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Case study I: Holly Farm
Fred and Gillian invested all their savings in a diary and arable farm which was constructed as a recreational source for the town inhabitants. While Fred took care of the farm, Gillian involved herself in promotional activities and managing the farm. The farm was opened from April to October since rest of the months was climatically unsuitable for outdoor activities. Good number of visitors came from Friday to Monday so it was not very economical to open the farm on the other days; this time was utilized by Fred for real farming. The highlights of the farm were the farm shop selling fresh vegetables, milking parlor which used a turn-table technology which visitors were allowed to watch from a built 15-member capacity gallery and the ice-cream factory which was open 4 days a week, 8 hours a day and around the year, although maximum sales was contracted from April to October. The ice-creams were sold to retail stores in addition to farm visitors.
Evaluate Gillian’s proposal to increase the number of farm visitors in 2012 by 35percent.
Gillian intends to increase the number of farm visitors by 35% every month in 2012. The farm is running successfully, with a good number of visitors frequenting the farm week after week especially on Saturdays and Sundays when the farm encounters twice as many visitors as on Fridays and Mondays. However, she wants a progress and to increase the returns for a better profit.
The peak months of the year are July and August with the maximum visitors in August. Increase in the number of visitors every month would mean increase range from April to October to be 21 to 99 visitors each day. Increasing the number of visitors in June, July and August by 85, 92 and 99 visitors per day would be a challenge for Gillian considering the large number. In order to achieve her target she needs to resort to a way that would not require any investment. From Gillian’s observation, on an average, one out of two visitors buys a one-litre ice-cream box and people who visit farm shops only comprise a regular source of sales for Gillian as these customers including many hotel owners stock up ice-cream so they tend to buy large quantities. Also, peak ice-cream sales season is around Christmas when 5380 litres were bought by retailers and 1230 litres was bought by farm visitors summing up to 6610 litres ice-cream sales in the month of December alone in 2011. Considering the steady ice-cream sales, it would be a good idea for Gillian to attract more customers to the ice-cream parlour.
However, the farm faces some constraints one of which is lack of capital for expansion or improvement requiring large funds. Secondly, the milking parlour gallery has a limited capacity of only 15 at one time while the demand is usually high on weekends when visitors are found waiting in queues to watch the milking technology used. In addition, they produce only 4 flavours of ice-creams. It is possible that customers would get bored of having only four options to buy from which would mean frequent repetition of the same flavor. Also, if there are other shops that sell more diverse flavours of ice-creams there is the risk of losing customers’ loyalty. Therefore, Gillian‘s idea to increase the number of flavours to ten is a good option and can expect more sales.
Some minimum expenditure would be unavoidable if Gillian feels strongly about increasing farm visitors by 35% in 2012 since it would at least involve advertising cost. The target audience for the advertisement should ideally be local public and coach firms. Although tie-ups with educational institutions may also increase the number of visitors, they would have to offer concessions to them considering the large numbers that would visit at a time and to compensate for the concession given it would require for Gillian to ensure a large number of schools visit the farm; it is difficult to guarantee large number of school visits. However, it is recommended that Gillian keeps invitation to schools at a minimum.
Gillian’s ice-cream factory and its shop are open all through the year achieving maximum sales in June, July, August and December. Analysing total ice-cream sales (demand) achieved in 2011, in comparison with the total production capacity of the ice-cream factory would disclose if the volume of ice-cream production needs to be increased. Taking into consideration that Gillian anticipates a 9% reduction in sales to the retail stores, it is found that the total expected demand for 2012 would be 70,840 litres approximately which is 4,840 litres lesser than 2011 sales. The total production capacity of the factory being 1,51,200 litres per year, there is no requirement for increasing volume of ice-cream production implying that there would be no expense for building up on the ice-cream producing equipments. It is clear that ice-cream demand is likely to decrease in 2012. At this point, there is no need for higher production but measures should be taken to prevent sales drop. This can be achieved by increasing flavors and varieties.
