Holly Farm

Robert Johnston et al.: Cases in Operations Management, Instructor’s Manual, 3rd Edition Case 24 Holly Farm Case author: Stuart Chambers Teaching note: Stuart Chambers Synopsis Over a period of six years, the owners of Holly Farm have developed two additional complementary businesses. The first is a service operation opening up the farm to paying visitors who can observe farming activities and enjoy tours, walks and exhibits; the second an ice-cream manufacturing facility, which sells to farm visitors and through the retail trade. The case allows students to explore some capacity constraints in a service business, and to compare the capacity with demand forecasts. The teacher will be able to highlight the dangers of ignoring changes in "mix" of demand, and the inappropriate use of averaged data. Students can explore options for flexing capacity, managing demand, and target marketing to achieve better balance between capacity and load in a very seasonal business. They can also examine the role of inventory in the manufacture and supply of ice cream, with various seasonalities associated with different markets. Again, there are capacity constraints in production and storage. The case illustrates the dangers that can arise when apparently sensible marketing policies ignore operational capabilities and constraints. Key issues • Capacity management in services and manufacturing • Capacity-related inventory • Marketing/operations interaction • Strategy in small businesses Indicative questions 1. Evaluate Gillian's proposal to increase the number of farm visitors in 1999 by 50 per cent. You may wish to consider:- What are the main capacity constraints within these businesses? • Should she promote coach company visits, even if this involves offering a discount on the admission charges? • Should she pursue increasing visitors by car, or school parties? • In what other ways is Gillian able to manage capacity? • What other information would help Gillian to take these decisions? 2. What factors should Gillian consider when deciding to increase the number of flavours from four to ten? Note: For any calculations, assume that each month consists of four weeks including holidays (statutory holidays) should be ignored for the purpose of this initial analysis. 123 © Robert Johnston, Stuart Chambers, Christine Harland, Alan Harrison, Nigel Slack 2003 : Cases in Operations Management. Where the same product is sold at several different prices.2 highlights the extreme seasonality of the service over the year. 124 © Robert Johnston. its objectives. But it is an average. 2. The data on farm visitors is expressed in numbers.) Forecasts The case does not say exactly how the forecasts were derived. Yet we often have to plan on the basis of such figures! Some students will also note. despite its credibility. Daily Demand Pattern Exhibit 24. Students will quickly forget that. or later.dependent on weather. constraints and forecasts: Objectives • Both Gillian and Fred need to improve the profitability of their business • Fred does not want to disturb the farming business • Gillian believes that growth will provide extra profit Constraints • The Giles' don't want to invest more capital in the business • The farm workers and their spouses are provided extra income from the new activities. they may have become dependent on this money and used to the pattern of employment. Stuart Chambers. it is clearly based on a subjective view of: a) Historical growth. Robert Johnston et al. 3rd Edition Discussion 1.3. it is important to overview the business. etc. either at this stage. this could be misleading. Christine Harland. a forecast is uncertain. • Growth may be restrained by competitor action (other farms/other ice cream manufacturers) and affected by external factors (the economy. Weekly Demand Pattern The case states that twice as many visitors come on Saturdays and Sundays than on Fridays and Mondays. reality