The document summarizes a case study about Blanchard Importing and Distribution and their capacity management methods. A team assessed Blanchard's approach to determining capacity for each beverage type and recommended forecasting production using time-series data and models that account for seasonality and trends. The team advised that managing inventories strategically can stabilize output and influence capacity by reducing bottlenecks. They recommended Blanchard use a fixed-order quantity model with safety stock to maximize capacity utilization given their product demands change over time.

1. Managing Capacity &
the Blanchard Importing
and Distribution Case
Study
By: Team 14: Ian Davidson, John Sherrill, and Uchenna Okezie
Date Submitted: January 10, 2016

2. Course Assignment:
Module 2 – C580: Operational Management
 Managing Capacity and Blanchard Importing and Distribution
 Using what you learned from the Balancing Process Capacity simulation (and
other resources for this and previous modules): the questions are:
 1) What is your group's assessment of Blanchard's method(s) of determining
capacity for each type of beverage?
 2) How would you advise them to forecast production? Why?
 3) How does managing inventories influence capacity?
 4) Which method of inventory control would you use to maximize capacity
utilization (that is, best use production capacity available) at Blanchard?

3. High-Level Essentials of the Case:
 In the Blanchard Importing and Distribution Case, Mr. Hank Hatch was asked
by the management to observe the operations and inventory for the company:
Blanchard Importing and Distribution, that dealt with processing and
wholesaling of alcoholic beverages.
 Mr. Hatch observed the processes at two warehouses for their extensive
product lines, as well as review financial documents pertaining to the older
Economic Order Quantity (EOQ) and the Reorder Point (ROP) reviews, and the
1971/72 sales reports.
 To obtain a copy of the full case study, the contact is: Harvard Business School
Publishing, Boston, MA, 02163; 1-800-545-7685; or
http://www.hbsp.harvard.edu.

4. 1) What is your group's assessment of Blanchard's
method(s) of determining capacity for each type of
beverage?
 Our team agrees with the Blanchard’s methods, as it pertains to ensuring that they are adequately
stocked, when stock reach below the trigger levels, (although Bob and Elliot were not exactly abiding
to the prescribed method.)
 However, this should be based on the annual and current demand for each product, and the cycle time
it takes to obtain and bottle the specific beverage. They should not restock too often and at greater
quantities than they should for products that are no longer in demand. When reviewing a multi-period
inventory system, the P Model is more appropriate here than the Q model, because of the time
revision qualifier.
 Also if certain months yield lower sales or demand, then production and restocking should be adjusted
accordingly to avoid having too much inventory.
 A concern for our team pertained to when Mr. Hank Hatch Bob about the runs. In an example, Hank
asked Bob about the runs, and Bob mentioned spending time and resources making the bottle size that
was less in demand than the quarts size which was where much of the demand is.
 This action should be reduced and be done less frequently based on the demand figures. This would allow the
labor and capacity to better spent where the sales and demand is. This again would reduce unneeded
inventory. The inventory turnaround would be higher.

5. 2) How would you advise them to
forecast production? Why?
 Team # 14 would recommend that the Blanchard Company forecast the sales
within each product line, account for equipment and labor requirements to
meet the forecasts, and to project the equipment and labor availability over
the planning horizon.
 With time-series data available in Exhibit 5(the Monthly Sales Data), they can
forecast using the linear regression or even use trend/seasonal modeling.
 Based on our review of the data, there was seasonality in the totality of the 5
items listed, and in many individually. Most products were on an upward trend.
These tools were also good for short to medium forecasting horizons.
 See the following charts (on the next slides): based on Exhibit 5 Monthly Sales
Data, February 1971–May 1972, in the case study.

6. 2) Continued:
 The Sum Total of the 5 Beverages Sales from February 1971–May 1972.
0
200
400
600
800
1000
1200
Total Listed Beverages

7. 2) Continued:
 Team # 14 believes that if they forecast the demand, then the inventory
levels can be set more accurately to match the expected customer demand.
 Where it is difficult to determine a more accurate forecasting, then extra
inventory or a buffer inventory may be needed to cover this (i.e. for Gin and
Vodka’s volatile demand expectations.)
 Another option is that the company can also boost their demand with
advertising and special programs.

