Read the instruction and answer the question

19 May Read the instruction and answer the question

Business Management 3130 Case 1

BUCKEYE BROWNIES COMPANY

The Buckeye Brownies Company was a student business off-campus that evolved from the founders’ continuing frustration at finding fresh brownies on or near campus. The partners believed they could provide high quality, fresh baked products to the community and possibly earn enough to subsidize their education.

At the outset, the roommates and founders had to decide whether this was to be a hobby or an attempt at a legitimate business. Since they realized immediately the physical space limitations of their apartment, this forced the decision to rent some space and jump into this venture seriously, but part-time. In order to hold down rent and utility costs, they negotiated for a very small space off High Street in a partially hidden alcove. Most of the limited space was taken up by the equipment they would require, so there was limited counter area to service customers, creating the likelihood that even a modest line would be forced to form outside. They decided to consult some friends in Marketing to assess whether this congestion would be a liability to their business or, on the other hand, create an impression of great products inside worth waiting for! Luckily, this seemed like a winning strategy which was helpful since they did not have the resources for a larger space. In order to help cash flow, the owner of this unattractive space gave them the first three months free to start up the business.

The Buckeye Brownies Company would compete with other bakeries and one, well-established chain that did not, at the present time, have a location near campus. Grocery stores were not considered competition although several did have in-store bakeries that prepared their own brownies and sold them by the piece. Because of their size and the inconvenience to get in and out quickly, the partners did not think customers would use

This case was written by the instructor as a tool to demonstrate course content. It is not based on any actual business, nor is the data provided within necessarily an accurate representation of such a business. In addressing case questions and issues, use ONLY the information provided without consideration to similar businesses or actual experience you may have.

this channel for a single purchase. Also, these larger stores were not located within the student traffic patterns of daily campus life. The bigger question by far was how to address the various coffee shops proliferating in the area, including on-campus. All of them, both chains and individual cafes, offered baked products. This forced an early strategy decision as to whether such businesses were competitors or potential customers.

If, in fact, the coffee outlets were to be viewed as competitors, this also implied that Buckeye Brownies Company would itself have to offer coffee at its location. Under such conditions it would be less likely that these locations could ALSO be developed as potential customers for the brownies. Another early decision addressed whether the offerings should be limited to brownies alone. The fundamental production process for all baked sweets was similar, so having a brownie business could expand easily into related products, including brownies.

Since there was so much new and uncertain, the two decided to start small and focused and to see how they did with a limited concept. They also felt this narrow strategy would better enable them to stay involved with all aspects of the business to ensure quality and might lay the groundwork of experience for better-informed decisions later. So the business opened serving four varieties or flavors of brownies under the slogan, “Always fresh, always warm”. Since demand did not pick up until late morning, the partners were able to juggle their class schedules to ensure the store had coverage by at least one of them until early evening closing.

With only an occasional ad in The Lantern and relying primarily on word of mouth, the business grew slowly and allowed the partners to occasionally experiment with new product offerings, or daily specials.

The Production Process

The value chain for a brownie is rather basic. There are fundamental raw materials such as water, flour, sugar, chips, nuts, raisins and any other filler used. Small cellophane bags were used for the carry-out with one additional larger size for bigger orders. While the idea of “fresh” and “warm” meant that the production had to be timed carefully to actual demand, the partners also were committed to the highest quality ingredients, so only stone ground flours were used, organic where possible, with similar attention to other common ingredients. This drove up the cost but company focus was for a “gourmet” experience after all, so it was considered necessary to the business.

Daily production in terms of product mix and quantities was planned one day in advance and tended to follow a regular schedule. So, for example, an oatmeal brownie would be produced every Monday, Wednesday and Friday. This made production planning easier and, the owners also found, created a predictable repeat business of regulars who knew when their favorite types would be available. Despite four varieties of brownie offerings, the production process (including time lines) was identical for each with the only difference being the raw material inputs in the MIX step. The sequence of production was MIXING INGREDIENTS → PORTIONING OUT BATTER ON A BAKING RACK → BAKING → COOLING → SELLING.

