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 Daves 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 cafs and restaurants; their customers loved portions of them
with their teas/coffees. Demand ran at about 150200 cakes a month, which
wasnt 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, its 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
dont want to start production at weekends; we couldnt cope with that!
Anyway, although were 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 cant 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.

Jeans 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 dont expect much discount! We
were really pleased with the level of orders from these outlets last summer,
but we dont 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 days 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 wasnt 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 wont 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 musnt
upset the retailers who give us so much business.

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

199 199 1997

5 6
Jan Fe Mar Ap Ma Ju Jul Au Se Oct Nov Dec Total (Forecast

b r y n g p )
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?