Short Case

Fine Country Fruit Cakes

September 1994 was a year to remember for Jean and Dave Fulbright! Their twin
sons, Michael and Alan, then five years old, started school, and in the same
month, Dave, a 29-year-old master baker at a large bakery, was made redundant.
Jean, who had a part-time secretarial job with a local builder, saw this
misfortune to be an unrepeatable opportunity. They had always wanted to work
together, and it seemed to be a good chance to set up a small speciality business,
based on Dave’s skills and financed by his redundancy payments plus a small loan.
Traditionally, small local baking and confectionery businesses produce a
wide range of breads, cakes, biscuits, etc., many on a daily basis. This involves
a very early start (4 am), high complexity and considerable risk. Dave wanted a
‘simpler’ business that would involve relatively normal hours of work, for both
himself and his wife. Neither wanted to be employers; the business would be run by
just the two of them. Dave felt that his greatest satisfaction came from producing
high-quality decorated fruit cakes, so together they decided that there was an
opportunity to specialize in this product. Using an old family recipe, samples
were made and packaged. ‘Market research’ was confined to taking these samples to
various retail outlets in the area; the reaction was so enthusiastic, and the
potential margin seemed so high, that by January 1993 they were in business. They
rented a small modern factory near home, modestly equipped with weighing and
preparation equipment, a large 15 kg food mixer, two small catering ovens, a small
coolroom and sundry utensils. Talking to a friend in spring 1997, Dave recalled:

‘In early 1995 we only made one size: beautiful 2 kg cakes, symmetrically
decorated on top with a pattern of almonds, cherries, walnuts and ginger. We sold
most to cafés and restaurants; their customers loved portions of them with their
teas/coffees. Demand ran at about 150–200 cakes a month, which wasn’t enough to
make much of a living, but we had time to visit our customers and to try new
outlets. Although sales were growing, it gradually became clear that we should be
selling a smaller cake to retail shops for family purchasers – one which could be
bought as a treat, or as a gift for friends. We introduced the 1 kg cake (with the
same recipe) in July 1995. We had no problems selling these, and demand soon
exceeded all our expectations. The delicatessens in the area heard about our
products and soon sales of the 1 kg cake overtook those of the original 2 kg cake.
Somehow, however, it’s not been so easy running the business since then; we can
only just cope every day making the cakes. Jean can go to get the children from
school at about 3.30 pm (a neighbour takes them in the morning) but I rarely get
back before 7.00 pm in the week; and we usually do our selling and prospecting for
new customers on Saturdays. We certainly don’t want to start production at
weekends; we couldn’t cope with that! Anyway, although we’re making a reasonable
profit now, I feel we could do a better job somehow. There were times last year
(1996) when we had over-produced and we had to sell off some stock at a discount
because of its age. Tests have shown that this recipe of rich fruit cakes lasts
for up to 12 months, but for best flavour and texture, it should really be eaten
within six months. The retailers demand at least three months of this, so I can’t
keep stock more than three months here at the factory. Anyway, I only have space
for about 3000 kg in the coolroom, allowing for stock rotation.’

Jean’s view of the business was somewhat different:

‘I think we are chasing the wrong markets! The delicatessens demand big discounts
and are always expecting us to deliver at short notice, particularly around Easter
(March/April) and at Christmas (November/December) when the cakes are apparently
popular gifts. I have found that craft shops and visitor centres of local tourist
spots (such as castles and historic houses) can also sell our 1 kg cakes and,
moreover, they don’t expect much discount! We were really pleased with the level
of orders from these outlets last summer, but we don’t hear from them much during
the winter. I really should go and take some more samples! I also feel we should
open a factory shop where regular users could come and buy directly, but I am sure
we would need to provide a bigger range of cakes. We could develop lots of
different types in the two sizes – then we would get a lot more repeat business!’
Production
Preparation
In order to simplify weighing, mixing and baking, all production is done in
nominal 10 kg batches of one size at a time. Thus a batch is either ten 1 kg cakes
or five 2 kg cakes. For each batch, dried fruits (raisins, sultanas, currants,
cherries, crystallized ginger, etc.) are weighed and cleaned as necessary, other
ingredients are prepared and measured, and a cake mixture is made in the mixer.
Tins are greased, and the mixture is weighed into each; the top surface is then
decorated with carefully selected specimen dried fruits and nuts, and brushed with
a glaze. This complete preparation stage takes almost exactly 30 minutes per batch
for Dave and Jean working as a team, for either size of cake. Each batch is
prepared just before the oven is ready to accept it, to avoid contamination and to
maintain consistency of method, and hence of texture.
Baking
The ovens are turned on at 8.00 am and are ready by 8.30 when the first batch is
loaded (which only takes a few minutes). A 10 kg batch of cakes fills one oven;
baking time is three hours for the 1 kg cakes, four and a half hours for 2 kg
cakes. When ready, the cakes are removed from the hot oven, which is ready for a
further batch in a quarter of an hour. For convenience, Dave has always baked the
1 kg cakes in the oldest oven (Oven 1) to avoid having to carry 10 tins to Oven 2
which is further from the workbench. Each oven normally bakes only two batches per
day. Dave thinks that the temperature control on Oven 1 is inaccurate which would
be a particular problem for the larger size cakes!
Packing
Cakes are turned out onto racks to cool overnight. The next day, once the first
batches are in the oven, the previous day’s cakes are inspected, packed in a film,
a decorative ribbon and an outer-wrap, and then labelled and dated. Packed cakes
are then carried to the coolroom and stacked according to size. These processes
take two people six minutes per cake (either size). The couple take one hour for
lunch from 12.30 to 1.30 pm (when Oven 2 is ready to unload).
Planning
‘The only times in 1996 that we changed production were in March, April, November
and December when we increased 2 kg output only by 50 per cent (one extra batch
per day). I had to bake the 2 kg cakes in Oven 1 and the quality wasn’t really so
good, but none of our regular customers noticed! Even so, I had to work into the
evenings all those months; it was a lot of work. All other months we have kept to
the plan of two batches of each size each day (1 kg, followed by 2 kg, 1 kg, 2 kg)
which helps us keep to a rhythm.’
Sales
Records were kept of monthly sales of each size during 1996 (Table 11.3). On 1st
January 1996 there was an opening stock of 100 of each size of cake. Dave
commented:

‘I am worried that we won’t be able to cope with demand in 1997, and that we will
start giving bad service. Perhaps we should drop the idea of selling to the
tourist spots, although the margins are very attractive. Clearly, we musn’t upset
the retailers who give us so much business.’

Table: Company records of sales 1995/96 and forecast sales for 1997

1995 1996
1997
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
 Total (Forecast)
1 kg cakes 900 80 200 600 320 120 80 120 80 240 480 800
1600 4720 6000
2 kg cakes 1950 160 340 300 240 140 160 240 160 180 260 300
400 2880 3500
Total (kg) 4800 400 880 1200 800 400 400 600 400 600 1000 1400
2400 10480 13000

Questions
1 With the current method of working, what is the monthly and annual capacity
of the business? Is the total weight (kg) of product a useful aggregate measure of
capacity for this business? How does capacity compare with demand in 1996 and
forecast demand in 1997?
2 Why did Dave have to sell stock at reduced prices in 1996? In which months
do you think that happened, and explain clearly the reasons? Justify your answer
with simple calculations.
3 Jean believes that they should try to get more business from craft shops and
tourist centres. What advantages/disadvantages would this market have compared
with the existing retail outlets?
4 What are the main differences in operations tasks of running the proposed
retail shop? What are the implications of this for the owners?
5 What are the operational implications of making 10 varieties of cake, each
in two sizes?