The ingredients for each secret formula were added manually but measured out carefully into the mixer to create a small batch of 6 pounds. The mixing process step was sized to the oven, which could accommodate only two racks (or trays) of one dozen brownies each, 4 ounces per brownie, at any one time. The mixing Cycle time was four minutes with an additional two minutes of resting time for the batter prior to portioning onto the baking rack. Sufficient racks were always available.

The full mixture of rested batter was then ladled into a manual device that looked like a caulking tube which allowed the worker to reliably measure out 4 ounce brownies onto the baking rack. Each baking rack could accommodate one dozen brownies. The full batch of mix could be oven ready in five minutes. (Assume no product loss in any process step; note that this is a proprietary process in that the brownies are baked individually, not in a sheet and then later cut.)

The pre-heated oven required a process time of twelve minutes to finish cooking the two trays of brownies. At the end of this step, the trays were removed immediately and placed on nearby cooling racks. This area was part of the counter display and seemed to always provide sufficient space due to the brisk pace of sales.

Depending on the seasonal temperature, the time required for cooling averaged 6 minutes; any less time risked collapsing the brownies before they hardened sufficiently.

Brownies were sold directly off the cooling racks or from limited display cases near the cashier in order to keep the cooling area freed up for fresh brownies.

Process Challenges

While the production process could deliver a predictable flow of warm brownies for waiting customers, the occasional spike in demand led to excessive waiting or lost business. This was typical on a football home weekend as customers flooded into the store before and after a game. The partners feared that a discontented customer might be lost forever, so they felt it was time to re-assess their capacity.

Their options were limited since they felt committed to their current location and to keeping the business within a scale they could personally run. While they were willing to invest some money where needed, they did not want to waste spending where it was not justified. Even though the partners had been involved on a daily basis for several years now, it was not immediately clear to them what had to be done to improve the process flow when demand required.

The Customer Experience

One of the concerns with such a small storefront was the likelihood of lost sales when a line formed. There was only room for six standees inside waiting for service. In order to design the service delivery prudently, the owners assumed potential customers would be unwilling to line up outside when the store is full. Both space and cost considerations limited the number of Servers to one.

A time study of a typical business day indicated that 12 customer arrivals per hour could be anticipated.

Selected Financial Information

The owners feared that if they expanded the facility and its capacity, there might not be enough demand to justify the investment. This led to consideration of expanding the product line from brownies only to include pastries. The two products complemented one another since Pastry was consumed early morning and as an evening dessert while brownies were more of a daytime snack. Just as the partners neared the decision date of graduation, fate stepped in to complicate their lives.

Suddenly, this uncertainty was removed with two, unrelated propositions:

· The University foodservice department offered a long term brownie supply contract with guaranteed volume and, even better, daily pick-up by their service vehicles. They promised prompt payment but required a price of $1.00 per brownie in order to resell at a profit and to cover the delivery and distribution costs.

· A regional manager at Starbucks inquired about a supply contract for various pastry, for all retail locations in Central Ohio. There were prepared to pay $2 per piece and were willing, in addition, to split the delivery cost equally, which everyone agreed would come out to about 20 cents per pastry. (Note- This is the total delivery cost which would be shared.)

The owners were not accountants, so they asked for some help from a Fisher accounting major to look at their costs:

COST SUMMARY per unit	Brownies	Pastry
Raw Material	.15	.50
Labor	.40	.75
Overhead*	.35	.35
Cost Subtotal	.90	1.60

* Overhead such as machine depreciation and advertising and supervision could not

easily be calculated by product, so a single $ 0.35 allocation was used per unit.

