I.

INTRODUCTION

A. COMPANY PROFILE

History

Figure 1. Breadstop Timeline

In 2007, Breadstop started out as a New Business Venture (NBV) Concept in fulfillment of
the owner’s undergraduate thesis for his B.S. Entrepreneurial Management Degree in University of
Asia & the Pacific. The owner, Mr. Manuel Bien Pine, envisioned bakeries based in low-income
barangays and urban poor communities to provide quality yet affordable breads to these households.

Breadstop’s first branch, which was located in Paco, Manila, opened in January 2008 with
product offerings ranging from daily breads, such as Pan de Sal and Pan de Coco, to specialty
breads, such as cakes and custard pies.

2009 was a breakthrough year for Breadstop. After just one year of operations, Breadstop
has reached Php 2 million in annual net income and was already granted BFAD certification. In
addition, it was also able to reach ROI in just 11 months, which is better compared to the industry
average of about 2-3 years. Due to this breakthrough, Manuel Bien S. Pine was recognized during

1
his graduation as the Most Inspiring Entrepreneur of the University of Asia & the Pacific for his
business initiative, and Breadstop was awarded Best New Business Venture.

The rapid expansion strategy of the owner also happened in 2009. The second branch
located near the Kalentong Public Market opened in June 2009, and this was immediately followed
by the opening of the third branch in Cubao in November of the same year. This expansion scheme
increased demand for products and production of bread for Breadstop. However, the same strategy
resulted to operational problems. The production system of Breadstop could not properly address
the sudden change in demand given fluctuating back order rates1, unexpected shortages of raw
materials, and production delays of Pan de Sal during peak hours. As a result, Breadstop decided to
halt the rapid geographical expansion strategy in 2010.

In addition, Mr. Manuel Bien Pine decided to drive growth not by geographical growth
but by diversifying to new product lines. In 2011, they were able to secure intellectual property
rights for the Kalamunggay Health Breads, leading to the use of kalabasa (squash) and
malunggay (moringa) as substitutes to a certain percentage of the flour mix.

However, despite all these expansion efforts, profit margins have yet to return to their
2009 figures. The decline was primarily an offshoot of uncontrolled operational and
organizational problems after the rapid expansion.

Ownership

Breadstop is a sole proprietorship of Manuel Bien S. Pine with the cooperation of his
parents, who act as consultants in business operations and strategy. Both parents provide
guidance in their areas of expertise – strategy for the dad and raw materials purchasing for the
mom. Their combined efforts were able to stir the company to its early success.

Formal management structure is divided into the selling arm and production arm. Each
branch has two selling area supervisors who oversee the sellers (tinderas), and their activities in
the specific arm. They also act as cashiers and are in charge of filling the sales report everyday.
The company as a whole has two production supervisors (one in Paco and another in Cubao)

1
Back order (B.O.) refers to the number of items of a product placed on sale that remain unsold at the end of the
shelf life

2
who manage the production activity of the two branches. Their responsibilities include quality
control, daily delivery report, and inventory management. Moreover, they oversee the bakers in
their respective production houses. The company also employs a store manager that oversees all
three branches. (See Figure 2 for the organizational structure.)

Figure 2. Breadstop Organizational Structure

Nature of Business

B8 Breadstop is a community bakery that offers three product categories: (1) daily bread,
(2) specialty bread and (3) Kalamunggay Healthy Breads. The daily bread line, which was the
starting category of the bakery, covers fast-moving basic bread purchases of consumers such as
Pan de Sal, Pan de Coco and cheese bread, accounting for more than two-thirds of total
production. These products usually last for 2-5 days. Under the specialty category are breads
such as custards, assorted cakes, pies, cookies and donuts. This category uses cake mixes that
require the use of egg, increased amount of sugar and special flavoring instead of standard dough
mixes used in the daily breads category. Lastly, the Kalamunggay Health Breads is the bakery’s
newest product line wherein selected daily and specialty breads are produced with kalabasa and
malunggay in their recipe base. Recently, Breadstop started exploring honey production to
develop a new line of high-fiber bread with honey.

3
 Breadstop allows two methods of purchase from (1) over-the-counter sales, for its
regularly produced daily, specialty, and Kalamunggay health breads; and (2) made-to-order, for
custom-made specialty breads. In addition to selling baked goods, several Breadstop branches
house a mini-grocery with beverages, canned goods, dairy, and laundry and personal care
products in inventory.

In contrast to larger bakeries, Breadstop is a community bakery focusing on niche

segments that these bigger chains may not be addressing. It primarily caters to low-income
barangays and urban poor communities in Metro Manila, belonging to the socio-economic
classes C, D and E.

Size

Breadstop's fixed assets (land, building, equipment) across its three branches total
Php 24.7 million. Being the only branch with company-owned land and biggest production area,
the Cubao branch claims 79% (Php19.5 million) of the company's fixed assets. Breadstop has 33
employees. The breakdown will be shown in the later section of this paper.

