Module 2 Group Assignment

1. BLANCHARD IMPORTING AND
DISTRIBUTING
PRESENTED BY:GROUP 8

2. 1/5/2015 BLANCHARD Importing and Distributing 1
BLANCHARD IMPORTING AND DISTRIBUTING
WHAT IS YOUR ASSESSMENT OF BLANCHARD’S METHOD(S) OF DETERMINING
CAPACITY FOR EACH TYPE OF BEVERAGE?
It doesn’tappearthatBlanchardhas thoughtaboutdeterminingcapacityforeachtype of beverage at
all.Or Hank justneglectedtoaskenoughdetailquestionstobringthisoutinthe informationprovided
inthe case.Nowhere inthe case doesitsayhow manycases can be producedof eachitemina
specifiedperiodof time.Whatisthe productionrate ingallonsperhour(orcasesperhour) for the
blendingoperations?Orcasesperhourfor the bottlingline?The blendeditemsmustvaryin
complexityanditwouldseemthatthiswouldvarythe productionrate of blendingof eachitem.
Althoughthe bottlingline isautomateditwouldseemthatthe differentsize bottleswouldneedtorun
at a differentspeeddue tothe varyingamountsthatare filledintothe bottle.Since the case indicates
that bottlinghasonlyrunlessthanone outof three availableworkdayssince 1966 Blanchardmay
believe itisnotimportanttoknowthe detailsoncapacityforbottlingeachitem. However,inorderto
implementbetterinventoryproceduresitisessential thatBlanchardunderstanditsleadtime foreach
item.
Lead time iseffectedbythroughputtimes,cycle times,bottlenecks,idle times,mix of products,
equipmentlimitations,and otherfactors.Todeterminecapacityforeachtype of beverage Blanchard
needstostart withanaccurate processflow diagramwithappropriate informationontasks,flows,and
storage.Belowissome of the informationwhichdoesnotappearinthe case that is needed:
 Time to withdrawal rawspiritsfrombulkstorage foreachitem.
 Size of the stagingareaforthese bulkitemsastheywaittotransfermaterial tothe blending
tanks.(Couldbe a bottleneck?)
 Cycle time (machine time andlabortime) to blend (rectify) (expressedin casesperhour) for
each item(Couldbe abottleneck?).
 Storage tanklimitations(expressedincasesperhour) (cananyitembe blendedinanytank)?
 Setup time for blending/rectifying(time tocleanoutthe blendtanktoprepare itforthe next
item).
 Cycle time (machine time onlysince fullyautomated) tobottle (expressedin casesperhour)
foreach item.
 Cycle time (labortime onlysince fullymanual) topack,label,stamp,stackandstore cases
(expressedincasesperhour) foreachitem.
With158 itemsinitsproductportfolioeachwithitsowndemandprofile,Blanchard’sprocesswill
inevitablyhave tohandle varyingordersizes.Productmix,varyingordersizesandthe multiple options
of howto runthe processmake the calculationof capacitycomplicated.Basedonhistorical demand,
assumptionswill needtobe made on desiredcapacitiesandoptionswill needtobe narroweddownto
fit those assumptions.Forinstance,theremaynotbe a needtoconsidera processconfigurationin
which10,000 casesof one itemneedstobe runat one time if the most of any itemsoldina yearis
2000 cases.It maybe possible tofigure outthe machine utilizationandlaborneededtodothisbut
there isno reasonto.But none of thisanalysis ispossiblewithoutunderstandingthe capacityof the
systemforeachitem.
One glaringexampleof theirlackof understandingof capacityisthattheyhave arbitrarilylimitedtheir
overall productioncapacitybychoosingtobatchthe blendingprocess(the weekbefore runningthe
bottlingprocess) andthe bottlingprocess.How muchyoucan produce ina day or weekoryearis