will be that some Sats / Suns are busier . showing the result of these influences. projected forward b) Policy to expand farm visitors by 50 per cent c) Realistic view of effect of competitor attack on ice cream retailers. Peak demand in Aug 1988 = 3400 visitors Weekly demand Aug 1988 = 850 Therefore Sat or Sunday demand = 1/3 of 850 = 283 This demand pattern is shown in Exhibit 24.4 indicates the pattern of attendance over the day of the peak 283 people. Nigel Slack 2003 . It is only indicative for discussion purposes. before this. The first task is to highlight the pattern of the demand for the service: Seasonality Exhibit 24. Alan Harrison.1 illustrates the historical and forecast sales of ice cream in each segment. Instructor’s Manual. Exhibit 24. However. However. climatic conditions. etc. alternative attractions. this is only relevant in the context of knowledge of demand. that the ice cream forecast is expressed in sales (money) whereas production is in litres. Analysis of Demand for the Farm Visits Whilst Question 1 asks the student to analyse various capacities. and the mix changes. Introduction Most students should be well-prepared to provide data and calculations on all the detail provided in the case. July. based on ten minute batches of twelve people is only 180 people.5 2 = 50000 + 13600 = 63600 litres Thus.: Cases in Operations Management. only more. August) 2) Milking parlour viewing 150 mins only (fixed viewing period) 2. The real problem is that seasonality has been enhanced. in 1998 sales were 95% of capacity.5 hours x 80 people/hour = 200 people (maximum) This is already exceeded in June. Nigel Slack 2003 . see exhibit 24. Christine Harland. 50% extra visitors in 1999 = 7400 people = 3700 litres extra However. the demand pattern will be unchanged. but will increase by 50 per cent. 3) Ice cream output Currently produced on a "Level Capacity" basis. 4 days a week: 350 litres/day = 350 x 48 x 4 = 67200 litres per year = 5600 (per month) Sales in 1998 = 75000 + 27200 1. July. Sundays. Robert Johnston et al. since farm is only visited in 7 months of year. as retail sales are forecast to go down. the figure of 200 only occurs when customers are under pressure to pass through the gallery. Stuart Chambers. Limitations of ice cream production • Fast freezer capacity (key process-max 350 litres/24 hours) • Storage capacity (7000 litres effective) 125 © Robert Johnston. Capacity analyses 1) Car parking 40 cars x 4 people = 160 6 coaches x 40 people = 240 Maximum = 400 people A discussion should note:- • This is mix dependent (cars and coaches) • All arrivals on site during afternoon. Instructor’s Manual.5 = 424 people 3. therefore only one use of each space per day (unlike most car parks) • There will be a problem in peak days (Saturdays and Sundays) in peak season (June. that in itself is not a problem. Note that this is the capacity when busy. This would result in peak daily demand of 283 x 1. August on Saturdays. Alan Harrison. but the "normal" capacity. 3rd Edition 1999 Forecast: It could be argued that if the business continues to be promoted in the same way.5. Presumably. Analysis of target markets 1) Promotion of coach visitors Advantages • can schedule arrival time to suit service • will come even if weather is bad • could be programmed for Friday/Monday only • occupies less car parking space/person • simple target market • could have specially-designed service package (e. • may have to discount admission price. mixed plans) Exhibits 24. 4. and the service cannot be stored. Instructor’s Manual. Nigel Slack 2003 .7 illustrate the effect of retaining the level capacity plan in 1999: Inventory would exceeded the 7000 litre maximum.6 and 24. 4) Guide staff and farm trailers No data . and not bring back family 3) By car • few problems except car park space. but • no control over arrival time (and Sat/Sun peaks) 4) Manage capacity/demand Since Gillian is unwilling to increase capital investment. 