Asset
Area Total
Land and Building Equipment

Paco Php 1,000,000.00 Php 1,785,000.00 Php 2,785,000.00

Cubao 17,850,000.00 1,643,000.00 19,493,000.00

Kalentong 780,000.00 350,000.00 1,130,000.00

Total Php 19,630,000.00 Php 3,778,000.00 Php 23,408,000.00

Table 1. Breadstop Fixed Assets, as of July 2012

Company sales in all three branches, including bun deliveries, which comprise wholesale
and over-the-counter sales, from June 2011 to May 2012 totaled Php 20.1 million. Of its three
locations, the pioneering branch at Paco attained the highest revenue at 11.26 million pesos.
Moreover, sales for the year was at its lowest in September at 1.10 million (34% drop below
average); and peaked at 1.97 million (17% increase above average), peaking at 3.29 million in
December.

4
Month Sales Category Total

Paco Cubao Kalentong Bun Sales

Php
June 1,058,530.50 Php 213,281.95 Php 241,522.75 Php 97,292.00 Php 1,610,627.20

July 1,080,912.25 233,519.60 248,654.25 171,527.00 1,734,613.10

August 1,054,172.00 248,707.00 272,718.79 178,592.00 1,754,189.79

September 538,861.25 141,864.20 260,307.10 162,871.00 1,103,903.55

October 1,052,923.45 280,551.52 302,108.25 160,253.00 1,795,836.22

November 992,285.25 268,337.95 286,504.00 140,711.00 1,687,838.20

December 1,146,098.25 287,440.70 353,119.75 180,442.00 1,967,100.70

January 969,615.75 255,461.25 275,848.00 151,077.00 1,652,002.00

February 945,668.00 272,544.25 313,022.50 174,037.00 1,705,271.75

March 995,378.22 276,650.25 339,590.75 130,710.00 1,742,329.22

April 914,071.50 252,575.95 300,744.75 145,620.00 1,613,012.20

May 969,127.75 275,092.00 342,066.00 148,720.00 1,735,005.75

Php Php Php Php

Total Php 11,717,644.17 3,006,026.62 3,536,206.89 1,841,852.00 20,101,729.68

Table 2. Breadstop Monthly Sales, June 2011 to May 2012

Branch
Function Total
Paco Cubao Kalentong
Store Managers 1 1
Production Supervisors 1 1 0 2
Selling Area Supervisors 2 2 2 6
Bakers 6 6 1 13
Salesladies 5 2 4 11
Total 14 11 7 33

Table 2. Number of Employees Across Branches

Breadstop's manpower resources total 34 employees, distributed across different

functions. One overall store manager ensures business operations across the bakery's branches
are meeting customer and owner requirements. Paco and Cubao, being the only production sites

5
of the company, each have one assigned production supervisor, who manages branch production
activities. Moreover, the company has six selling area supervisors, divided among the three
branches (Paco, Cubao and Kalentong), with the specific tasks of overseeing the salesladies
(tinderas), acting as cashiers, and filling in daily sales reports. The company has a total of nine
salesladies - five in Paco, two in Cubao and four in Kalentong, responsible for interacting with
customers and supplying their requests. Finally, Breadstop currently employs 14 bakers - six in
Paco, six in Cubao and one in Kalentong; with the baker distribution corresponding to the
allocation of production in each branch.

Areas of Operations

Breadstop has three branches in Paco (1678 West Zamora St.), Kalentong (164 Gen.
Kalentong St., Mandaluyong), and Cubao (36 Mayor Diaz St. cor. Benitez St. Brgy. Kaunlaran).
The three bakeries operate under a Cross Baking System. Cross Baking means all the three retail
stores have their own production backhouse in-charge of producing breads for particular product
lines. The Paco branch produces daily breads and Cubao is in-charge of specialty breads, but
Kalentong solely produces Pan de Sal just for its retail store. Breadstop Kalentong then gets all
other products from Cubao and Paco. Breadstop Cubao also acts as a commissary, where raw
materials are stored and recipe pre-mix are prepared, and then delivered to the other branches.

All branches serve a community-based market in West Zamora, Gen. Kalentong and
Brgy. Kaunlaran. Their wholesale buns deliveries reach public markets in Manila, Mandaluyong
and Cubao.

B. INDUSTRY BACKGROUND

The baked goods industry in the Philippines, dominated primarily by breads, cakes and
pastries, continues to thrive in a highly competitive food market. Offering several innovations
and variations of its product categories, baked goods has sustained high levels of volume and
value shares.

Over the past five years, the baked goods industry in the Philippines posted a CAGR of
6.0% in retail value. The total industry value improved by 4.2% in 2011, amounting to Php
30.846 billion, with unpackaged/artisan baked goods accounting for about 50.3%. Of the three

6
product categories, bread continues to dominate the industry with volume shares for
packaged/industrial bread steadily increasing in value and in percentage relative to unpackaged
bread since 2006, at 47.9 tons (39.39%) to 54.6 tons (40.93%) in 2011.

35.00 10%
9%
30.00
8%
25.00 7%
20.00 6%
5% Sales Value
15.00 4% Growth Rate
10.00 3%
2%
5.00
1%
0.00 0%
2007 2008 2009 2010 2011 2012* 2013*
*Projection
Source: Euronomonitor International

Figure 3. Baked Goods Industry Value (in $ ‘000,000)

Development Trends

1. Emergence of Substitutes and Flatness of Growth

Despite the growth trend of the industry, the 4.2% increase in 2011 is lower, compared to
4.6% in 2010 and 9.3% in 2007. In terms of volume, retail sale of baked goods increased by only
1% in 2011, as with the previous year. This flatness of growth being experienced by the industry
is primarily driven by the widespread availability of numerous food substitutes such as instant
noodles, biscuits, and sweet and savory snacks, thereby lowering consumption of baked goods,
leading to tighter competition among industry players.