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determinedbythe bottleneckinthe process.If thatbottleneckisidle becauseyouare choosingto
batch somethingupstreamof it, youare losingvaluabletime youcan’tmake upin the restof the
process.Itis notclear fromthe case whetherblending,bottlingorpackingisthe bottleneckbutunder
the currentwayof runningproductionblendingorbottlingisidlewhile the otherisrunning.Whynot
start runningbottlingimmediatelyfollowingthe blendingof the firsttank?In additiontokeepingthe
bottleneckrunninglonger,thiswouldalsolowerthe throughputtime of eachitem, whichwe willsee in
the followingquestions,will allowustolowerourinventorybyloweringthe leadtime (how longwe
have towaitafter placingan order). Thismayrequire additionallaborsince the case seemstoindicate
that bothBob and Elliotare requiredforblendingandbottling. The additional laborcostwill needto
be factoredinto the decision. While atrulycontinuousprocessmaynotbe fullyachievable because
there are setup stepsthatneedtooccur betweenitems,reducingthe time betweenstepslowersthe
overall leadtime.
HOW WOULD YOU ADVISE THEM TO FORECAST PRODUCTION? WHY?
Giventhat$3MM out of their$4MM salescome fromformerBlanchardretail storeswe wouldsuggest
developingasystemwherebyweeklydemandcouldbe communicatedfromthesestorestothe
warehouse.Gettingmore timelyinformationondemandinthe fieldcouldhelpthemmake better
decisionsonproduction.
Developamasterproductionschedule thatisupdatedonsome regularfrequency(monthlyorbi-
monthly) thatassumesaveragedemandremainsconstantthroughoutthe rolling12months.Although
thiswill notbe howdemandactuallyhappensitwill allow Blanchardtosee how muchslackcapacity
theyhave intheirsystemandallowthemtoanalyze whatif scenariosforchangesindemand.
HOW DOES MANAGING INVENTORIES INFLUENCE CAPACITY?
Managing workinprocessinventorybystrategicallylocatingitinthe processcouldpotentiallyincrease
the utilizationof a bottleneckstepwhichincreasesoverallcapacity.
Managing finishedgoodsinventory withastandardmethodsuchasfixedorderquantitywithROPand
EOQ calculations allowsacontrolledmethodtomanage production scheduling.Havingacontrolled
methodforanyprocess,like productionscheduling,allowsforimprovementsandmodificationsas
conditionschange (likechangesindemand).Efficientproductionschedulingcanleadtodecreased
setupandchangeovertimeswhichcanincrease overallcapacities(andlowerleadtime whichcan
lowerinventories).
In the Blanchardcase it doesnotappear theyare usinga standardmethodtomanage theirinventory.
AtBlanchard,theirproductionstopsforweeksata time for one bottle size because the machinerycan
handle onlyone type of productat a time.As a resultof Blanchard’ssystem,Blanchard
produces/ordersinventorybasedonthe resultsfromthe previousmonthandstockpilesinventory. Asa
resultof Blanchard’scurrentsystem, theyhave erraticlevelsof inventoryfortheirproductsandincur
unfavorable carryingcosts.
Blanchard’sformulaforROPsimplyuses3.5weeksof average weeklydemand.Usingtheirformulafor
ROP,the plannedrunsforthe five productsinTable A have several issuesusingthe 1969 data.
 For the twoproductsthat are below the ROPtheyare making2-3 timesmore than the EOQ
 For the productthat isat the ROPtheyare making3 timesless thanthe EOQ.
 Two of the productstheyare makinghave notreachedthe ROPand shouldnotbe made.
If we conduct the analysisusing1971 datathere are similarerrorsindecidingwhattorun.

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A properROPcalculationincludesaterm (“leadtime”) thatcapturesthe amountof unitsdemanded
fromthe time an orderisplacedto make more andthe time the itemsare receivedintostockanda
safetystockamount.The ROPcalculationtheyuse multipliestheirweeklydemandby3.5 weeks.This
seemstoassume the leadtime forall itemsis3.5 weeksandtheyare notincludingasafetystockin
theirROP. An alternate interpretationisthe 3.5weeksrepresentsacombinationof leadtime and
safetystock. There isnotenoughinformationinthe case todeterminetheir exactthinkingonthe ROP
calculationor the leadtime for eachitem.
Managing inventoriesisalsoimportantbecause there isafixedamountof storage space forinventory
forany givenamountof capital investment.If excessinventoriesare maintainedforone itemthen
there islessor nospace availableforanotheritem.If yourbusinessmodel issuchthatyoumust ‘make
to stock’ to meetthe requirementsof yourcustomers,ultimatelythe productmix youofferislimited
by yourstorage space.Atsome point,excessinventoryof one itemwill preventyoufromoffering
anotheritem.
WHICH METHOD OF INVENTORY CONTROL WOULD YOU USE TO MAXIMIZE
CAPACITY UTILIZATION AT BLANCHARD?
Fixedorderquantitywithsafetystockbasedonadesiredservice level.Inthismethodthe uncertainty
of demandistakenintoaccountbythe safetystock.However,Blanchardneedstoreduce itsinventory
costsand productionscostto improve the bottomlineof the company.
Blanchardcurrentlyhasa safetystock,whichisdesignedto maximize itsservice level.However,by
havingthissafetystock,thismeansthatBlanchard’scapital resourcesare tiedupininventoryandthis
resultsinhighcarryingcostsforBlanchard.Thistied up capital ishinderingBlanchard’sgrowth.We
thinkthatBlanchardcouldbetterimprove itsbottomlineandoperationsbyinvestingadditionalcapital
inproductionmachinerytoincrease capacity(andto exploreotherbranchessuchaswine exportation).
We suggestthatBlancharduse the EOQsystemtosmooth the restockingprocessandreducesthe risk
of runningoutof inventory.Thissystemisbeneficial forseveral reasons,including:
 The EOQ systembalancesthe orderingcostandthe carrying cost
 The systemhelpsbettermeetanticipatedcustomerdemand
 The systemmitigatesthe variabilityindemandatvariousstagesinthe bottlingprocess
 The systemisperpetual andcanprovide up-to-dateinformationregardingthe level of inventory
foreach item
By adoptingan EOQ system,the productionsize willbe reducedandsetupcostswill increase,though
we feel thatthissystemisabetterapproachthanBlanchard’scurrentsystem.We stronglyurge
Blanchardto followthe EOQsystemanddiscontinue itscurrentpractice of production.Blanchard
shouldalsoinvesttime andresourcesinadoptingaperpetual inventorycontrol countingsystem.This
systemwill assistinthe trackingof inventoryonareal-time basis.Atthe endof eachperiod,Blanchard
shouldanalyze itssupply,demand,sales,andinventorytoestablish anew EOQforthe nextperiod.