in response to mail orders and orders taken from trade shows. Individual pieces are shown on Figure 4. Sales are only slightly seasonal, and James almost always had a months back log. Seconds which were available to customers who visited his workplace, sol;d for the same price as firsts.

Figure 4
Per Unit Price List
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Operating Costs

In addition to the costs for raw materials and gas, James’ business incurred various operating costs (Exhibit 1). With the exception of expenditures for office supplies, tools, manufacturing supplies, and part time labor, operating costs were incurred every month regardless of whether production occurred. Some of the ongoing costs were not incurred evenly throughout the year, and the amounts therefore represent monthly averages.

Fixed Assets

Lito produced a rough balance sheet for the business as of its inception in September 1, 1988 (Exhibit 2). The most critical facilities (i.e. furnace and ovens) had a lifespan of only two years. The equipment and gas tanks were expected to last eight years and the truck five tears. Jame’s truck payments were P 205 a month for 36 months beginning in September 1988. He had only a few thousand pesos in personal savings left and wondered how long it would last. He also wondered how much each of his products cost, which items were most profitable, and whether his prices were too low. Perhaps it was time to develop a sound production and pricing strategy.

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