Explore capacity plans
Given that 425 litres of ice-cream was produced in one day and the storage capacity of the inventory is 9000 at any given time, it would have taken 21 days to fill the inventory. Considering that in 2011, Gillian produced only four types of flavours, one flavor could be produced for five days which would have resulted in 2125 litres of each flavor stocked up at the end of 21 working days or five weeks approximately. According to the sales data of 2011, it can be said that if Gillian filled the inventory, it would have lasted for 2 months applicable from January to April. In May if she had filled the inventory, there would have been atleast 2000 litres to be carried over to June who would go into the stock rotation freeze box plus another 9000 litres produced for June. So a total of 11,000 litres would have be available for June to meet the high demand of 9528 litres. Similarly, the other peak sales months of July, August and December would have been managed. Also, including the rotation inventory capacity of 2000 litres, a total volume of 11,000 can be made available during the peak months atleast.
If Gillian uses the full producing capacity of the equipment, which is 450 litres per day, she can utilize 2 days for preparing each of the ten flavours amounting to 900 litres of each flavour at the end of 20 days, when the inventory would have been filled to its maximum capacity. Perhaps increasing the number of flavours will not reduce the sale as anticipated. However, would there be enough stock of every flavour is the question. This cannot be answered unless Gillian starts implementing the plan and records the flavour/flavours that have maximum demand. So, those flavours can be prepared in higher quantities compared to the others. Another suggestion is that she could gradually increase the number of flavours from 6 to 8 and then 10. This way, she would be able to manage better and when she decided to increase to 8, she would have already known the graph of demand for 6 flavours.
What factors should Gillian consider when deciding to increase the number of flavours from 4 to 10? Identify advantages and disadvantages for this proposal.
While it is a fitting proposal to increase the number of flavours of ice-cream to improve sales, the quantity of each flavour to be made is unknown or should equal quantities of all flavours be prepared cannot be decided without knowing the pattern of demand. Suppose there is an unanticipated demand for a particular flavour and Gillian is unable to meet the demand, his customers would be unsatisfied. On the contrary, if there are flavours that are rarely sought, but overproduced, Gillian will be at a loss. A second factor to be contemplated is, does the factory have enough manpower and if the expense for flavouring is within their budget. Thirdly, increase in number of flavours would increase sales is only an assumption made. If the sales do not improve, there will be lesser chance for stock rotation and flavours would be stored for longer periods.
However, the proposal to increase number of flavours is still feasible if deftly planned and managed without increasing manpower and only requiring investing on flavouring agents.
Do you have any suggestions to Gillian for her to manage capacity/demand more smoothly without further investment in capital?
It is known that 40% of the visitors leave by 3:00PM and remaining 60% stay till 6:00PM to watch the milking technology, go around, purchase from the farm shop and have ice-cream as well. In order to extend the stay duration of the 40% of visitors from forenoon as well as increase the number of visitors in the forenoon, Gillian and Fred can introduce a different form of activity for the visitors during the forenoon.
Perhaps Gillian can allot forenoon for school visits (the few schools he may tie-up with) and Fred can explain farming techniques he uses in the fields. In addition they can rent the farm space for organizing parties for school children which would add extra income.
In conclusion, Gillian and Fred should focus on developing the farm in a gradual and systematic manner rather than increasing the target achievement to as high as 35%. Employing a gradual increase method would give time for Gillian to study the growth curve and make better decision based on demands.
Case Study II: Sharon Constructions
The president of Sharon Constructions Jim Brown decided to take up a construction contract for a stadium of capacity 20,000 at a cost of £300,000. The condition laid down is that the construction should begin on February 4th 2013 and should be completed by Feb 3rd 2014, post which delay by every week would incur a penalty of £15,000 per week. Later only when he discussed the proposal with his subordinates, did he realise that there could be certain obstacles like an expected strike from November 22nd which would last for either 8 or 12 weeks and there was a possibility of a colder December than predicted which would increase the cost by £500 per week for heating. The employees proposed ways to accelerate the work and reduce the construction time.
Analyse the four proposals and make recommendations based on Expected Costs (EC) as the criterion.
The employees of Sharon constructions suggested four proposals by which the construction time can be shortened at extra expense.