The emergence of these alternatives has influenced the consumption patterns of Filipinos.
While the industry is still expected to grow at a CAGR of 1.2% for the years 2011 to 2016 due to
price promotions, a slowdown from the CAGR of 1.7% from 2006 to 2011 reflects the high

7
threat posed by lower-priced substitute food products and cultural barrier due to familiarity of
Filipinos with rice and noodles as staple food.2

2. Increasing Preference for Packaged/Industrial Foods

Baked goods can be clustered into two packaging categories: industrial breads, which are
single- or multi-portion packaged bread sold primarily in supermarkets, and artisanal breads, or
unpacked goods commonly sold by community-based bakeries. Unpackaged/artisanal products
accounted for about 53% of the total sales volume of the baked goods industry in 2011. This
significant percentage can be attributed to mass market chain retailers such as Pan de Manila and
Julie’s Bakeshop which established their bakeries in high-traffic places and near residential
neighborhoods, targeting mass market consumers who prefer freshly-made baked products.3

However, the fast-paced lifestyle of today's average citizen calls for a convenient meal
that is easy to consume and bring around, as well as possessing a longer shelf life. As such, the
volume consumption of packaged baked goods is forecasted to grow at a higher rate than
artisanal products. Packaged/industrial bread is expected to grow annually at 2.2% from 2011 to
2016, as compared to unpackaged/artisanal bread with 0.1%.4

CAGR,
Packaging 2006 2007 2008 2009 2010 2011
2006-2011
Industrial 88.0 91.6 94.1 95.2 96.8 98.4 2.2%
Artisanal 104.2 108.4 110.8 109.1 109.8 110.5 1.2%

Table 3. Sales Volume of Baked Goods by Packaging

3. Price as the Primary Driver of Consumption

The price sensitivity of the Filipino consumers has significantly impacted the pricing
activities of the baked goods industry, with companies finding ways to offer competitive prices
despite the increasing costs of wheat, and consequently flour, the primary ingredient for baked
goods. 5 This, coupled with the ease of switching between brands and low differentiation

2
Euromonitor International: Baked Goods in the Philippines
3
Ibid.
4
Ibid.
5
Euromonitor International: Baked Goods in the Philippines

8
especially in the daily bread category, has given the buyers bargaining power over bread
manufacturers. In effect, companies have resorted to low-price strategies, banking on volume
sales to meet profit requirements.

In response, through a joint effort of bread manufacturers and bakeries including Gardenia
Philippines, Marby Food Ventures, MLM Foods and Julie’s Bakeshop, to name a few, Pinoy Tasty
was launched as the first generic white bread in 2010, distributed nationally. By offering a cheap
alternative, made possible through the use of basic ingredients and a subsidy provided by the
manufacturer, companies are looking into high volume sales to earn greater profits.6

Due to the absence of customer loyalty in the industry, brand affinity is only established
as long as price and convenience meet customer requirements. Baked goods companies
producing mass market brands have secured a stable position in the industry as value market
leaders. As a growing number of consumers are expected to prefer cheaper brands, unit price of
baked goods is expected to decline from 2012 to 2016 with companies focusing on competitive
pricing to strengthen their position in the market.7

4. Health and Nutrition

The dynamic behavior of consumers has pulled the baked goods industry in various
directions, one of which is the shift towards eating and living healthy. This is evident in the
increasing value share of whole wheat bread at a strong 33% in 2011, trailing behind white bread
which dominates the industry with a 38% value share.8 The growing popularity of whole wheat
bread can be attributed to its fiber's proven health benefits to the body, which encourage
purchase from the more health-conscious market.

This wellness trend also drove the unit prices of baked goods, which increased in 2011.
Consumers who prefer healthier alternatives face higher unit prices compared to their usual
bread purchases due to higher costs of sugar-free and low-fat ingredients.9

6
“Pinoy Tasty, generic bread, debuts at P36 per loaf”. GMA News Network, accessed from
<http://www.gmanetwork.com/news/story/202660/news/nation/pinoy-tasty-generic-bread-debuts-at-p36-per-
loaf>
7
Euromonitor International: Baked Goods in the Philippines
8
Euromonitor International: Baked Goods in the Philippines
9
Ibid.

9
 5. Cost of Raw Materials
Besides the growing preference for healthier alternatives, the main driver of unit price
increase in 2011 was the cost of raw materials, particularly wheat. The price of wheat grew
globally, which pushed the prices of local flour up, the primary ingredient used in the
manufacture of baked goods.10

400
350
300
250
200
150 Price reached a 3-year
100 peak in May 2011

50
0
Jul-09

Jul-10

Jul-11
Apr-09

Oct-09

Apr-10

Oct-10

Apr-11

Oct-11
Jan-09

Jan-10

Jan-11
Source: World Bank

Figure 4. Global Prices of Wheat

6. The Movement of Big Baked Goods Manufacturers towards Targeting the Mass Market

Given that major players in the industry target the middle and upper classes, Breadstop
identified the mass market as the niche market for quality baked goods. However, the launch of
the Pinoy Tasty brand by big manufacturers signaled their move towards targeting the mass
market. This would imply that aside from other community bakeries, Breadstop is now directly
competing with these baked goods manufacturers. Inability of Breadstop to respond to this trend
can considerably affect the company’s competitiveness.

