Scharffen Berger

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Executive Summary

For “premium” chocolate maker Scharffen Berger (SB), quality is king. Their distinct process creates a “taste experience” second to none, an unparalleled quality that must be maintained despite apparent capacity issues. To satisfy the rising market’s demand for its product, it must address three primary issues related to capacity: bottlenecks, expansion, and economies of scale. The current bottleneck in the Conche (output=1,344 kg. /day) will be remedied with the installation of the ball mill, however other bottlenecks will be created starting at the Melangeur. A cost-benefit analysis has determined a need for a second melangeur as well as added Roasting time from 8 hours/day to 12-13 hours/day to keep up with the demand. Other costs will include additional labor for operations as well as machine maintenance due to increased wear. Regarding expansion, SB should consider outsourcing the vast majority of the tempering and molding processes. Not only will this help increase capacity, but it could also eliminate redundancy. Currently, 65% of this process is handled by co-packers without any loss of quality, according to COO Jim Harris. In order to deal with the redundancy of re-tempering and re-molding the chocolate, a cost benefit analysis of transporting the liquid chocolate to co-packers for tempering and molding is necessary. Through economies of scale, SB should negotiate for short-term contracts with their co-packers, which would give them process management capacity flexibility. With any unforeseen decreased demand, SB could reduce capacity by bringing the co-packer processes back in-house. We feel attention put into these key areas will help keep SB on top of the “premium” chocolate market. Evidence to support these arguments follows. Brief Summary of Key Problems and Issues

SB had reached a point of strategic inflection. By 2005, the premium chocolate segment of the chocolate industry had a projected annual growth rate of 15-20% between 2000-2010. With a mass-market retailer seeking a contract, Harris predicted a tripling of demand in the next few years, with demand increasing by 30% before the year’s end. Fearing an inability to respond to the excess demand and grow with their customer needs, Harris worried that SB could lose their existing customers. When Harris started at SB, the maximum capacity was approximately 18 conches per month. By improving efficiencies and increasing production time, he helped SB reach a maximum production capacity of 29 conches per month. By 2005, Harris understood that to increase capacity further, they needed new equipment while maintaining or improving the quality of the chocolate. A new ball mill would replace most of the refining work done by the existing conche. Previously, the refining and aeration work completed by the conche took 40-60 hours. With the addition of the new ball mill, the same process would take approximately 15 hours. Since the new ball mill should relieve the current bottleneck in the process at the conche, Harris started to look for the next bottleneck in the process. He focused on the molding process. The two last steps in the production process before packaging are tempering and molding. Harris noted that 65% of the molded chocolate went to co-packers who re-tempered and re-molded the chocolate before packaging it. Looking for new areas to increase capacity, Harris considered the benefits of outsourcing a majority of the tempering and molding to the co-packers. Product and Process Characteristics

SB’s main objective is to increase the company capacity with the same level of “unwavering quality”. According to Harris, SB’s “core competency is in making the best chocolate in America,” and that other companies that are better equipped and more efficient in packaging chocolate should do so. Below is a comparison table of the SB’s products and production process, along with new production recommendations.

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