There was NO WAY that the business could handle both deals. Their heart and passion were into brownies; the pastry had been a distraction to fill in some idle production time. Also, Ohio State was soon to be their alma mater, and in one case, a home for Law school. Could they turn down the deal from an institution so integral to their lives these past five years? At this point, they had to make a decision, but neither was confident what the right one was.

CASE ASSIGNMENT

Your work should address clearly each question below. Space per answer can be allocated as you choose within the overall Case format instructions. When Tables are used as attachments, please refer to them specifically in answering any question below:

1. Answer the following questions:

a. Identify the competitive dimension(s) for the core business

b. What is your position on the product offering(s)? Should Buckeye

Brownies offer coffee? A more diverse product offering?

2. Prepare a labeled Process Flowchart of the brownie making. This does not have to include time lines, which are addressed in the next question. This does not require a computer preparation; a neat, hand-drawn presentation is acceptable.

3. Prepare a Process Analysis (See Chapter 11) of the business. This should be formatted as a Table of the sequential steps providing the Process time required at each one and, separately, the Cycle Time per unit, where units could be a measure by pound, by brownie or by rack- but be consistent.

4. Answer the following, specific questions:

a. When the owners first come into the store each morning, it takes about

1 minute to get the first batch of ingredients into the mixer since they

had been portioned out the prior evening. In the meantime, the oven

will be turned on and ready as needed. If they want to be ready to sell

brownies at their 8:00 am opening, what time do they have to come in?

b. The mixing machine has the ability to handle ten pounds of batter at a

time. A visiting Michigan business student, waiting for a fresh batch of

brownies to be ready, noted that the mixer is only partially used at 60%

of capacity (6 pound batch / 10 pounds ) at any time. He recommends

mixing a full batch of ten pounds to reduce the waiting time. What do

you say?

5. Based on your analysis in #3, make a recommendation as to what action(s) or

process improvement needs to be taken FIRST. (If no action is needed, state this

with the reasoning.)

6. From the Customer Experience data, use Q2010.xlsx to determine what must the

Service Rate be, measured per hour, in order to limit the time in Queue to exactly

15 minutes? Include your Q2010.elosx file printout (Caution- Specify Page 1

only when printing!) and highlight or write in your answer.

BONUS

Which offer should the company accept for new business and why? SHOW YOUR WORK

Case Scoring by Question

#1 – 1 point each (total = 2)

#2 – 2

#3 – 3

#4 – 1 each, or 2 overall

#5 – 2

#6 – 4- (1 for correct model selection; 2 for correct data set-up; 1 correct answer)

Bonus – 2

Total = 15 + 2 or 17 possible points; scores OVER 15 will be allowed.

Note that in addition to accuracy and completeness, the evaluation will ALSO consider writing: clarity of presentation, use of tables where appropriate, absence of errors or poor writing, following instructions (within this document and the syllabus).

In answering case questions, focus answers based on course material. You do not have to allocate equal space to each answer. Where quantitative questions arise, it may be helpful to use Tables as attachments (remember, you are allowed three pages + three attachments).

INSTRUCTIONAL SUPPLEMENT

This case contains information or data that is not covered explicitly in the course material to date but may be familiar to you from classes in Finance or Accounting. To ensure a level playing field….

· The term REVENUE is used interchangeably with SALES. Sometimes it is calculated from Units Sold X Average Price.

· COSTS represent any reduction in PROFIT, and for this case are classified as Raw Material, Labor, and Overhead.

Profit (Earnings before Interest & Taxes) = Revenue – Costs

· Depending on the application, this calculation may also be referred to as a MARGIN. Another way to look at financial data is not only in absolute terms (i.e. $), but also as a %. This helps put comparisons in a common context. The most used ratio for this purpose is Return on Sales, or Profit / Revenue expressed in %.

· Note that financial information in this case is presented in a per piece format. This is equally useful for decision making, so it is NOT necessary to make any attempt to calculate weekly, monthly or even annual sales and cost data.