No of weeks in a year = 48
No of weeks required to complete the construction = 45
No of weeks available till Nov 22nd (when strike may begin) = 38 and ½ weeks
There are 48 weeks in a year and 45 weeks are required to complete the construction of the stadium. Considering the obstacles that would delay the construction process, and withdrawing will affect its reputation, it is important for the company to make decisions that would enable them to successfully and efficiently complete the task within the agreed time.
Case 1: Labour strike begins on November 22nd and continues for 12 weeks.
In this case, Sharon Constructions has 38 and ½ weeks totally to complete the work. Employing proposal 1 or 3 would reduce the total construction time by 6 weeks leaving them with 39 weeks to finish. Given that proposal 3 would increase the proposed cost by only £8,000 as against £20,000 for proposal 1, it would be more economical to implement proposal 3. However, they would still require an additional half a week plus there could be other unforeseen obstacles. In which case there is no better choice but to employ proposal 4 only for the extra time required.
Case 2: Labour strike begins on November 22nd and continues for 8 weeks.
In this case, the company has 40 weeks – 38 and ½ weeks before the strike and another 1 and ½ weeks post strike to complete the construction. This case is easier to handle and the company can quite conveniently complete the work in 39 weeks employing proposal 3. In addition, there is an extra week to complete any pending or obstructed work.
Case 3: Winter cold strikes harder than predicted but there is no strike
In this case, consider that all the 4 weeks in December is extremely cold that it requires heaters at an extra cost of £ 500 per week, then the total extra cost would be £ 20,000. Alternatively, consider suspending work during the month of December; the company has 44 weeks totally. Executing proposal 3 would increase the cost by £ 8000 and reduce the time for construction to 39 weeks and there would still be 5 weeks extra to address any unforeseen situation.
Case 4: Both strike and winter is colder
Case 1 and 2 would be applicable for this case as well since if a strike is imperative then, work would anyway be suspended during December.
What factors have you considered when evaluating these proposals? What other factors might enter into the decision such as behavioural, organisational (external reading needed on this point)? What decision would you make as the president (external reading needed on this point)? Please support your arguments with reasons (this is applied to all points in this question).
Establishment and growth of businesses are based on several primary parameters such as planning, efficiency of execution, customer service, trust and importantly financial management. Today business management is a dynamic area which demands all associates especially decision-makers to be aggressive and savvy. Since conclusion can not be made from a single scenario, all analysis and conclusions are made only with respect to the given case.
In the given case study of Sharon Constructions analysis, it is evident that the company lacks a robust decision making process. Key decision making is an important leadership quality which the president of Sharon Constructions Jim Brown has failed to demonstrate. An important project such as this should have been discussed with vice-president and board of directors before deciding to accept. This would have prevented the company from having to face such a stifling situation. This decision of the president definitely would have agitated the directors and other employees. In addition, if the project had to extend beyond Feb 3rd 2013, it would affect the reputation of the company, client dissatisfaction and loss of trust.
However, the decision having been made the situation had to be dealt with in a way that would not affect the company’s reputation as well as keep the cost to a minimum. In such a situation it would not be possible to accommodate more minor issue like national holidays and personal leaves. However, such issues can be managed to some extent by discussing the situation with the workers as well. Another factor that needs to be considered while making the decision is the availability of the required number of workers. Since this was not an issue discussed, it can be assumed that there is enough number of workers.
Not much of a change could be made in case 1, 2 and 4. But in case 3 wherein no labour strike ensues but a colder winter is imperative, and there are 44 weeks, the company can use lesser number of workers to complete the work in 42 weeks (reduce by 3 weeks) rather than 39 weeks (reduce by 6 weeks). This implementation would cut the labour cost further incurring an extra expense of £ 4000 instead of £ 8000. In addition the company would have 2 weeks of buffer for any pending work or consider unanticipated hurdles.
In conclusion, decision-making is important aspect of any business and building a company’s reputation is based on such decision making. Sharon Constructions should focus on analyzing well the obstacles of any project make negotiations accordingly.
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