3rd Edition • Workers only available/requested 4 days/week • Capacity planning options (level. Robert Johnston et al. Alan Harrison. without viewing gallery) • promotion is responsibility of coach companies Disadvantages • "lumps" of demand may overload service at various times/points.tell families/friends • agreed departure prior to milking Disadvantages • won't buy so much ice cream (if any) • may upset service package for other visitors • may be satisfied by one visit. Stuart Chambers.g. ideally to smooth it.but could be a problem. and make more effort to manage demand. 2) School parties Advantages • avoids peak periods of July/August and w/ends • could be phased timing to avoid overlapping parties • schools could provide some of the supervision (customer involvement) • as for coach visitors • promote service . she must alter process efficiency at bottle-neck. Christine Harland. chase. for example:- • booking system • promote Friday/Monday 126 © Robert Johnston.: Cases in Operations Management. Nigel Slack 2003 .) • special late opening in summer • promote "early morning" tours with alternative attractions.(ice cream) • mixed plan. Robert Johnston et al.scheduling • increased costs due to above • effect on quality control (increased chance of errors) • priority when stocks are low? (to retail or farm shop?) • need for increasing freezer capacity in shop • need for market information (preferences.trial markets all outlets. 127 © Robert Johnston. etc. with extra production Tues/Thursday • this would obviate the need for extra finished goods freezers. for example baby animals.other animal care (e. Capacity . decrease in volume per flavour = product proliferation • might increase retail sales . forecasts.g.tea shop restaurant . Stuart Chambers.: Cases in Operations Management. aviary etc. goat milking) . or just shops? Advantages • possible extra sales and contribution • defend delicatessen trade (competitive advantage) • potentially. 1 set up = 12.g. Effects of increasing number of flavours from 4 to 10 Disadvantages • increase in variety. more return customers (to try other flavours).packaging control . Christine Harland.(farm tours) • open up midweek for specific coach parties with use of . there may be no change in capacity! • more complex . Alan Harrison.talks • prices and discounts • make customer wait (queuing with distractions. 5) Other information that would help Gillian to manage capacity better • records of sales to paying farm visitors and to "farm shop only" • records of coach/car demand • effect of weather patterns on each type of sales • customer's tolerance to queuing • demand/appropriate price for other sizes of ice cream • price elasticity of demand for entrance fee • customer survey needed – what service package they want? (customers and non-customers) • demographic data on target customers • survey of needs of delicatessen trade/competitors' offerings 5. 3rd Edition • alternative services .film/video milking . Instructor’s Manual.but will it affect farm shop sales? • stock rotation problems (due to limited freezer capacity) • extra inventory (greater variety of raw materials and finished goods) • possible lost capacity due to extra set-ups (also note that visitors don't want to see set-ups!) (e. retired workers) .5% of daily capacity)… BUT if mixing is not a bottleneck.g.supervision .part-timers (e.) • move away from possibilities of line production in the future • proof of competitive advantage? .overtime • overspill car park on fields (summer only) Capacity .co-ordination . 1 Ic e c r e a m S a le s R e v e n u e 1 9 9 4 t o 1 9 9 8 a n d 1 9 9 9 F o r e c a s t 120 100 80 60 Sales (£000) 40 20 0 1994 1995 1996 1997 1998 1 9 9 9 (f) Year R e ta il F a rm S h o p 128 © Robert Johnston. Stuart Chambers. Alan Harrison.: Cases in Operations Management. 