Holly Farm Case Study

LGT 2106 Principles of Operating Management Case Study

Case 24: Holly Farm

Name: GUO, Muchen

Student ID: 14110159d

Words: 1399

Question 1

The businesses of Holly Farm are faced with three major issues:

1. Expanding its capacity. The capacity constraints mainly exist in the following two aspects of the company’s operation. The first one is the ice-cream production line. If the factory produces ice-cream with its maximum mixing and fast-freezing capacity (350 liters per day), the output is only at the level of 67200 liters, which failed to meet the sales in 1998. Therefore, it is obvious that in 1998, the company produced and sold a considerable number of unfrozen ice-creams, with low qualities and melting problem, and in consequence, this would cause harm to the reputation of Holly Farm and finally impact the sales. Also, it may result in the problem of inventory management, since the ice-cream that is not fully frozen can not be kept in finished goods freezer, and they need to be sold first and fast, no matter when are they produced.

Without new equipment and plant to be invested, the company could still implement some strategies to remit the problem, such as prolonging the working days by negotiating with workers, improving the fast-freezing technology to freeze more products, and reducing the idle time in production process.

Apart from the problems in ice-cream production line, there are also capacity constraints in businesses of the farm tour businesses. These constraints directly limit the number of visitors, and indirectly impact the ice-cream sales and the company’s objective aiming at increasing the proportion of farm shop sales of total sales. In later parts of this essay (Question 2), these problems will be analyzed in detail.

2. Line extension and promotion. In the case, to defend the delicatessen trade against a competitor’s aggressive marketing champaign, the company decided to increase the flavors of ice-cream from 4 to 10, aiming at improving products competitiveness. However, this increment would influence various areas of Holly Farm’s operation. Thus, many factors should be considered before the decision is made, which would be discussed in the answer of Question 3. Furthermore, promotion is also of great important when company is facing the challenge from competitors. The company’s promotion strategy can be divided into two sectors: the first one is the promotion towards retail shops, and the second one is that towards visitors, which includes promoting sales to coach firms, attracting more local families by advertising, and expanding and deepening the cooperations with local schools and organizations.

3. Improving the supply chain management of company. According to the case, the finished goods inventory of Holly Farm was 3600 liters in the end of 1998. Since normally, ice-creams are banned to be kept in inventory more than 6 weeks, 3600 liters seems to be a very large number. This problem indicates that the company needs to improve its supply chain management. In addition, the existence of peek days and months in sales, such as Christmas, Sundays and April to October, also require more agile supply chain. However, with products delivered by van once a week on every Tuesday, the company can hardly achieve Just-In-Time in its supply chain management, and the bullwhip effect may occur due to the batch process of production.

Question 2

To evaluate the proposal of company to increase the farm visitors by 50%, this essay will conduct two steps:

1. Evaluation of sales forecasts. To calculate the sales forecast for 1999, the answer uses the method of linear regression based on the data of Appendix 24.1, provided by the case. The results show that the retail shops sales should be 93000 pounds, and the farm shop sales should be 32500 pounds in 1999. In the respect of retail shops sales, Gillian’s original forecast is quite pessimistic with only 65000 pounds. The rapid increasing trend in retail shops sales could be clearly discovered from the data. Although the company may face a greater challenge from its competitors, a substantial fall from 75000 to 65000 pounds of sales in retail shops could hardly happen in 1999.