Blanchard Importing And Distributing

Blanchard Importing and Distribution Co.,Inc.

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Submitted By: Group 2 Ajay Rohilla (PGP10067) Arpita Verma (PGP10074) Bhavya Goyal (PGP10077) Harsh Mantri (PGP10084) Sanchit Rustagi (PGP10107) Soumya Hayaran (PGP10115) Sourabh Tondale (PGP10116)

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Introduction 

Originally established as a chain of liquor stores



Later extended business into wholesaling alcohol beverages and distributing case goods to retail outlets



In 1966 installed an equipment to permit conversion of raw bulk spirit to bottled goods for sale under own brand and private label

Revenue: 

Sells prebottled goods(uncontrolled stock) to retail outlet at wholesale price -accounts for 45% of firms annual sale



Sells controlled stock- items that Blanchard bottles and sells under own brand name- accounts for 55% of firms annual sale

Controlled Stock: 

Consist of 158 products , differentiated by bottle size, type, proof of beverage and brand label

Problem

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

Expect to gain an overall 20% return on wine merchandizing



Loosing out on profit due to holding more inventory than necessary



Suspect employees are following different inventory policy from recommended EOQ-ROP system in 1969



Inability to hire experienced wine salesman and build up an adequate inventory of wine



Needs a better cost structure, inventory and forecasting model, optimal bottling quantities and reorder level to free up tied production process capital

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Process of converting raw spirit to bottled goods 





Withdrawal from Bulk storage 

Customer Warehouse: Imported (incurred customer duty and federal

distilled spirit



IRS Warehouse: Domestic (Incurred only federal distilled spirit tax liability)

tax liability)

Rectification 

Dilute spirit with distilled water to attain desirable outcome



Eliot Wallace was responsible for performing chemical test

Bottling 

Coveyorized line of equipment to fill bottle, screwed the cap, attach a brand label and affix the government seal



Bob Young was responsible for maintenance of equipment and verifying setup of machinery

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Sales prediction for annual demand for year 1972

Cases of Quart Bottles

   

Feb.

March

April

May

Total sales

% change over Demand in 1971

 

Blanchard's 80 proof Vodka 1971 1972

128 210

136 303

233 275

219 463

716 1251

74.72

51 166

52 142

74 133

157 213

334 654

95.81

Blanchard's 80 proof Gin 1971 1972 MacCoy & MacCoy 86 proof Scotch 1971 1972 Triple 7 86 proof Blended Whiskey 1971 1972

  79 82

82 68

151 66

66 38

378 254

-32.80

  163 177

1972

2,715 4744   1,387 2716   1,087 730  

180 163

198 162

183 256

724 758

4.70

2,887 3023  

Blanchard's 80 proof Ron Cores Rum 1971

Year Total

10 11

34 28

44 61

26 55

114 155

35.96

355 483

6 

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 = Labor cost incurred while label changeover process = (23000X0.5)/(8*X52X7) + 5X2.5X0.5 = $10.2 per labor changeover

*Assumption each working day is of 8 hrs.

Size Blending setup changeover cost cost

 

  

Order Processing cost = 18000/ 350 = $51.43 per order.

Blanchard's 80 proof Vodka Blanchard's 80 proof Gin MacCoy & MacCoy 86 proof Scotch Triple 7 86 proof Blended Whiskey Blanchard's 80 proof Ron Cores Rum

label changeover cost

order processing cost

Total setup cost (S)

$1.15

6.32

10.2

51.43

$69.10

1.08

6.32

10.2

51.43

$69.03

3.24

6.32

10.2

51.43

$71.19

2.62

6.32

10.2

51.43

$70.57

2.33

6.32

10.2

51.43

$70.28

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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(2715 + 1387 + 1087 + 2887 + 355) = $ 11044.1 Since fixed overhead remains constant from year to year  Now for year 1972, Fixed overhead allocation = 11044.61 / 11695 = $ 0.9396

 

