Case Analysis: Blanchard Importing and Distributing Co. Inc. (Hbs Case 9 - 673 - 033)

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Managing Business Operations
Case Analysis: Blanchard Importing and Distributing Co. Inc. (HBS Case 9 - 673 - 033) Submitted by: Tushar Kothavale (130) NMIMS, FT MBA 2009-2011

1) Correct the Economic Order Quantity (EOQ) and Reorder point (ROP) quantities for each of the five items mentioned in the case. We first predict the annual demand for the year 1972 based on trend for 4 months of 1972 based on corresponding months of 1971. Calculations for Annual demand (R):

The assumption made here is that the same trend for sales as that for the four months of 1972 would be followed for the rest of the months of the 1972. Sales prediction for annual demand for year 1972| | |

| | | | | | | |
 | Feb| Mar| Apr| May| Total Sales| Percentage Change over 1971| Annual Demand| | | | | | | | |
Vodka|  |  |  |  |  |  |  |
1971| 128| 136| 233| 219| 716|  | 2455|
1972| 210| 303| 275| 463| 1251| 74.72| 4289|
Gin|  |  |  |  |  |  |  |
1971| 51| 52| 74| 157| 334|  | 1421|
1972| 166| 142| 133| 213| 654| 95.81| 2782|
Scotch|  |  |  |  |  |  |  |
1971| 79| 82| 151| 66| 378|  | 800|
1972| 82| 68| 66| 38| 254| -32.80| 538|
Whiskey|  |  |  |  |  |  |  |
1971| 163| 180| 198| 183| 724|  | 3096|
1972| 177| 163| 162| 256| 758| 4.70| 3241|
Rum|  |  |  |  |  |  |  |
1971| 10| 34| 44| 26| 114|  | 449|
1972| 11| 28| 61| 55| 155| 35.96| 610|

Calculations for Setup cost (S):

Size changeover cost = (cost of resetting all machinery for change in bottle size/ avg. no. of different items of given size processed between size changeover)
= 23000 / (52X7X10)
= $6.3186 per changeover

Label changeover cost = Labour cost incurred while label changeover process
= (23000X0.5X8*)/(52X7) + 5X2.5X0.5
= $10.2 per labour changeover
*Assumption each working day is of 8 hrs.

Order Processing cost = 18000/ 350
= $51.43 per order.
All figures in $| Blending Setup Cost| Size changeover cost| Labour changeover cost| Order processing cost| Total setup cost (S)| Blanchard's 80 proof Vodka| 1.15 | 6.32| 10.2| 51.43| 69.10 | Blanchard's 80 proof Gin| 1.08| 6.32| 10.2| 51.43| 69.03| MacCoy & MacCoy 86 proof Scotch| 3.24| 6.32| 10.2| 51.43| 71.19 | Triple 7 86 proof Blended Whiskey| 2.62| 6.32| 10.2| 51.43| 70.57| Blanchard's 80 proof Ron Cores Rum| 2.33| 6.32| 10.2| 51.43| 70.28 |

Calculations for Unit cost (C):
Fixed overhead allocation = total company fixed overhead for the year/ no. of cases sold per yr. We calculate total fixed overhead as per data given for 1969. Total fixed overhead = 1.31X(2455+1421+800+3096+449)

= $ 10769.51
Since fixed overhead remains constant from year to year

Now for year 1972,
Fixed overhead allocation = 10769.51 / 11461
= $ 0.9396
All figures in $| Blanchard's 80 | Blanchard's 80 | MacCoy & MacCoy | Triple 7 86 | Blanchard's 80 | | Proof Vodka| Proof Gin| 86 Proof Scotch| Proof Blended Whiskey| Proof Ron Cores Rum| Materials—beverage| 0.93| 1.08| 4.46| 2.52| 2.74|

Materials—packaging| 1.27| 1.27| 1.27| 1.27| 1.27|
Total Material cost| 2.2| 2.35| 5.73| 3.79| 4.01|
Bottling labour| 0.1| 0.1| 0.1| 0.1| 0.1|
Fixed overhead allocation| 0.94| 0.94| 0.94| 0.94| 0.94| Variable overhead| 0.5| 0.5| 0.5| 0.5| 0.5|
Customs duty|  |  | 1.55|  |  |
Federal distilled spirits tax| 25.2| 25.2| 27.09| 27.09| 25.2| Federal rectification tax|  |  |  | 0.76|  |
Total Unit Cost (C )| 31.14| 31.44| 41.64| 36.97| 34.76|

EOQ & ROP Calculations:

Product| Annual Demand (R )| Setup cost (S )| Unit Cost (C )| Carrying cost percentage (K )| New EOQ|
| New ROP|
| EOQ as per 1969| ROP as per 1969|
Blanchard's 80 proof Vodka| 4289| 69.10 | 31.14| 11.5...
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