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. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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, 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 Berger explored was opening a second production facility and warehouse on the east coast. The location of the new facility will be in Kentucky as it is one of the largest freight hubs in the United State and the main headquarters will remain in Berkeley, CA. Pros:
There are several benefits to opening a secondary production plant and warehouse: increased output, savings on freight costs, close proximity to current retail shops, and the potential to open new retail stores. The new facility will be an exact replication of the West Coast facility, with the exception of offices, on-sight retail outlet, and tour groups. The advantage of the East Coast facility being an exact replication, Scharffen Berger will be able to forecast their exact yearly production output, in which will be double to keep up with demand. Insert small chart here.
Opening a facility in Kentucky allows the company to ship their products to the Scharffen Berger retail stores located in New York City (Upper West Side and Greenwich Village), and other upscale department and retailers, such as Trader Joes, located throughout the United States. This will save transit time and freight costs substantially . as compared to shipping directly from California to the stores. In a cost comparison researched showed that there was a delta of $4,167. 43 when shipping from the West Coast facility to New York compared to shipping from the East Coast facility to New York.
This opportunity to reduce transit time can ensure the integrity of the chocolate to conceal the freshness. With a new location it allows Scharffen Berger an opportunity to open new retail stores on the East Coast and increase brand awareness and an increase in sales. Cons: This is a risky undertaking as Scharffen Berger has only had experience operating their West Coast location. With the increased demand on the horizon the ultimate bottleneck will be the potential of the East Coast location not opening on time, running into machine malfunction, and potential staffing issues.
When opening a new location, the cost of quality (COQ) becomes a major concern. The new facility could jeopardize the integrity of the chocolate as Scharffen Berger prides themselves in having a superior product from “beans to bar”, which they require professionals to taste the product in every step of the process. The framework for COQ includes prevention costs, appraisal costs, internal failure costs and external failure costs; these various stages could be negatively affected if the taste testers are not properly trained to identify the various (9) beans.
Bottom Line: The cost to purchase a new facility and equipment for an East Coast location would be a large capital venture that most likely would not create a return on investment in a timely manner and could result in poor product quality. Recommendation: Ball Mill / Melangeur / 100% Third-Party Co-Packer The recommended solution to Scharffen Berger is to purchase a new ball mill, buy a refurbished melangeur, and use a third-party co-packer to perform 100% of the packaging.
Purchasing a ball mill will increase production by approximately 75% or more by reducing the time the recipes will be in the conche. Assuming the ball mill will be able to produce up to 2,800kgs every five hours, a possible bottleneck would occur in the melangeur as it can only produce an output of 1,226kgs. Hence, purchasing a refurbished melangeur would increase the production to 2,445kgs every two shifts; this is only feasible when the same recipe is being processed. Once processed in the melangeur the paste-like product can be piped into a holding tank in preparation for its process in the conche.
This will allow Scarffen Berger to utilize both conches with the same recipe producing 1,223kgs per conche every ten hours; the paste can then be combined and transferred to the ball mill to finish the process at 2,445kgs. Need Chart here (Breezys table??? ) Scharffen Berger partners with co-packers who are able to temper and wrap their products at high quality levels which is important to maintain the premium product. Due to their good relationship and consistent quality provided by the third-party co-packers it seemed clear that using their services 100% versus 65% it would benefit Scharffen Berger in the long run. Pros:
The ball mill will reduce the total production time it takes certain recipes to be produced in the conche. This will speed up overall batch production time, especially when producing the semi-sweet chocolate (62%), which would previously take up to 50 hours in one conche. One melangeur would cause a possible bottleneck, but by purchasing a second melangeur it will resolve the bottleneck issue. NEED TO PUT WHY BOTTLENECK. By sending 100% of the product to third-party co-packers, the staff that used to package for Scharffen Berger will be transferred to work on the ball mill and melangeur eliminating the need to hire on additional staff.
Cons: The ball mill is an expensive investment for Scharffen Berger to undertake and causes uncertainty since it is new to their operation production flow. There will be additional training costs incurred for the staff to be properly trained when using the machinery, however, training the employees will only be a temporary issue. Scharffen Berger emphasizes quality every step of the process and they would lose their ability to maintain quality control over the packaging process by using the third-party co packer to package 100% of their products. Bottom Line:
This provides a long-term solution to the increase demand that Scharffen Berger has forecasted for the upcoming years. SHOULD INCLUDE THE % OF INCREASED PRODUCTION DIDN’T ADDRESS THE STORAGE ISSUE Conclusion: Scharffen Berger Chocolate Maker has built a successful, premium brand of chocolate with quality being a key measure to their success. As the premium product experiences rapid growth and a mass market retailers expressed interest in stocking Scharffen Berger Chocolate emerges it is inevitable that the company take swift action in creating a capacity management plan in order to handle the forecasted demand.
By implementing the recommendation of purchasing a new ball mill, a refurbished melanguer, and transfer 100% of the packaging to third party co-packers Scharffen Berger will have the opportunity to increase capacity by %%% which will exceed the 30% demand forecasted. ———————–  Retrieved average costs from: http://www. alibaba. com/product-gs/287427725/Chocolate_Conche. html  Retrieved www. upsfreight. com: Estimated shipment 3,000 lbs (48,000 oz) from Berkley CA to New York, NY is approximately $8,134. 39. Estimated shipment 3,000 lbs (48,000 oz) from Louisville, KY to New York, NY is approximately $3,966. 96.