8. 3) How does managing inventories influence
capacity?
 Inventory management can help a company to be much more profitable by lowering their
cost of goods sold and/or by increasing sales.
 Money that has not been tied up in the inventory, can be used to expand the company’s
capacity and/or for other uses.
 Managing inventory strategically can lead to stable average outputs (i.e.: such as creating a
cushion where there is a bottleneck).
 In the case study, there was a need for this when Bob stated that Eliot finished purging the bottling
machine and product blending prior to the labeling machine being ready to resume bottling. (An
example of bottleneck.)
 Furthermore, our team believes that variable demand of the products exists based on the later sales
in 1971 and 1972, thus some buffer stock may be needed to maintain a good level of production
capacity, particularly for the Gin and Vodka.
 Throughput rate is affected substantially by changing bottle sizes due to the one day changeover
required. Building up extra inventory using predictive demand will minimize the changeovers and
maximize capacity.

9. 4) Which method of inventory control would you
use to maximize capacity utilization (that is, best
use production capacity available) at Blanchard?
 Team 14 recommends the fixed-order quantity model. It is also recommended to be
aided by safety stock.
 We believed that this is the preferred model due to it being based on the product’s
demand. It will also require consistent monitoring and accurate record-keeping. The
Blanchard Company should adhere to this model, and base the R and EOQ on more
recent demand or sales estimates.
 Based on review on their EOQ and ROP calculations, we compared the annual
demand for 1971 (2/71 – 1/72), and the previous annual demand in Exhibit 4, and
noted major changes in demand lead to changes in ROP amounts, which were as
much as a 36 % increase for Scotch, and 21% decline for Rum. So the opportunity to
over-order a product lends to money being tied in excess inventory, and loss
revenue in not meeting an actual demand. Under-ordering lends to an unmet
demand and lost revenue.

10. 4) Continued: Based on the Exhibit 4 EOQ and ROP Calculation Sheets:
 See the following charts: 1) Comparing the previous and later demands:
Blanchard Beverages
Previous Data Updated Sales Data
Annual
Demand (R) EOQ ROP
Updated
Annual
Demand (R)
Newly
Calculated
EOQ
Newly Calculated
ROP
Blanchard's 80 proof Vodka 2455 327 165 2715 343 183
Blanchard's 80 proof Gin 1421 248 96 1387 245 93
MacCoy & MacCoy 86 proof
Scotch 800 170 54 1087 198 73
Triple 7 86 proof Blended
Whiskey 3096 346 208 2887 334 194
Blanchard's 80 proof Ron Cores
Rum 449 137 30 355 121 24

11. 4) Continued: Based on the Exhibit 4 EOQ and ROP Calculation Sheets:
 See the following charts: 2) The percent changes related to the EOQ and ROP:
Older EOQ Newer ROP
Blanchard Beverages EOQ Change % Change ROP Change % Change
Blanchard's 80 proof Vodka 16.86 5% 17.50 11%
Blanchard's 80 proof Gin -2.98 -1% -2.29 -2%
MacCoy & MacCoy 86 proof Scotch 28.15 17% 19.32 36%
Triple 7 86 proof Blended Whiskey -11.89 -3% -14.07 -7%
Blanchard's 80 proof Ron Cores Rum -15.14 -11% -6.33 -21%

12. 4) Continued:
 Using the fixed-time period method of inventory control model would lead to
greater inefficiencies, and increase the occurrence of excess inventory if the order
quantities really exceed the actual demand.
 If the time period to order is too far out, then there is an increased risk of a stock out on
in demand goods, which would lead to lost revenue. The stretched monetary resources
would be expended on the wrong items at the wrong time.

13. Appendix – Additional Charts on the Monthly Sales per
Beverage.
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100
150
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400
450
500
Blanchard's 80 proof Vodka
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200
250
300
Blanchard's 80 proof Gin
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160
MacCoy & MacCoy 86 proof Scotch
0
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600
700
Triple 7 86 proof Blended Whiskey

14. Continued Appendix – Additional Charts
on the Monthly Sales per Beverage.
0
10
20
30
40
50
60
70
Blanchard's 80 proof Ron Cores Rum

15. This Concludes Our Presentation.