Blanchard's 80 Proof Vodka

Blanchard's 80 Proof Gin

MacCoy & MacCoy 86 Proof Scotch

Triple 7 86 Blanchard's 80 Proof Blended Proof Ron Cores Whiskey Rum

  Wholesale price

  $43.99

$43.99

$57.39

$49.87

$47.39

Materials—beverage

0.93

1.08

4.46

2.52

2.74

Materials—packaging

1.27

1.27

1.27

1.27

1.27

Direct labor

0.10

0.10

0.10

0.10

0.10

Federal distilled spirits tax

25.20

25.20

27.09

27.09

25.20

0.76

 

Federal rectification tax 1.55

Customs duty Variable overhead Fixed overhead allocation Full unit cost

 

0.50

0.50

0.50

0.50

0.50

0.94

0.94

0.94

0.94

0.94

28.94

39.54

46.36

43.63

41.20

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EOQ & ROP Calculations:

Annual Demand (R)

Total Setup Cost (S)

Unit Cost Ca

% Carrying Cost (K)

EOQ

ROP

Blanchard's 80 proof Vodka

4743.67

$69.10

28.94

11.50%

444

319

327

165

Blanchard's 80 proof Gin

2715.86

$69.03

39.54

11.50%

287

183

248

96

MacCoy & MacCoy 86 proof Scotch

730.42

$71.19

46.36

11.50%

140

49

170

54

3022.58

$70.57

43.63

11.50%

292

203

346

208

482.68

$70.28

41.20

11.50%

120

32

137

30

 

Triple 7 86 proof Blended Whiskey Blanchard's 80 proof Ron Cores Rum

EOQ as per ROP as per 1969 1969

EOQ/ ROP system:

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Advantage: 

At Blanchard finished case inventory storage area is not a constraint (as actual finished goods inventory had never occupied more than 50% of the reserved space) hence carrying cost is fixed (i.e. security, heating, cooling etc.) regardless of the volume of the finished goods inventory. Hence Blanchard importing & distributing co. can focus on reduction of other costs.



The substantial cost incurred at Blanchard is that of setting up cost in which the size changeover takes one complete day. Hence it is necessary to reduce this time by reducing the size changeover. Bob and Hank are exactly doing the same.



Bob and Hank are not following the EOQ/ ROP set as per 1969 as it is now obsolete, the basis on which these values were based was with the certain pattern of demand for items as per 1969 data. Also it did not account for the pattern of production (i.e. all items of same size in one batch).



Usage of latest data for predicting demand and accounting for the pattern of production ensures that the setting up costs are low and service level is high.

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EOQ/ ROP system:

Disadvantage: 

Due to the patter of production of batch wise production based on size as well as to maintain high level of service a higher level of finished goods inventory is being produced, this is tying down the capital in form of inventory.



Since substantial amount of funds are locked in the form of the inventory the company’s growth is hindered in terms of expanding business by means of wine merchandising.



We prefer the EOQ/ ROP system as gains from reducing the order/ production size (gains in terms of less value of inventory being produced) which though lead to increase in setup cost far outweigh the gains from Blanchard’s current system (gains in terms of reduction of setup cost) while, costs are that of the value of inventory being produced.

Recommendation

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

The company should install perpetual systems (on-line systems) so that the transactions such as stacked cartons list is updated immediately which can aid in transfer of control stock on real time basis



The company can explore the possibilities of reducing the product range in terms of sizes based on profitability of each item as per size



The company should explore the possibility of installing RFID systems that scan the bottle tags and link it to central databases for size and label, blended whiskey combination, ratio of ingredients. This will reduce the need for manual scanning



Exploring the possibility of implementing JIT (Just in Time) system that can reduce the finished goods inventory at substantial level



Follow EOQ/ ROP system and discontinue the practice of production in batches based on item size



The EOQ/ ROP system should be fed the point of sale (here point of dispatch) data in order to make the system more dynamic, the system should be able to forecast the sales and then determine the EOQ/ ROP values automatically