7. The Growing Trend of Community Bakery Chains

With the fast expansion of popular community bakery chains such as Julie’s Bakeshop
and Pan de Manila, there is a threat that these chains enter Breadstop’s area of operations and
reduce Breadstop’s market share.

10
Ibid.

10
Industry Structure

The whole baked goods industry can be defined into two main business clusters: in terms of
packaging and in terms of recipe.

Figure 5. Baked Goods Industry Structure

Packaging

In terms of packaging, the baked goods industry can be divided into industrial goods and
artisanal goods. Industrial goods are packaged goods usually produced by baked goods
manufacturers. Industrial goods are often more accessible since they are available in various
distribution channels such as supermarkets, convenience stores, and even sari-sari stores.
Industrial goods may come in either single-portion packs or multi-portion packs. Current market
leaders in this sector are Gardenia, Goldilocks, and Fortune (by MLM Foods, Inc) with 2010
total industry market shares of 9.1%, 8.9%, and 5.0% respectively.

Categorized in Terms of Packaging

'000 tonnes
2006 2007 2008 2009 2010 2011
Industrial 88.0 91.6 94.1 95.2 96.8 98.4
Bread 47.9 50.1 51.8 52.6 53.6 54.6
Cakes 13.3 13.8 14.0 14.1 14.2 14.3
Pastries 26.8 27.7 28.3 28.5 29.0 29.5
Artisanal 104.2 108.4 110.8 109.1 109.8 110.5
Bread 73.7 77.2 79.2 78.0 78.4 78.8
Cakes 15.6 15.9 16.2 16.0 16.2 16.3
Pastries 14.9 15.3 15.4 15.1 15.2 15.4
Baked Goods 192.2 200.0 204.9 204.3 206.6 208.9

Table 4. Sales of Baked Goods by Category: Volume 2006-2011

11
 Artisanal goods are unpacked goods. These are usually offered by
community/neighborhood bakeries that cater to a lower-income market. Some bakeries such as
Cupcakes by Sonja and Le Petit Artisan, however, also cater to a niche market by offering
products at a premium. Pan de Manila and Julie’s Bakeshop are well-known brands in the
artisanal goods sector of the industry.

Recipe

Based on recipe, the industry can be divided into three: bread, cakes, and pastries.
Bread is a staple food product made from baking primarily flour and water. Different types of
bread include buns, tasty, pan de sal, baguettes, etc. Cakes are sweet baked desserts. Cakes
usually have a bread-like interior and covered in icing. Pastries are baked products made from
flour, sugar, milk, eggs, baking powder, etc. Pastries differ from bread in that they have higher
fat content. They are usually light and airy, and have a flaky texture. Examples of pastries are
croissants, éclairs, pies, quiche, etc. There is, however, some difficulty in classifying whether a
product is a bread, cake or pastry.

Categorized Based on Recipe

'000 tonnes
2006 2007 2008 2009 2010 2011
Bread 121.6 127.3 131 130.6 132 133.4
Cakes 28.9 29.7 30.2 30.1 30.4 30.6
Pastries 41.7 43 43.7 43.6 44.2 44.9
Baked
Goods 192.2 200.0 204.9 204.3 206.6 208.9

Table 5.Sales of Baked Goods by Category: Volume 2006-2011

Competition

A significant portion of the baked goods industry is comprised of artisanal products,

which contributed a little more than half of the sales value and 52.9% of sales volume of the
industry. Dominating the artisanal subsector of the industry are Pan de Manila and Julie’s
Bakeshop, which are usually located in residential and high-traffic areas. Most market players
for both the artisanal and industrial subsectors of the baked goods industry target mass market
consumers. Although, Gardenia continues to be the market leader in the baked goods industry

12
with a 9.1% share in 2010, around 50% of the market is held by various small community
bakeries.

Since most players target highly price-sensitive market consumers, manufacturers and
bakeries compete through competitive pricing. Players try as much as possible to offer lower
costs to appeal to the mass market. This is especially true for small community bakeries.

To further increase sales, major players also drive sales volume up by making products
available to the market through various distribution channels. Current market leader Gardenia,
for example, employs a wide network of distribution channels. This allowed the multi-national
company to easily penetrate the market. Through Gardenia Pedicarts and partnerships with major
supermarkets (i.e. SM, Shopwise, Robinsons), Gardenia is able to guarantee the availability of its
products for consumers.

With increasing competition in the market, Gardenia continues to strengthen its strategies
by focusing on three core pillars:

1.) Aggressive mass-media advertising for brand awareness and recognition;

2.) Consistent product quality and superior taste; and,
3.) Advanced bread-making technology to ensure quality and be able to meet demand.

These three, coupled with its wide distribution network, enable Gardenia to respond to
the needs of the market: freshness, reliability, and availability. Its value for quality, affordability
and convenience allowed it to secure its position as market leader.

