Scharffen Berger Chocolate - Marketing

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  • Topic: Retailing, The Hershey Company, Scharffen Berger Chocolate Maker
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Group Case Brief
Scharffen Berger Chocolate Maker (A)

Bowling Green State University

February 14, 2011

Scharffen Berger Chocolate Maker

Introduction:
The Scharffen Berger Chocolate Maker is experiencing an exponential year over year growth rate of their premium product. This is a situation that all new businesses strive for and although Scharffen Berger is pleased with their growth, they are facing a potential dilemma. The company must consider how they will keep up with growing demand while having enough capacity to handle the increase in production and maintain their high quality standards. In order to understand how to meet the increased demand, research was conducted to unveil the problematic issues the company is currently experiencing. There were two key issues that were discovered including: capacity and bottleneck(s). Please refer to the Scharffen Berger Production ‘Current State’ map below, which includes machines and process times, shifts, and current output. | | | | | | | | | | | |

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By analyzing the current production flow there are two possible alternatives and one main recommendation for Scharffen Berger to consider in meeting the forecasted demand the company will experience in the near future. Alternative One: Additional Conche

The first alternative that Scharffen Berger considered consisted of purchasing an additional conche and adding a third shift to the tempering and molding process. With two conches the maximum monthly capacity is approximately 29 conches of chocolate. By adding a third conche to the production, there is a potential to increase the maximum capacity by an additional 14 conches per month. The purchase of an additional conche would force the tempering and molding station to add a third eight-hour shift, seven days a week to keep up with the added output. Pros:

The purchase of a new conche is estimated to cost $30,000[1], after calculating sales of three conches Scharffen Berger estimated sales would total $1,290,000 per month (Assuming 43 conches per month * $30,000 sales per conche). The benefits to purchasing a new conche include increased production and increased yearly profits of $5,040,000 ($15,480,000 – 10,440,000 = $5,040,000). The time to recoup the $30,000 investment would take less than a year.

The increased production created from the additional conche would force Scharffen Berger to add another shift to the tempering and molding process in order to avoid a bottleneck at this stage. By adding this extra shift the tempering and molding process would be changed to operate 24 hours seven days a week to keep up with demand. This new shift would not only add new jobs which would not be considered overtime pay to Scharffen Berger. Cons

The constant production of the conche machines would require regular maintenance which will increase downtime on the machine. With this potential increased downtime Scharffen Berger would lose production time on the conche machine. Once the chocolate has reached the packaging stage the potential for a bottleneck may occur. Currently, Scharffen Bergen packages 35% of the chocolate themselves and send the remaining 65% to a third party co-party. With the increased production, Scharffen Berger may not be able to keep up with the extra packaging required for the additional product being produced. Bottom Line:

The purchase of an additional conche will only help Scharffen Berger in the short-term because it is uncertain how long demand will consistently increase. However, when demand is increased there is a potential that packaging will experience an overflow of product and will not be able to handle the increased inventory. Alternative Two: East Coast Plant and Warehouse

Alternative two that Scharffen...
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