Mohammad Akib Nawaz – MBA 6233 – Scharffen Berger

1. Describe Scharffen Berger’s business proposition. What are the company’s key
competitive capabilities? What type of process structure does the company use to
manufacture chocolate? Justify your answer.
• The business proposition was to create and serve customers with high-quality dark
chocolate that consisted of more than a dozen types of cocoa beans like from Guatemala
and Venezuela.
• The products were made in relatively small batches to focus on quality. The founders
themselves tasted each batch before shipping it off to the market.
• Scharffen was able to enter the market during a time when dark chocolate with less sugar
was gaining popularity.
• The company had a powerful sales channel consisting of 4000 outlet stores like those of
Trader Joe's and others such as Whole Foods and Williams Sonoma. This allowed for
widespread brand visibility.
• Scharffen Berger had four retail stores in major US cities such as New York, San
Francisco, and Berkeley to establish their premium brand image.
• Another competitive commercial advantage was that the company made products in three
market segments; the retail consumer, the B2B buyer like the food service industry, and
customized products for the most significant partners, like Trader Joe's, which brought in
20% of sales themselves. These channel partners further allowed them to blend in with
the market needs.
• The Process used by Scharffen Berger was the batch and line process. They had eight
stages of the Process, and each batch passed through those eight stages to become the
final product. The procedures were all aligned in a production line in their factory.
• This batch process allowed the company to have standardized products and
customizations along the production.

1. Which option would you recommend and why? What potential benefits and
challenges do you take into consideration when arriving at your conclusion?
• The option that should be chosen is the one that involves the new Ball Mill.
• It can be used to process large amounts of chocolate in a relatively shorter time.
Therefore, increasing both capacity and efficiency.
• The pros of this decision are as follows:
• The Ball Mill was tested with an experimental batch and proved its worthiness by
producing excellent chocolate.
• The Ball Mill can produce larger batches of chocolate within a shorter period.
• The cons of the Ball Mill are as follows:
• Quality may be affected as with larger batches; the percentage of defects may also
increase.
• Quality may fall for every unit in the whole batch, or the rate may fall for a larger
percentage of units in a batch.
• There is a significant capital expenditure of $300,000 to be made to implement this new
machine, potentially eroding profitability in the short run.

1. Would you proceed with the outsourcing these functions, and if so how would you
ensure the initiative’s success? Consider any quality risks and solutions.
 Mohammad Akib Nawaz – MBA 6233 – Scharffen Berger

• Yes, I recommend outsourcing. The cost of bottlenecks is the highest hidden cost in any
production line. Bottlenecks can create a state in which individual production stages seem
efficient, but, the whole line suffers from one inefficient stage.
• Since I recommended that the company acquire and install the Ball Mill, I can
confidently say that production will ramp up immensely. Therefore, packaging needs to
keep up.
• Especially when a large amount of money is being spent on the new machine, the
investment will only be successful if the packing is done on time. Not to mention all that
chocolate that will sit in containers.
• Retailers are becoming worried due to the limited supply, which can hamper long-term
relationships.
• In summary, the costs of slow production and bottlenecks have both accounting and
economic losses.
• The costs associated with quality risk are still lower than the plethora of costs involved
with bottlenecks.
• A potential solution to the risks of quality issues with packaging is to create a solid
Standard Operating Procedure that holds partners accountable for defects beyond a
certain percentage.