As for small community bakeries, most – if not all – are located in residential areas that
house the lower socio-economic classes to be more accessible to the mass market. They usually
offer artisanal breads and a limited product portfolio, composing mostly of pan de sal, tasty, and
other daily breads. These bakeries are commonly not differentiated from one another and
compete in terms of pricing.

13
Industry Leaders

Gardenia Philippines Inc.

Strengths

Gardenia Philippines (Strengths)11 B8 (Relative Performance)

- Perceived superior quality (freshness &
taste) due to G-Lock Technology
- Wide coverage and rapid territorial
expansion
- Growing product categories and diverse
SKUs (35 packaged/industrial SKUs)
- Multi-awarded company
- Brand awareness and recognition
Just-in-Time Process
- Inconsistency of product quality
- Limited to 3 branches in Metro Manila
- Diverse product categories and SKUs
(115 SKUs, 12 are packaged SKUs)
- Entrepreneur of the Year Award
- Breadstop website and Facebook page
Just-in-Time Process

The largest player in the baked goods industry, Gardenia Philippines, Inc. prides itself in
offering products with superior quality, especially in terms of freshness and taste. With its G-
Lock Technology, Gardenia has devised a way to maintain the freshness of its bread. Moreover,
Gardenia continues to expand its already wide coverage in the market producing about 10,000
loaves per day, distributed all over supermarkets, groceries, and convenience as well as variety
stores.12 In addition to these channels, Gardenia has employed the pedicart program, to better
penetrate neighborhood areas. In terms of expansion beyond the Metro, Gardenia has reached as
far as the Visayas region when it opened a new factory in Mactan, Cebu. Constantly introducing
new SKUs such as the Walnut Loaf and the Wheat Cranberry Loaf, Gardenia has been able to
meet demands of consumers with differing preferences. Finally, after bagging several awards and
appealing to the tastes of consumers, Gardenia has been recognized as a brand with great quality,
attaining stronger patronization with accreditations from the International Organization for
Standardization (ISO 9001), Certification International (HACCP), Superbrands Asia
(Superbrands), and the Consumer Union of the Philippines (ANCA).

11
“Gardenia Bakeries”. Scribd. Accessed from <http://www.scribd.com/doc/57583490/Gardenia-Bakeries-v2>
12
Gardenia Philippines Website, <http://www.gardenia.com.ph/index.php>

14
 On the other hand, Breadstop struggles with inconsistency of its product quality, given
the absence of any form of testing quality assurance. The Balanced Scorecard outlines customer
complaints with respect to quality. With only three branches in Cubao, Paco and Kalentong, the
bakeshop is limited to serving customer segments within the area. However, Breadstop remains
strategically competitive, offering diverse product categories (daily breads, specialty breads,
kalamunggay breads) and introducing several new SKUs. During its birth in 2009, the company
was awarded Best Project of the Year in the University of Asia and the Pacific (UA&P), with the
owner also receiving the Most Inspiring Entrepreneur Award. Although the brand may not be
famous all over Metro Manila, it continues to establish its name in the areas it operates, while
promoting the brand through its website and Facebook page. Since bread freshness is crucial,
both operate on a Just-in-Time with respect to the timeliness of the process.

Best Practices

Gardenia Philippines (Best Practices) B8 (Relative Performance)

- Partnering with distributors for in-store
promotions
- Aggressive mass media promotions
- Use of advanced product technology
Automated quality checks
- Self-initiated promotions
- Breadstop website and Facebook page
- Digitized machines to reduce human error
Visual inspection by the Packager

Gardenia's way of doing business highlights its strengths, and best practices, including
partnering with distributors for in-store promotions. Dominating good shelf space has been a key
strategy in capturing market shares. Moreover, the company's aggressive mass media promotions
have created greater awareness of its product diversity, while convincing consumers to try out the
product. And finally, its use of advanced product technology, like the G-Lock, which keeps the
bread sealed, thereby preserving its freshness, has paved the way for Gardenia's superior quality.

As a young business, Breadstop has a lot to learn from Gardenia's best practices,
especially in the use of advanced product technology to offer the best quality to customers.
Currently, B8 uses a number of digitized machines to reduce human error in the production
process. In terms of promoting the brand, Breadstop may not be able to emulate Gardenia's
strategy as the two companies have different distribution channels and scopes.

15
 Also, quality checks are highly different. Gardenia has multiple check points that are
automated using visual scans , while Breadstop has only one inspection point that happens for
Finished Goods right before the delivery of the products. The inspection relies on the estimate
and gut feel of the packager, and the costs of this quality strategy will be discussed in II-H.

Weaknesses

Gardenia Philippines (Weaknesses)13 B8 (Relative Performance)

- Limited penetration to the lower-end - Market focused on the lower-end market
market
- Absence of stand-alone stores - Three branches as distribution channels;
and deliveries of buns

While Gardenia's strengths have contributed significantly to the company's profitability,

it still has its share of weaknesses. Its distribution channels have constrained its penetration to the
low-end market. Moreover, this limited access to the aforementioned market segment is
amplified by the absence of stand-alone stores, which are dominated by local bakeries.

