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Table of Contents
Executive Summary…………………………………………………………………………………………………………………….1
Overview of Case………………………………………………………………………………………………………….……….…..2
Determine and State the Major Issue/ Issues……………………………………………………………….…….…….……..2
Engineering Director Issues…………………………………………………………………………………………………..….3
Marketing Director Issues…………………………………………………………………………………………………………3
Operations Director Issues……………………………………………………………………………………………………..…3
Finance Director Issues…………………………………………………………………………………………….…….……….4
Evaluation of options in relation to the company’s competitive priorities………………………………….………..4
Cost…………………………………………………………………………………………………………………….……….…….…4
Internal impact of options on BCF’s costs………………………………………………………………….…….……..4
External impact of options on BCF’s cost………………………………………………………………………………..5
Time to Market (Speed)……………………………………………………………………………………………………..…….6
Internal impact of options on BCF’s speed……………………………………………………………………….……..6
External impact of options on BCF’s speed…………………………………………………………………….…….…7
Quality………………………………………………………………………………………………………………………….….…..7
Internal Impact of options on BCF’s Quality……………………………………………………………….……...7
External Impact of options on BCF’s Quality…………………………………………………………….…….….8
Flexibility……………………………………………………………………………………………………………….…….…….…9
Internal impact of options on BCF’s flexibility…………………………………………………….…….……….…..9
External impact of options on BCF’s flexibility……………………………………………………….……….……10
Recommendations………………………………………………………………………………………………………….…….…..10
Other Recommendations……………………………………………………………………………………………….……….….11
Conclusion……………………………………………………………………………………………………………………………….12
Bibliography………………………………………………………………………………………………………………………..…..13
Appendix A………………………………………………………………………………………………………..….……….…….…14
Appendix B…………………………………………………………………………………………………………….…….…….…..15
Appendix C…………………………………………………………………………………………………………….…….…….…..16
Appendix D……………………………………………………………………………………………………………….…….………18
Appendix E……………………………………………………………………………………………………………………………...19
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Executive Summary
Bonkers Chocolate Factory is an American division of a multinational candy company.
The company currently utilizes a number of processes to achieve the final output of its products.
Chief among the technologies used is the conching process. The conching process is used by the
Chocolate factory to derive the main output, liquid chocolate, from a variety of inputs such as
milk, sugar, cocoa, which is then used in secondary processes to coat other products. Bonkers
Chocolate, based on current market demands for new complex products, is faced with critical
management decisions regarding its future production capacity and process technologies. ACE
Consultants, have been requested to provide an external analysis to Bonkers Chocolate Factory
management team by evaluating the two options presented which includes expanding their
capacity through the purchase of another conventional conching machine to add capacity to the
existing process or to purchase a new conching machine that will introduce a new processing
technology. Based on evaluating the options through a detailed examination of the company’s
operational strategy combined with an assessment of the marketing demands, ACE Consultants
recommends that Bonkers Chocolate pursue the option of purchasing a new conching machine
and implement a new processing technology. ACE is confident that pursing this option will
enable the company to maintain long term sustainability of its operations and to gain a
competitive advantage or comparability to competitors by meeting the capacity and production
differentiation needs of customers.
The recommendation is based on the analysis which indicates that with the
implementation of a new process the company would realize reduction of production inputs,
significant savings in primary production process, and notable reduction is wastage of raw
material inputs. Furthermore our consultancy firm has provided additional recommendations
which include using new technology along with a continuous conching process, establishing a
process and development team, implementing a refining process which will reduce energy
consumption while increasing the capacity output.
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In conclusion, Bonkers Chocolate Factory should invest in the new process technology to
expand volume production capacity and to maintain competitive advantage and flexibility in
product differentiation which will result in gains in market share. The company should also
consider other recommendations to further streamline and improve operational efficiencies while
reducing associated cost. This will enable the company to realise long term viability and
profitability in a highly competitive global industry.
Overview of Case
Over the last 2 years, research was being carried out by the company to determine the
feasibility of introducing a new technology for conching. It was expected that this would answer
all the concerns regarding the key indicators set by the company. In 2001, at a Bonkers
Chocolate Management Committee, the Engineering VP, having had success with the prototype
of the new technology, proposed the purchase of the new conching machine. This was met with
opposition from Operations, Manufacturing, Marketing, Sales and Finance. The Manufacturing
VP insisted that the application for $3 million in capital that was submitted by that department, to
buy a fifth conventional machine, be honoured.
