Monthly and Annual Capacity of the Bakery Business - Assignment Example

 Fine Country 1. With the current method of working, what is the monthly and annual capacity of the business? (30%) During the all the months except for March, April, November and December, daily production has been of two batches of each type of cake i.e. 2 batches of 1 Kg cakes and 2 batches of 2 Kg cakes- a total of 4 batches everyday. Since there is a 10 kg weight for each batch for both 1 kg and 2 kg cakes, the production for the months of January, February, May, June, July, August, September, and October is as follows: Cake Size (kg) Cakes/ batch batches/ day cakes/day kg/day cakes/wk kg/wk cakes/ month kg/month 1 10 2 20 20 100 100 400 400 2 5 2 10 20 50 100 200 400 Total 15 4 30 40 150 200 600 800 However, the production of 2 kg cakes was raised by 50% in the months of March, April, November and December. That means that the production was raised to 300 cakes per month instead of 200 for the 2 kg cakes to meet the expected demand. However, it did not impact on the production of 1 kg Cakes and hence the production for these four months was as follows: Cake Size (kg) Cakes/ batch batches/ day cakes/day kg/day cakes/wk kg/wk cakes/ month kg/month 1 10 2 20 20 100 100 400 400 2 5 3 15 30 75 150 300 600 Total 15 5 35 50 175 250 700 1000 Overlaying both these types of sales together to make an annual summary would give us the following summary of production: Month Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Annual 1 Kg Cakes 400 400 400 400 400 400 400 400 400 400 400 400 4800 Weight 400 400 400 400 400 400 400 400 400 400 400 400 4800 2 Kg Cakes 200 200 300 300 200 200 200 200 200 200 300 300 2800 Weight 400 400 600 600 400 400 400 400 400 400 600 600 5600 Total Cakes 600 600 700 700 600 600 600 600 600 600 700 700 7600 Total Weight 800 800 1000 1000 800 800 800 800 800 800 1000 1000 10400 The total annual capacity of the business is: 7600 cakes Monthly capacity is depicted in the chart. 2. How does capacity compare with demand in 2006 and forecast demand in 2007? (20 %) The following comparison chart will give analysis of how much was produced and was sold during 2006: Cake Type Produced Sold (Demand) 1 Kg Cake 4800 4700 2 Kg Cake 2800 2880 Total 7600 7580 Surplus 20 The demand for 2 kg cakes has been more than the production capacity for 2006. However this demand had been fulfilled by the ending stick of 100 cakes each of both 1 Kg and 2 kg cakes of 2005. Still at the end of 2006, 20 cakes have been left unsold of 2 kg’s each. The demand for 1 kg cakes has been lower than the production and the ending stock of 2006 was two hundred 1 kg cakes. As there had been leftover stock in 2005 as well of one hundred cakes of 1 Kg as well- this added to the already overproduced quantities of 1 Kg cakes. However, the total surplus of the year 2006 only and not adjusting the ending stock of 2005, has been only 2 cakes in total. But an accumulated two hundred and twenty cakes have been added in the surplus of 2006 sales- showing a large overproduction of cakes and comparatively lower demand as production had increased. The demand for 1 Kg cakes has fluctuated tremendously especially around the holiday season with sales going upto 1600 cakes in December. However, the sales of 2 Kg cakes has been relatively that varying and have been kept quite constant. One of the main reasons for this is that the 1 kg cake is targeted to be sold directly to the consumer and is sold over the shelf, making it possible to be purchased as gifts on holidays. However, the 2 kg cake is targeted to be sold in pieces in cafes etc. and the sales have fluctuated but not as dynamically as the 1 Kg cake for the stated reason. Cake Type Produced 2007 forecast 1 Kg Cake 4800 6000 2 Kg Cake 2800 3500 Total 7600 9500 Shortage 1900 Even with an ending stock of two hundred and twenty cakes, the current production levels will not be able to meet the high demand of 2007 forecast- projecting a 1900 shortage from 2007 production only. This shortage may result in sales losses and if they do not expand now they will suffer in quality as they will try to make cakes in less time. 3. Why did Dave have to sell stock at reduced prices in 2006? In which months do you think that happened, and explain clearly the reasons? Justify your answer with simple calculations. (30%) 2006 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total 1 Kg cakes sold 80 200 600 320 120 80 120 80 240 480 800 1600 4700 Production 400 400 400 400 400 400 400 400 400 400 400 400 4800 Difference -320 -200 200 -80 -280 -320 -280 -320 -160 80 400 1200 -100 2 kg cakes sold 160 340 300 240 140 160 240 160 180 260 300 400 