Blanchard

Importing and
Distributing
Co., Inc.
Group 5
PGP10022-Kaberi
PGP10023-Kanupriya
PGP10024-Mrunalinee
PGP10046-Shaloo
PGP10048-Sheersha
PGP10060-Thota
Company History:
Product Line
● A full-line alcoholic beverage house that distributed both imported and domestic
goods including wine, beer, spirits, cordials, and premixed cocktails
● Blanchard purchased pre-bottled goods (called uncontrolled stock)
● Controlled stock, those items that Blanchard bottled and sold under its own brands
and private labels - 158 products
● Size : 25 items in half gallons, 63 items in quarts, 42 items in fifths, 12 items in
pints and 16 items in half-pints
Problem

● Expect 20% of before-tax return on any money invested in wine merchandising

● Has reached its borrowing capacity

● Inability to hire experienced wine salesman and build up an adequate inventory of

wines
● A reduction in inventory level is the only substantial source of fund available
 Updating EOQ/ROP system data
EOQ:
● Setup costs: All errors result from involving fixed costs as part of the total setup cost. Bob Young,
Eliot Wallace and the two administrative employees accrue fixed amounts and a reasonable
number of setup changes per year would not alter these costs. So the only relevant costs are those
of the 5 temporary employees who are hired for each run and equal squats to the 30 idle minutes
caused by the label change.
● S-5*2.5*1/2-$6.25/setup
● Mixing cost: Variable in fn of time invested by Bob & Eliot in the preparation of the mixture.
● Size change cost: $23000/260 days/10ítems_run$8.85/setup.
● Label change cost: (23000/260/8/2)+(5*2.5/2)-5.53+6.25-$11.78.
● Order Processing Cost: 23000/350$51.43
● Maintenance cost: The correct cost should be WACC + 2.5%, but because there is an opportunity
cost to invest the inventory money in wine and its return is 20% K should be minimum 20%+2.5%-
22.5%.
● Unit cost: You must express the amount of money that represents cash flow by placing those items
in stock. Blanchard's errors occur when including fixed costs & expenses incurred in the EOQ
calculation. C must be:
● Materials (cash flow used to replenish supplies used in bottling).
 Advantages of the EOQ/ROP system

● The system tries to strike the balance between the two costs: ordering the cost and the
cost of maintenance.
● The system tracks inventory variations on a continuous inspection basis, so the system
can provide information about the current inventory level of each item.
● The system can help meet customers' anticipated demands.
● The system maintains "mattresses" or WIP between the different successive operations
with the intention of maintaining continuous operation. Reducing demand variability
between the various stages of production.
 Disadvantages of the EOQ/ROP
system
● The EOQ/ROP system essentially has a reactive approach, so this method can obtain an order
quantity, not ways to reduce inventory.
● In order to implement EOQ, a continuous inventory review mechanism is enabled, which
usually represents a high cost.
● EOQ/ROP is a static "something" system, which does not adapt to variations in demand
automatically, so a new EOQ must be defined for each period.
● EOQ does not take into account production factors, such as the times required for the
production phase (as in this case, all elements of a size are produced at once rather than
resized and therefore a sufficient number of other sizes must be on hand in order to reduce
the amount of situations.)
 Analysis: Bob & Eliot System
Advantages
● In Blanchard's case, the storage of finished products is not a restriction (currently the finished
products have not occupied more than 50% of the space reserved) so costs such as safety,
heating, cooling will be fixed regardless of the volume of sales, which could allow you to focus
on reducing other costs.
● A high cost that Blanchard incurs is due to the high number of times that format changes (set
up times) must be made, therefore, it is necessary to reduce this time, reducing the format
changes as much as possible. Bob and Hank are working that way.
● Bob and Hank are not following the EOQ set in 1969, as it became obsolete as the basis on
which it was calculated was based on the pattern of demand according to 1969 data. In
addition, it did not take into account the production model (that is, all items of the same size
in a single batch). Using the latest data to predict demand and accounting of the production
structure ensures that cost adjustment is low and service level is high.
Disadvantages
● Due to the production structure, based on size-based batches, as well as maintaining a high
level of inventory of finished products, capital is being tying up in inventory form.
● As a significant portion of the capital is halted in the form of inventory, the company's
 Recommendations to Blanchard
● Obviously, the EOQ/ROP (well-calculated) system should be preferred based on the
reduction in the size of production lots as it results in a reduction in inventory, which is
reflected in less "stuck" capital.
● The company could implement an inventory control and verification system with as close
control time as possible, the advantage of this is that you have up-to-date information
and allow you to make decisions in less time.
● The company may consider reducing the range of products (types and sizes) depending
on the profitability of each item. Optimize your product portfolio.
● The company could consider using inventory management technology, such as RFID that
allows simultaneous scanning of products and their labels by radio frequency, without
the need for a manual scanner.
● The EOQ/ROP system should constantly receive information from the point of sale, so
that it is not obsolete. The system should have a demand forecast, in order to update
automatically.