An assessment of B8's performance relative to the weaknesses of Gardenia shows unique

competitive advantages of Breadstop's overall strategy. While Gardenia employs no means of
penetrating the lower-end market, Breadstop has positioned itself strategically in its three
branches of operations, selling baked goods in its stand-alone stores and delivering buns to its
customers.

Goldilocks

Strengths

Goldilocks (Strengths) B8 (Relative Performance)

- Brand leadership - No brand dominance
- Rapid geographic and product portfolio - Focus on branch growth
expansion
- Established reputation in the market - Known in area of operations

13
Gardenia Philippines Website, <http://www.gardenia.com.ph/index.php>.

16
 Offering a wide variety of good and tasty products, Goldilocks has established brand
leadership in the Philippines, cutting across all economic classes. The strengthening of the
Goldilocks brand was pushed forward by the awards garnered by the company, including
Outstanding Filipino Retailer for 2006 in Food Retail Category, and the Hall of Famer for 2010
in Bakeshop and Franchise categories. To capitalize further on its brand strength, Goldilocks
continues to expand locally and even overseas, with over 250 stores to date. In existence for over
40 years, the company has established for itself a reputation in the market, with a defined target
audience that is familiar with the establishment and its variety of products.14

On the contrary, Breadstop, as a community bakery, isn't eyeing brand leadership, but
simply a strengthening of the brand, by focusing on branch growth. As a young, community
bakery operating for only three years to date, Breadstop has to intensify efforts to establish its
name and make itself better known in the areas it operates.

Best Practices

Goldilocks (Best Practices) B8 Relative Performance

Offering complementary products Focused on bread portfolio diversification
Launching new products every quarter New SKU line every year
Offering franchising opportunities No prospects on franchising/expansion

To attain greater profitability, Goldilocks has divested into offering complementary

products, launching new products every quarter. Breadstop, on the other hand, presently commits
itself to focusing on product diversification by introducing a new SKU line every year. However,
Breadstop may want to look into this strategy of Goldilocks to combat the flatness of industry
growth. Furthermore, the franchising opportunities offered by Goldilocks have led to its rapid
expansion, crossing borders locally, and reaching overseas. Meanwhile, Breadstop, being a sole
entrepreneurship, sees no prospects on franchising or expansion as of the moment.

Weakness

Goldilocks (Weakness) B8 Relative Performance

- Poor store maintenance - Store maintenance measures are observed only when idle

14
Goldilocks Website, <http://www.goldilocks.com.ph/about-us/>

17
 An observed weakness in Goldilocks is poor store maintenance. When dropping by any
one of its branches at present, one can't help notice a clear distinction between the actual state of
these branches as compared to the images portrayed in their websites and ads. Meanwhile,
Breadstop only does store maintenance when workers are idle. A better strategy would be to set
regular schedules to perform maintenance activities, to ensure the cleanliness of the bakeshop.

Julie's Bakeshop

Strengths

Julie's (Strengths) B8 Relative Performance

- Extensive branch coverage - Operating in three branches
- Strong brand name - No brand dominance
- Extensive research and development - Owner's background in baking

A long-time player in the industry findings its roots in Cebu, Julie's Bakeshop has
attained extensive branch coverage in its 30 years of operations, with over 600 stores at present.
Bagging awards like "The Best Bakeshop of the Year" in 2002, the bakeshop upholds high
product quality and diversification through extensive research and development efforts.
Operating in only three branches, Breadstop has no brand dominance, remaining a minor player
in the industry. Efforts to diversify the product portfolio depend solely on the owner's
background in baking.

Best Practices

Julie's (Best Practices) B8 Relative Performance

- Kitchen-testing laboratory for product - Owner conducts all improvement and
improvement innovation measures
- Intensive training sessions for staff - No streamlined training
- Franchising towards rapid expansion - No franchise
- Commissary for the Community Bakeries - Cross-Baking System

Julie's Bakeshop employs several measures to ensure product quality and customer
satisfaction, using a kitchen-testing laboratory for product improvement. Although Breadstop

18
doesn't have a facility like this in its branches, the owner also conducts improvement and
innovation measures, although on a smaller scale. However, the process and expertise are not
transferred to the organization since the owner conducts it by himself. Secondly, Julie's conducts
intensive training sessions for its staff, to ensure competence in the workplace. Meanwhile,
Breadstop follows no formal training scheme. As such, it would be advisable to conduct
outsourced training for Breadstop's employees. For the inbound-outbound logistics, Julie’s has a
commissary to standardize production and raw material management, while B8’s branches bake
products for each other. This process comparison will be discussed further in II-B.

Weaknesses

Julie's (Weaknesses) B8 Relative Performance

Small store size - Small store size
Slow production speed - Consistent production rate but is
sometimes offset by product defects

Common among all Julie's Bakeshop branches is the small size of the bakeshop, which
limits the number of customers in the area, thereby constraining potential sales when demand is
high. The same can be said of Breadstop; as such, management should devise ways to decrease
service time so that more customers can be served at any given time.

