PGP @ UAE Batch 2013-2015

Operations Management 1

Case Study Analysis

Scharffen Berger Chocolate Maker. (A)

Submitted to: Prof. Hasmukh Gajjar

Submitted by: Group No. 1 PGP@UAE Batch 2013-2015

Group Members:
Abhishek Menon 2013PGPUAE001
Abhishek Rungta 2013PGPUAE002
Akshay Singh 2013PGPUAE003
Amit Mishra 2013PGPUAE004
Anisha Jain 2013PGPUAE005
Anne Mary Sebastian 2013PGPUAE006
Anoop Dev Singh Slathia 2013PGPUAE007












PGP @ UAE Batch 2013-2015


Executive Summary:
Company Overview
Scharffen Berger Chocolate Company was founded in 1996 by Robert Steinberg and John
Scharffenberger.
The chocolate making industry in America is divided into two segments of $14 billion Mass
Market and $1.2 billion Premium Quality Market. Scharffen Company is competing in the
latter segment with other major players like Hersheys Food Corporation, Mars Inc. and
Nestle.
Company has strength of 60 employees spread across three functional domains of
production, retail and administration & management, operating from a 27,000 sq. ft facility
with a 20,000 sq. ft. production area, office space of 5,000 sq. ft. and a retail space of 2,000
sq.ft.
The company positioned and priced towards the high end of the market has always faced a
high market demand which outstrips its production levels. With a 15-20% annual growth
projected in the premium segment, a high growth in demand is expected, in coming years,
for its premium chocolate products and hence capacity expansion is planned.

Business Overview
Products
Primary products:
Unsweetened (99% cacao), Extra Dark (82% cacao), Bitter sweet (70% cacao), Semi-sweet,
Mocha, Mint (all have 62% cacao) and Milk Chocolate (41% cacao)
Others: Chocolate Sauce, Drinking Chocolate, Cocoa Powder and Chocolate Covered Figs

Pricing
Retail: $0.50 for 5 gm, $2.00 for 1 ounce, $4.00 for 3 ounce, $10.00 for 10 ounce
Wholesale: Approximately $0.35 per ounce

Sales
$1.1 million in 1999, $10 million in 2004, Over $15 million estimated revenues for 2005.

Existing Scenario:
The plant has a capacity of producing 40,000 kg chocolate products per month.
Currently the plant is producing 36,400 to 40,600 kg owing to variation in Conche
capacity from 26 to 29 nos. Therefore the time of processing in conche is varying
between 49.6 to 55.3 hours.
Thus, as per the data available in the case, it can be clearly seen that Conche process is
the bottle-neck. (Please find the relevant calculations in sheet 1 of the attached excel
sheet.)





PGP @ UAE Batch 2013-2015


The Problem Description:

The current market demand is much higher than the current production capacity of
Scharffen Berger.
To meet the high demand, the top management has to decide whether to increase the
production output by 50%, 100% or 150%. Deciding on the exact percentage figure will
be crucial as the company will lose very important potential clients if production output
is increased by a small percentage. On the other hand, the inventory stock will be more
than the actual demand if production output is increased by a very large percentage.
Assuming that the management decides to increase the output by a certain percentage,
the bottleneck will definitely move to the melangeur process. (Please find the relevant
calculations in sheet 1: Existing scenario in the attached excel file). Will this scenario be
acceptable to Harris?

Analysis9:
Findings from calculations performed for the proposed scenario: (Sheet 2: Proposed
Scenario in attached excel)
1. In the proposed scenario, the installation of the new ball mill will shift the bottleneck to
the melangeur process provided other parameters are kept constant. (Assuming that the
capacity of the new ball mill is 75% more than Conche)
Monthly output for melangeur = 44,160 kg
Equipment utilization is minimum for Winnower, i.e. 55.56%
2. Capacity can increase maximum to 65.6% without installing any new equipment except
the ball mill. But the shift hrs/day will have to be increased for roaster, winnower and
melangeur. (Refer to sheet 2: Proposed scenario in the attached excel)
3. Thus for 100% and 150% increase in capacity, a new melangeur has to be installed
compulsorily.

Findings from calculations performed by increasing the production output by 50% (to
60,000 kgs) Sheet 3: Evaluation - 60,000 O/p in attached excel.

1. By increasing the input quantity of the Winnower and by increasing the shift hours of
Roaster and Melangeur, we can increase the monthly output to 60,000 kg.
The updated shift hours and input values will be as follows.
Working shift hours/day for Roaster = 10 hours
Working shift hours/day for Melangeur = 21.74 hours
Input for Winnower would be 337.84 kg/hr and its equipment utilization will
increase to 75.08%


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2. By increasing the input quantity of the winnower, increasing the shift hours of roaster
only and installing a new melangeur, we can increase the monthly output to 60,000 kg.
Working shift hours/day for Roaster = 10 hours
Input for Winnower would be 337.84 kg/hr and its equipment utilization will
increase to 75.08%
Findings from calculations performed by increasing the production output by 100% (to
80,000 kg) (Sheet 4: Evaluation - 80,000 O/p in attached excel.)

1. By increasing the utilization of Winnower to 100%, increasing the shift hours of Roaster,
Winnower and Tempering and also installing a new melangeur, we can increase the
monthly output to 80,000 kg.
The updated shift hours and input values will be as follows.
Working shift hours/day for Roaster = 13.33 hours
Working shift hours/day for Winnower = 8.01 hours
Working shift hours/day for tempering = 19.05 hours
Input for Winnower would be 450 kg/hr

Findings from calculations performed by increasing the production output by 100% (to
100,000 kg) (Sheet 5: Evaluation - 100,000 O/p in attached excel.)

1. We can increase the monthly output to 100,000 kg in the following ways taken
together:
By installing a new melangeur and simultaneously increasing the shift hours of both
the melangeurs
By increasing the utilization of Winnower to 100% and simultaneously increasing the
shift hours
By increasing the shift hours of roasting and tempering.

The updated shift hours and input hours will be as follows:

Working shift hours/day for both the melangeurs = 18.12 hours
Working shift hours/day for winnower = 10.01 hours
Working shift hours/day for Roaster = 16.67 hours
Working shift hours/day for tempering = 23.81 hours







PGP @ UAE Batch 2013-2015


Recommendations:
On the basis of above evaluations, we recommend the following changes:
1. Increase the plant capacity by 65.6% to achieve maximum production without installing
any other new equipment. Thus, Schraffen Berger will be available to meet the 30%
increase in demand of a new mass market retailer. Also, they would require low
investment compared to 100% and 150% increase in output and they can temper and
mold the chocolate inside without compromising on quality.
2. The company can operate at the above recommendation to meet the current demand
scenario. They can increase their production to 100% or 150% after monitoring the
market demand for some time.