3rd Edition Exhibit 24. Robert Johnston et al. Instructor’s Manual. Christine Harland. Nigel Slack 2003 . Stuart Chambers.2 Holly Farm: Monthly Visitor Numbers 1998 4000 3500 3000 2500 2000 1500 1000 Number of Paying Visitors 500 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Month 129 © Robert Johnston. Alan Harrison. Instructor’s Manual. Christine Harland. 3rd Edition Exhibit 24. Nigel Slack 2003 .: Cases in Operations Management. Robert Johnston et al. Christine Harland. Stuart Chambers. Robert Johnston et al. Nigel Slack 2003 .: Cases in Operations Management. Instructor’s Manual. 3rd Edition Exhibit 24.3 Visitors per Day: Aug 1998 300 250 200 150 100 50 Number of Paying Visitors 0 Wed Thu Fri Sat Sun Mon Tue Day 130 © Robert Johnston. Alan Harrison. Nigel Slack 2003 . Christine Harland.4 Farm V isitor W IP Inventory: S aturdays and S undays in August 1998 300 250 200 150 100 50 Approximate Number of Visitors on Site 0 9:00 Time 10:00 11:00 12:00 13:00 14:00 15:00 16:00 17:00 18:00 19:00 20:00 131 © Robert Johnston. 3rd Edition Exhibit 24. Robert Johnston et al. Stuart Chambers. Alan Harrison. Instructor’s Manual.: Cases in Operations Management. 600 20. Alan Harrison. Robert Johnston et al.5 Total Sales and Forecast Litres Sales to 1998 1999 (forecast) Retail shops 50. 3rd Edition Exhibit 24.000 Total 63.000 43. Christine Harland. Instructor’s Manual.000 63.333 Farm shop 13. Stuart Chambers.: Cases in Operations Management. Nigel Slack 2003 .333 132 © Robert Johnston. Christine Harland.: Cases in Operations Management.3%) Retail sales (litres) 2253 2340 4953 2947 3813 4940 4767 4333 4247 2773 Farm shop total (litres) 450 750 600 1200 1800 3000 3300 3600 1800 1200 Paying visitors (litres) 900 1350 2100 2400 2550 1350 450 Shop only (litres) 450 750 600 300 450 900 900 1050 450 750 TOTAL (litres) 2703 3090 5193 4147 5613 7940 8067 7933 6047 3973 ANALYSIS OF ICE CREAM INVENTORY 1998 AND FORECAST 1999 (assuming 100% capacity) 1998 Maximum production 5600 5600 5600 5600 5600 5600 5600 5600 5600 5600 Consumption 2900 3200 5700 4200 5600 7700 7700 7400 6100 4000 Stock increase 2700 2400 (100) 1400 (2100) (2100) (1800) (500) 1600 TOTAL STOCK 2700 5100 5000 6400 6400 4300 2200 400 (100) 1500 1999 Maximum production 5600 5600 5600 5600 5600 5600 5600 5600 5600 5600 Consumption 2703 3090 5193 4147 5613 7940 8067 7933 6047 3973 Stock increase 2897 2510 407 1453 (13) (2340) (2467) (2333) (447) 1627 TOTAL STOCK 6497 9007 9414 10867 10854 8514 6074 3714 3267 4894 133 © Robert Johnston. 3rd Edition Exhibit 24. reduction in retail sales by 13.1998 AND FORECASTS FOR 1999 1998 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Retail sales (£) 3900 4050 7950 5100 6600 8550 8250 7500 7350 4800 Retail sales (litres) 2600 2700 5300 3400 4400 5700 5500 5000 4900 3200 Farm shop sales (£) 600 1000 800 1600 2400 4000 4400 4800 2400 1600 Farm shop sales (litres) (a) 300 500 400 800 1200 2000 2200 2400 1200 800 Paying visitors . Stuart Chambers. Alan Harrison. Instructor’s Manual. Robert Johnston et al. Nigel Slack 2003 .number 1200 1800 2800 3200 3400 1800 600 Paying visitors sales (litres) (b) 600 900 1400 1600 1700 900 300 Shop only (litres) (a-b) 300 500 400 200 300 600 600 700 300 500 TOTAL (litres) 2900 3200 5700 4200 5600 7700 7700 7400 6100 4000 1999 (forecast increase in farm shop sales by 50%.6 Analysis of Sales and Inventory in litres ANALYSIS OF SALES . Christine Harland.7 Analysis of 1998 Sales and Production (Litres) 9000 8000 7000 6000 Production 5000 Litres 4000 3000 2000 1000 0 Ja n Fe b Mar Apr May Jun Jul Aug Sep Oct Nov De c Re ta il P a ying V isitors S hop-only V isitors Ex ce ss P roduction Analysis of 1999 (forecast) Sales and Production (litres) 9000 8000 7000 6000 Production 5000 Litres 4000 3000 2000 1000 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Retail Paying Visitors Shop-only Visitors Excess Production 134 © Robert Johnston. Nigel Slack 2003 . 3rd Edition Exhibit 24. Stuart Chambers.: Cases in Operations Management. Instructor’s Manual. Robert Johnston et al. Alan Harrison.