SUPPLY CHAIN MANAGEMENT IN HOSPITALITY INDUSTRY

FINAL EXAM: CASE STUDY

THE COOPER PROCESSING COMPANY

The Cooper Processing Company (CPC) is a manufacturer/processor of food products.

Located in the city of Lansing, Michigan, the company services a national market with
processed and packaged meat items such as hotdogs, bologna, sausages, etc. Because the
company has been experiencing increased costs in marketing and logistics activities it has hired
you as an expert to analyze costs and investments and make recommendations to
management. In its most recent fiscal year, the company achieved sales of $ 100,000,000.

The company sells its products through two separate channels of distribution and each is
treated as a profit center with full financial responsibility for income statement and balance
sheet. The first channel is to retail grocery stores and supermarkets. The second channel is to
foodservice wholesalers who, in turn, sell to restaurants and other foodservice establishments.
According to the company accounting records, the retail segment accounts for 60% of sales,
foodservice for 40%. The cost accountant believes that both channels are profitable. He says
that the company achieves an overall average gross margin of 60% on its sales.

The cost accountant also provides you with the following total costs for various marketing and
logistics functions at CPC:

Personnel selling $ 5,000,000

Sales promotions $ 8,000,000
Order processing $10,000,000
Packaging $ 5,000,000
Labeling’ $ 2,000,000
Delivery $ 10,000,000
Total Marketing & Logistics Costs $ 40,000,000

The total of all other expenses at CPC is $ 15,000,000.

The company’s cost accountant has always allocated all expenses and investments to the
channels based on the percentage of sales volume and used the overall company average of
60% gross margin to determine the profitability of each channel of distribution.

You, being much wiser than the company cost accountant, decide to do a little further analysis.
The first thing you discoveries that, due to differences in product mix sold in each channel,
gross margin actually are different in each. You find that the gross margin in the retail channel
is 70%, in the foodservice channel it is 45%.

Next, you find that all of salespeople are paid s straight salary and all receive exactly the same
amount of salary. However, you find that of the 50sales people employed by CPC, 40 0f them
are devoted to the retail channel, 10 0f them are devoted to the foodservice channel. Since
there are no sales managers and each salesperson pays for selling expenses out of their salary,
this accounts for all of the personal selling expense.

You learn that all sales promotions were conducted in the retail channel.

Next, you discover that there is a great difference in the number of orders placed by customers
in each channel and the deliveries to each channel. You find that the retail channel accounts for
70% of the orders placed and 80% of the delivery expense. The foodservice channel accounts
for 30% of the orders placed and 20% of the delivery expense. Your activity-based approach
suggests that this is reasonable way to trace the costs directly to each segment.

Next you learn that packaging differs for each channel. You discover that retail accounts for
80% of the packaging costs, foodservice for 20%.
Next, you discover that only the retail channel requires “labeling”. The company has a machine
which applies these labels. The labeling expense of $ 2,000,000 includes materials, labor, and
depreciation of the machine. The machine has an asset value of $ 10,000,000.

Next, you find that the company has inventory of $ 10,000,000 (this has also been the average
amount of inventory held by the company during the year). You learn that the inventory is
specialized by channel. For the retail channel, the inventory is $ 4,000,000. For the foodservice
channel the inventory is % 6,000,000. Inventory carrying costs for the firm are 20%.

Finally, you learn that he different channels have different terms of sale. Accounts receivables
for the retail channel are (and have averaged) $ 3,000,000. Foodservice accounts receivable
are (and have averaged) $ 1,000,000. You found that the cost of financing accounts receivable
is 10%.

As hard as you tried, you cannot find a reasonable basis to trace any other costs or assets
directly to the channel segments.

Guide Questions:

1) How “profitable” is each channel?

2) What is the “return of assets” of ROA of each channel?
3) Any recommendations?

Case Study Format:

a. Title Page
b. Table Content
c. Introduction for the Case
d. Provide your objectives to be answered
e. The Case itself
f. SWOT Analysis of the Case
g. In-depth analysis of your own analogy based on the case
h. Guide questions
i. Learning experience upon reading & answering the case
j. Essence of this case to Supply chain management
k. Conclusion
l. Recommendations for Philippine setting
m. References

REMINDER:
 Arial font style
 12” font size
 1.5 spacing
 Minimum of 30 pages
 Margin 1” from Top, bottom, left & right
 Green Folder
 Submission October 17, 2019 (HM 2-2)
October 18, 2019 (HM 2-1)