The opposition of the new technology contended that, market demands for growth needed
to be met and by mid-2002, the factory should be operating at full capacity including meeting the
projected increase of 25%. This they felt would not be possible with the introduction of a new
machine which would require at least a year for installation, new skill set for the workers and
more capital. The Engineering VP felt compelled to defend the new technology and sway the
meeting. There were advantages and disadvantages in the arguments coming from both sides of
the divide. This was the atmosphere of the meeting that had the CEO overwhelmed but for which
a determination must be made.
Options
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Buy the fifth (5th) conventional conching machine
Buy the new technology machine
Determine and State the Major Issue/ Issues
The major issue that the management team of Bonkers Chocolate Factory’s is faced with,
is determining an appropriate operations strategy, with the key focus being on the factors that
will impinge on the productive capacity and capacity constraints of the organization. The overall
objective in their capacity planning is to achieve the optimal level where production capabilities
will meet the current market requirements and the forecasted changes in consumer demands.
Also, this capacity strategy is also highly dependent on the process technology decision made,
whether they will invest in a new process technology or purchase an “off-the-shelf” solution. The
managers have to assess the impact that the new process technology will have on the
performance objectives of the operation strategy (quality, speed, dependability, flexibility and
cost) also taking into consideration feasibility, vulnerability and accessibility of that investment
decision.
The core functions of the management team mentioned are Engineering, Marketing,
Sales, Finance and Operations, all which will also indirectly affect other support functions such
as Human Resources, Information technology and others. According to Nigel Slack as shown in
Figure 1.1 Appendix A, these business functions are closely interrelated; as a result changes
made in one area will affect the whole business, therefore considerable cross-functional
coordination is necessary.
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Each of the managers has raised dissimilar issues concerning their respective department,
all surrounding the main issue of productive capacity and the process technology that the
company may implement.
Engineering Director Issues
The Engineering directors issue lie in the capabilities of the new technology machine and
its ability to meet new products development, cost to be incurred in operations and the flexibility
of that new technology to meet production demands.
Marketing Director Issues
The issues of Marketing, on the other hand, lie within meeting the consumers demand in
a timely fashion and the quality of product. So to optimize on market share and sales growth, the
speed of product launching, lead time of production and the consistency in quality is essential.
Operations Director Issues
Operations is highly concerned about the new process technology’s delivery lead time,
training and flexibility of staff regarding staff rotation, and the changes in desired taste in respect
to the small production of the trial machine as opposed to a large volume with the actual new
implemented machine.
Finance Director Issues
Finance outlined that they would incur an additional capital outlay of 1 million dollars for
the same level of capacity, already losing investments made over 2 years for research and
development.
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Evaluation of options in relation to the company’s competitive priorities
In order to determine the most appropriate strategy for Bonkers Chocolate Factory (BCF)
an analysis of the relevant factors that influence the capacity and process technology issues will
be evaluated in light of the available options. In analyzing the capacity and process technology
issues, the ability of BCF to meet market requirements such as: cost, speed, quality and
flexibility will be incorporated. These operations resource (capacity and process technology)
represent elements of the BCF resource base and when combined with resource capabilities,
provides BCF competitive advantages and the ability to reconcile operations resources with
market requirements. In order to adequately analyze both options, ACE consultants conducted a
SWOT analysis on the company in order to determine the company’s current and forward-
looking situation (See Figure 1.2, Appendix B).
Cost
Internal impact of options on BCF’s costs
An examination of the internal operations of Bonkers Chocolate Factory was done to
determine the impact of both options on the company’s costs. The implementation cost for the
new conching technology would cost the company $4 million, while adding a fifth conventional
conch would cost $3 million to provide the same level of capacity. The estimated payback period
for the new conching technology is estimated to be seven years (see Figure Appendix E).
Bonkers Chocolate Factory also needs to consider how the lead time of both machines
will impact cost. The conventional conching technology option is able to be installed in
approximately six months, providing sufficient capacity and allowing BCF to meet forecast
demand. The new conching technology will take a further 12-15 months to develop and
implement, resulting in an inability to meet forecast demand, and the risk of losing immediate
sales, market share and competitive position. This puts the company at a financial risk. There is
also the risk of the higher cost of technology not being sustained by a higher level of demand.
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In addition to this, with the new technology option, the addition of one unit of capacity
will increase unit costs, a diseconomy of scale. An additional conventional conch machine, on
the other hand, will minimize the total fixed cost per unit of potential production output, enabling
the company to achieve economies of scale. The new machine will also result in the company
incurring expenses in the form of new skills development and training for staff and additional
maintenance.
While the new conching technology will cost the company more in initial costs, the
company will see long term cost savings in the form of:
Less material input, as the reduction in fat content will result in less money being spent
on cocoa butter which will consequently give rise to significant cost savings for some
products.
