Operation Management - 1

Case Study Analysis

Scharffen Berger Chocolate Maker (A)

Submitted to: Mr. Hasmukh Gajjar

Group 5 Members:
1. Ankit Sarkar
2. Nishant Chimankar
3. Peeyush Kharche
4. Sanjana Nair
5. Sakshi Choudhary
6. Snehaa Madhavan

2016PGPM005
2016PGPM017
2016PGPM029
2016PGPM041
2016PGPM053
2016PGPM065

Indian Institute of Management Indore, Mumbai Campus (2016-18)

Executive Summary

Robert Steinberg and John Scharffenberger founded Scharffen Berger in 1996

Company has strength of 60 employees and operated from a 27,000 sq.ft. facility with 20,000
sq.ft. production area, retail space of 2,000 sq.ft. and office space of 5,000 sq.ft.
The chocolate making industry in America is decided into $14 billion Mass Market and $1.2
billion Premium Quality chocolate segment
Scharffen Berger Company is competing in the Premium Quality Chocolate segment with the
major player like Hersheys Food Corporation, Mars Inc. and Nestle
The company positioned and priced towards the high end of the market has always faced a high
market demand which is outstripping production. High growth in demand is expected, with a
15-20% annual growth for its premium chocolate products, in coming years and hence planning
capacity expansion is planned

Primary products

Unsweetened (99% cacao), Extra Dark (82% cacao), Bitter sweet (70% cacao), Semi-sweet,
Mocha, Mint (all have 62% cacao), Milk Chocolate (41% cacao)
Others: chocolate sauce, drinking chocolate, cocoa powder and chocolate covered figs

Pricing

Retail: $0.50 for 5 gm, $2.00 for 1 ounce, $4.00 for 3 ounces, $10.00 for 10 ounces
Wholesale: approximately $0.35 per ounce

Sales

$0.6 million in 1998,

$1.1 million in 1999,
$10 million in 2004,
Over $15 million estimated revenues for 2005

Current Capacity and expansion

Before Harris started the capacity of the plant was 18 conches

Currently plant is producing 36,400 to 40,600 kg i.e. around 29 conches of chocolate each
approximately worth $ 30,000 in sales. Therefore, the time of processing in conche is varying
between 49.6 to 55.3 hours
Thus, it can be clearly seen that, as per the data available in the case, Conche process is the
bottle-neck
Adding a new ball mill at $ 300,000, assuming quality remains same, and expected time
reduction to 15 hrs. from avg. 60 hrs. of choncing
When ball mill is installed, melangeur will be next bottleneck. Additional melangeur could be
purchased & refurbished at $ 50,000
Outsourcing the tempering and molding process to co-packers and remove duplication.
However, transporting liquid chocolate was risky and expensive proposition

Indian Institute of Management Indore, Mumbai Campus (2016-18)

Problem Description

To meet the high demand, the top management has to decide whether to increase the
production output by 50%, 100% or 150%. Deciding on the exact percentage figure will be crucial
as the company will lose a very good opportunity. On the other hand, the inventory demand will
be more than the actual demand if production output is increased by a very large percentage
The management needs to take a decision to attack the bottleneck and to increase the
production so as to meet the increasing demand.

Process Flow

Analysis (from the Excel File attached):

1. Observations from calculations performed for Current Situation:
The Conches are giving the least output of all processes which is 1,120 kg/day
Thus, Conche process is the bottleneck process with a monthly capacity of 40,000 kg

Indian Institute of Management Indore, Mumbai Campus (2016-18)

2. Observations from calculations performed after adding a Ball Mill:

After adding a ball mill, Cycle Time of Conche process will reduce to 450 minutes from the
current 1800 minutes. Thus, output will increase to 4,480 kg/day from the current
1,120kg/day
Now, Melangeur is currently operating at an output of 1,472 kg/day which is the least among
all processes. So, it becomes the new bottleneck
Also, monthly capacity will increase to 44,160 kg, which is an increment of 10.4% from the
current output

3. Observations from calculations performed after including a Ball Mill and Shift Adjustments:
In this scenario, apart from adding a Ball Mill, we will also increase the no. of shifts in
Roaster and Melangeur process by 1. Thus, new machine utilization of Roaster and
Melangeur processes will be 16 hours/day and 24 hours/day respectively
Thus, outputs of Roaster and Melangeur processes will be 3,200 kg/day and 2,208 kg/day
respectively. Thus, Melangeur process will still be the bottleneck
However, the monthly capacity will increase to 66,240 kg which is an increment of 65.6%
from the current output
4. Observations from calculations performed after including a Ball Mill, Shift Adjustments and an
extra Melangeur:

5.

Along with the modifications in Scenario 3, we will also add an extra Melangeur.
The Melangeurs output will increase to 4,416 kg/day
So, Temper process will become the new bottleneck
Thus, we will add a half shift of 4 hours to the Temper process, so that machine utilization
will now be 20 hours/day
Thus, the production capacity will increase to 84,000 kg which will be an increment of 110%
from the current process

Observations from calculations performed after including a Ball Mill, extra Shift Adjustments
and one Melangeur:

Along with modifications in Scenario 4, we will add one extra shift to Cleaner, Roaster and
Temper processes
Thus, the new Temper output will be 3,360 kg/day which will be the new bottleneck.
The monthly capacity will now be 100,800 kg which is an increment of 152% from the
current process

Indian Institute of Management Indore, Mumbai Campus (2016-18)

Final Recommendation

In the current situation conchs are the clear bottleneck

Observations from calculations performed after adding a Ball Mill reveal that the production
capacity will increase by around 10% which is clearly not sufficient to meet the increase in
demands
Observations from calculations performed after including a Ball Mill and Shift Adjustments reveal
that the production capacity will increase by around 65.6% from the current output
Since the expected increase in demand is around 30% by end of the year. Adding ball mill and
adjusting shifts would be sufficient for now and we need not consider adding an extra
Melangeur

Indian Institute of Management Indore, Mumbai Campus (2016-18)