Critical Evaluation of Freemark Abbey Winery - Essay Example

Freemark Abey Winery The case is about a winery called Freemark Abbey and the methods it uses to produce top class wines. The case study starts by an introduction to the Freemark Abbey’s uncertainty about harvesting grapes during the approaching storm in order to maintain the quality of wine it produces. It then describes the wine making process the winery has adopted and been using for a long time. The process of wine making is referred to as vinification. The process is affected by different types of decisions which the wine maker makes in terms of choosing the type of wine making barrel it uses and the stage to which the grapes have ripened at the time of harvestation. The best quality wine is produced only when the fruit has been ripened to a level where it reaches a perfect balance of acidity and sweetness. The ripeness of grapes is influenced by the existing weather conditions as well. In order to produce the right type of wine it is crucial that everything from the level of ripeness the grapes have achieved to the existing weather are all in a perfect balance. Most of all the fermentation process is accelerated by a certain type of bacteria known as botrytis mold. The latter part of the case takes an elaborate look at the different factors which impact its owner’s decisions regarding whether or not to harvest the grapes based on the weather predictions of an approaching storm. It discusses the ways in which the storm could affect the quality of wine and in turn its market price. Discussion Based on the weather forecast William Jaeger who was one of the owners of Freemark Abbey Winery considered the following factors to decide whether or not to harvest the grapes: There was only a 50% probability that the storm would hit Napa Valley. There was only a 40% chance that the storm could lead to the formation of the bortrytis mold. Incase the mold was not formed the winery could incur a loss of $0.85 by selling the resulting wine with a thin consistency. Freemark Abbey could also sell the wine in bulk It could sell only the grapes directly In case the storm did not strike and the wine owners were lucky enough to leave the grapes to ripen, they could get lucky and sell the bottles at a great wholesale price of $3.50. Incase the weather conditions were not so favorable the resulting wine would be a little inferior in quality and the wholesale price would drop to $3.00 If both the above options were left out the grapes could be harvested and dipped in acid and the resulting low acid wine could be priced in the middle at $2.50 If the wine was perfectly botrytised the wine would be significantly superior in quality but its quantity would be reduced. This kind could produce fewer bottles but they could easily be priced relatively high at a price of $8.00. In either case there was no savings in the vinification costs. The winery’s wholesale price was higher than its vinification costs. The case study revolves around discussing all these factors which influence William Jaeger about deciding whether or not he should harvest the grapes prior to the approaching storm or wait for luck to strike. This is a critical decision to make and all possible options should be evaluated before taking a decision. There are several predictors of decision and various factors which have to be taken into consideration in order to decide whether the grapes should be harvested immediately or at a later stage. The biggest problem is that Jaeger’s decisions are all based on assumptions about the weather forecast. Incase the assumptions fail, the consequential strategy will also be unsuccessful. Freemark Abbey can rent a weather detector to maximize surety. In case the storm does not strike, early harvest can lead to a rise in acidity levels. This in turn will produce low quality wine. On the other hand if the storm strikes, the vine prices decided would still lead to some gain in the revenues.Jaeger can also take a risk of waiting for bortrytis to form at the right consistency on the grapes, since there is a 40% chance this could happen it could lead to high profits for the firm. The decision tree is as follows: There have been assumptions made while making the decision tree. The values marked in white font are determined after assuming that thin wine is sold in bulk (1000 pieces), whereas the values marked red are a result of the assumption that thin wine will be bottles offered at $2.00 per bottle. The aforementioned decision tree is calculated on the basis of the assumption of (B), the waiting period for the storm has an EV of $ 35,640 as compared to (H) which shows a lesser EV of $34,200. The fact is that the difference between the two is not very high; it is approximately 4.2% higher. It is believed that if (T) is considered, the EV of (W) accelerates up to $39,240, which is significantly a larger figure. Though, it is important to note that if (T) is used there will be long term negative effects that may impact strategies. There are two major considerations in this entire procedure: 1. The mold has only 20% chances: In the first case, if there is a probability that the mold is only 20% then two things can happen: i. On the basis of the pre-supposition that thin wine is in bottles, the EV of (W) would reduce from a value of $39,240 to a value of $34,920 making it still at a better position than $34,200. Despite the fact that there is a difference between the two values, this variation is very minimalistic giving a chance to a more certain option (H) for consideration. ii. On the basis of the pre-supposition that thin wine would be offered in bulk, the EV of (W) would reduce from a value of $35,640 to $30,120. This change would make (H) a more preferred option because of lower risks associated and the presence of a higher EV.   2. The calculations of EVPI (storm), assuming (B) is used If (B) is assumed to be used, the calculation EVPI (storm) can be determined by subtracting EV without the knowledge of the storm from EV having prior information of the storm. In a scenario where it will be known that the storm would hit, the most suitable option is of (H) having an expected revenue of $34,200 (as compared to the values of $34,080). On the other hand, if the situation is certain that the storm would not hit then the most suitable step is to wait with EV of $37,200 (compared to the values of $34,200). From this, it can concluded that if prior information is existing, then the EV = 0.5 * 34,200 + 0.5 * 37200 = $35,700. If prior knowledge is non-existent, the EV (obtained from the second part mentioned above) is $35,640. Consequently, the EVPI (storm) = $35,700 - $35,640 = $60.  Assuming (T) can cause a similar calculation but the EVPI (storm) would appear as nil. Using this assumption, whether or not the storm is predicted or not, the most suitable option is to wait (41,280 compared to 34,200 and 37,200 compared to 34,200) producing a similar EV of 39,240. By going with the waiting option, the winery producer is at a lesser risk of facing losses and gaining fruitful results. Work Cited Krasker, William. Freemark Abbey Winery (Abridged). Harvard Business School. July 19, 2005. Print. Read More