2880 Production 200 200 300 300 200 200 200 200 200 200 300 300 2800 Difference -40 140 0 -60 -60 -40 40 -40 -20 60 0 100 80 Total Kg sold 400 880 1200 800 400 400 600 400 600 1000 1400 2400 10480 Produced Weight 800 800 1000 1000 800 800 800 800 800 800 1000 1000 10400 Difference -400 80 200 -200 -400 -400 -200 -400 -200 200 400 1400 80 Dave had problems selling his cakes in the months of January, May, June, July, August and September. From the table above it is evident that Dave was not selling as much and in some months not even close to what he was producing. From January to September he had 1920 Kg of stock in his factory for the nine month period. Moreover, since he is required not to have over three months of stock stored as required by retailers and for the scare of turning his cakes bad this inventory figure was too high. 120 cakes have been carried over as stock from January, and they and to be cleared by beginning May. So that is one point when he reduced his price. The second time he would start reducing his prics would be from August based on the same principle. 4. Jean believes that they should try to get more business from craft shops and tourist centres. What advantages/disadvantages would this market have compared with the existing retail outlets? (20 %) One of the straight forward advantages that the bakery is going to have is to get a better price at the craft shops and tourist centres. Since both these new locations do not demand a discount that is as high as the present retailers- bigger profits can be earned. Furthermore, the retailers require supplies at short notices according to local demand- putting a lot of pressure on the production facilities. This pressure may lead to decreasing the quality of the cakes and hence generating dissatisfaction among the customers. Followed by dissatisfaction may come the turning of the customers away form the cakes and finding a better or maybe cheaper substitute. Since the strength of the cakes is the quality- the right amount of ingredients with next to perfect toppings, any fluctuations in quality may result in loss in sales in the next year as more and more customers would be dissatisfied. This may also have been the reason for such drastic fluctuations in the sales of the cakes as well as people might have only wanted to buy them at a lower price. Dave did have to sell a lot of his inventory with a promotion- a discounted price, and this might have been due to two reasons- either the customers he was targeting could not afford his cakes or the cakes’ quality had been affected due to pressure on production and cakes were not made right. It may be a good idea to produce at a consistent level where quality can be controlled and increase the price while positioning the cakes for a better customer at a higher profit ratio. Meaning, they would be able to maybe increase their profits eventually by selling less cakes at the same price. This is just another offshoot on the theory that eighty percent of the business is done with twenty percent of the customers. The choice of the two new areas for sales also would decrease the production cost as they would be producing more of 1 kg cakes and less of 2 Kg cakes. The 1 kg cake takes relatively lesser time to cook and would sell for a higher margin. This would also enable them to manage their work flow better as one of their ovens is already not functioning well for 2 kg cakes. The demand of cakes is volatile in one year for one Kg cakes in the existing retailers. The demand has been increased in the holiday seasons up to 20 times than the lowest sale points. A better option can be to drop business at the retailers and make 1 kg cakes for the two new types of locations who will have a steadier sale pattern and meanwhile have their 2 kg cakes available the same way. On the other hand they could lose a lot on sales since the tourist resorts might not be filled with customers and as many customers to sustain their production capacity. Eventually it can be that they would be selling lower quantities at a higher price but would follow the same dead sales seasons as they had in the local retailers. Since it is a perishable commodity, they cannot afford to keep it in inventory over three months and would have no other choice to throw it out or risk customer dissatisfaction. The new types of locations may not also have the right customers for them although customers may have greater spending power but they might not be the exact cake-customer the bakery is looking for. Probably, they would need to invest in doing more sampling and research to exactly find out what these customers need before trying out the new locations. Read More