C. CURRENT PERFORMANCE

Balanced Scorecard – Finance Perspective

Gross Revenues. Breadstop has been experiencing a decline in its gross revenues, across
all branches. The monthly average in the 4th quarter of 2011 was recorded at Php 1,816,925, as
compared to the 9-month average of Php 1,737,700. Since Breadstop is part of the food industry,
monthly seasonality could be disregarded. The same trend can be seen in comparing the monthly
average in 1st quarter of 2012 to the 5-month average (as shown in Table 6). The slowdown in
revenues is an industry-wide trend driven by the emergence of alternative food products and
changing consumption patterns of the Filipino households.

19
 The gross sales data of company (see Figure 6) clearly shows that Breadstop is affected
by this trend. Comparing the revenues from all the three branches, the sales from Kalentong,
Cubao and wholesale buns were steady, as compared to the Paco bakery that was showing a
slight slowdown (see Figure 7). The 9-month peak in December 2011 was primarily due to Paco
bakery sales.

Starting 3-Month To-May Average

Month average
Oct-11 1,816,925.04 1,737,299.51
Jan-12 1,774,791.48 1,735,786.94

Table 6. Gross Revenues Moving Average

2,000,000 1840000
1,800,000 1820000
1,600,000
1800000
1,400,000
1,200,000 1780000
1,000,000 1760000
800,000 1740000
600,000
1720000
400,000
200,000 1700000
- 1680000

Gross Revenues Moving Average

Figure 6. Monthly Gross Revenues and Moving Average, October 2011 to May 2012

20
 1200000
1000000
800000
600000
400000
200000
0

Gross Sales Paco Gross Sales Cubao

Gross Sales Kalentong Gross Sales Buns

Figure 7. Monthly Gross Revenues per Branch, October 2011 to May 2012

Cost of Goods Sold. One of the important external factors that has a huge impact on the
company’s profitability is the cost of raw materials, particularly wheat. For the past 9 months,
the global price of wheat has been fluctuating, as illustrated in Figure 8. The cost margin of
Breadstop has experienced the same variability, as most of its products are wheat-based. During
the 9-month period from October 2011 to May 2012, the highest cost of goods sold was recorded
at 70% of gross revenues in March 2012. Even with the decline in global prices in the two-month
following the peak, the cost of goods sold was not able to adjust significantly, closing at 61% in
May 2012. Also, even if global prices dipped in December 2011, cost of sales remained stable.
The high average cost margin for this 9-month period is 61%, primarily caused by excess use of
raw materials in production, rejected breads and unsold breads.
295 100%
290
285 80%
280
275 60%
270 40%
265
260 20%
255
250 0%

Price of Wheat Cost Margin

Figure 8. Global Wheat Price and Monthly Cost of Sales Margin, October 2011 to May 2012

21
 Profit Margin. The declining revenues of Breadstop and high cost of sales ultimately
influenced a low bottomline. Profitability from January to May 2012 was variable due to the
changing prices of wheat (see Table 2). The average profit margin for the said period was only at
6%. The low profitability of the company emanated from high variable costs aggravated by the
competitive pricing among players in the industry.

Jan-12 Feb-12 Mar-12 Apr-12 May-12 5 Months

10% 5% -2% 10% 9% 6%

Table 7. Monthly Profitability, January to May 2012

Inventory Turnover. Since Breadstop sells baked goods, almost all of its finished goods
are replenished everyday, particularly the daily breads. The inventory stored by the bakery is
mostly raw materials, as it produces baked goods daily. Despite the lower demand, the monthly
inventory turnover was higher (see Table 3), which can be attributed to lower inventory levels
maintained by the company. During the entire 5-month period, inventory turnover was 12.31x, or
replenishment every 12 days.

Jan-12 Feb-12 Mar-12 Apr-12 May-12 5 Months

2.61 3.00 3.76 3.76 2.96 12.31

Table 8. Monthly Inventory Turnover, January to May 2012

Financial Position. In terms of profitability, Breadstop is performing poorly. Sales

volume of the company has also seen a decline, reflecting a fewer number of customers buying
baked goods from Breadstop bakeries. The cost of goods sold was also high, which averaged
61% from October 2011 to May 2012. However, given the competitive pricing in the market,
prices of baked goods were not increasing at the same rate as costs, which also reduced net
income.

22
Balanced Scorecard - Customer Perspective

Market Share. Market share (value) decreased slightly, by 0.0015% for packaged goods,
and 0.0011% for unpackaged goods

2010 2011
Packaged Unpackaged Packaged Unpackaged
Value Share 0.0466% 0.1098% 0.0449% 0.1087%
Php
Company Php 3,184,961.01 Php 16,528,340.13 Php 3,247,717.11 16,854,012.57
Php Php Php
Industry Php 6,828,400,000 15,050,700,000 7,238,100,000 15,505,800,000

Table 9. Breadstop Value Share 2010 vs. 2011

Breadstop, as a local bakery, currently holds a good portion of market shares, at 0.04%
for packaged breads, and 0.11% for unpackaged baked goods. However, 2011 market shares for
both packaged and unpackaged goods decreased by 0.0015% and 0.0011%, respectively,
implying a decrease in customer sales relative to the entire industry. Sales are driven primarily
by unpackaged goods, with about 16% of sales driven by the former and the other 84% by the
latter. Of the unpackaged goods, Pan de Sal garnered the highest sales at Php 3,277,742 for daily
breads, and Kababayan at Php 481,089 for specialty breads.

Customer Complaints.

Figure 9. Pareto Chart of Customer Complaints

23
 Given that management currently doesn't employ any process for gauging customer
satisfaction, the group decided to conduct a survey for a two-week duration, garnering 84
respondents. In this survey and as can be seen in the Pareto chart (see Figure 2), majority of
customer complaints were caused by incorrectly baked bread (burnt, thin and hollow, etc.),
reduced bread freshness (old stock, for recall already), and inconsistency of bread quality. (tastes
different from before; recipe is not as good).

Customers Segments Served. The locations of Breadstop's three branches (Paco, Cubao
and Kalentong) are readily accessible to the market the bakery wishes to serve - low-income
barangays and urban poor communities, belonging to socio-economic classes C and D. In its
branch visit, the group observed the proximity of National Housing Authority (NHA) projects to
the bakery, which was an actualization of the business' target customer segments.

Balanced Scorecard – Internal Perspective

Timeliness

JIT Production. Breadstop’s production uses a Just-in-Time Scheme in which production

of any type of bread is based on orders which is pre-determined by the production supervisor at
the start of every working day. This is done to avoid or at least reduce the chances of over-
production of breads versus demand. Also, this is applied to reduce cost for ingredients and at the
same time to maximize available labor capacity to produce high turn-over breads.

Quality

Inaccurate Yield versus Target Yield. As mentioned, there is a set target yield per product
per day, and according to management, the acceptable deviation from the expected yield is not
more than 10%. However, based on a random sampling study conducted comparing expected
yield and actual yield of products for each branch, 4 out of 10 of Breadstop Paco products, 3 out
of 10 Breadstop Cubao products and 5 out of 10 Breadstop Kalentong products were reported to
have deviation greater than 10%.

No quality standards, just visual inspection. In Breadstop, there are no established quality
metrics or standard operating procedures (SOPs) for quality checking of in-process and finished
goods. Thus, rejects are subjectively identified via visual inspection prior to product delivery or
display.

24
Table 10. Factor Productivity
Raw Materials Productivity. Average raw materials productivity is at 31.01%.
Month RM Productivity
Jan-12 34.0 Raw materials productivity
Feb-12 33.83 Raw material productivity
Mar-12 25.44 Raw material productivity
Apr-12 33.42 Raw material productivity
May-12 28.33 Raw material productivity
Peso per Labor Hour Productivity. Average peso per labor hour productivity of 129.91%
Month Labor Hour Productivity
Jan-12 134.45 Labor Hour Productivity
Feb-12 126.16 Labor Hour Productivity
Mar-12 133.62 Labor Hour Productivity
Apr-12 127.68 Labor Hour Productivity
May-12 127.63 Labor Hour Productivity
Peso per Energy Usage Productivity. Average peso per energy usage productivity of 713.30%
Month Energy Usage per Peso Productivity
Jan-12 653.14 Energy Usage per Peso Productivity
Feb-12 687.22 Energy Usage per Peso Productivity
Mar-12 806.33 Energy Usage per Peso Productivity
Apr-12 692.68 Energy Usage per Peso Productivity
May-12 726.62 Energy Usage per Peso Productivity
Total Factor Productivity. Average total factor productivity of 24.11%
Month Total Factor Productivity
Jan-12 26.08
Feb-12 25.6
Mar-12 20.82
Apr-12 25.51
May-12 22.47

Process Innovation.
New Machines. For Cubao branch, management has currently purchased two additional
machines for pre-mixing: 1 pre-mixer and 1 filler. The additional machines would not only
lessen manual work for pre-mixing but would also hasten the process for preparation of the pre-
mixes.

25
Balanced Scorecard - Learning and Growth
New Products. One product line per year
Breadstop introduces a new stock-keeping unit (SKU) at the rate of at least one line every
year, in addition to its 115 SKUs at present, belonging to any of its three product categories,
namely: daily breads, special breads and kalamunggay health breads. At this pace, the bakeshop
remains competitive in the market, finding ways to diversify its product portfolio, in an attempt
to better meet customer demands, and consequently increase market shares. However, revenue
contribution of these new product initiatives have yet to be significant since all of them
contribute only a range of 0-1% to total company revenue, compared to the original SKUs which
contribute as high as 23%.
Employee Turnover. No record of employee turnover
Management presently has no written record of past and present employees, with
turnovers observing no fixed pattern - as employee tenure can run up to as short as six months
only or as long as two to three years. However, the owner clearly pointed out that attrition was
primarily due to resignations, which may be indicative of dissatisfaction with work assignments
or compensation. Majority of resignations were that of salesladies, while bakers had the lowest
attrition rate. Employees were only fired after committing the same offense after having been
given a previous warning.
Employee Training. Performing morning drills and filling in journals were the employees'
routine training, and receiving occasional training from seminars
The company lacks training, given that the only training methods provided focused on
character development and maintaining a pleasant disposition towards work. As formal training
was absent, except for occasional invitations to seminars, the only preparatory phase manifested
in day-to-day work and experiences of workers. As such, rookies always had to be constantly
supervised by an old employee to avoid errors in the production process.
Succession Measures. No streamlined progression
Breadstop does not observe a fixed career progression scheme, as roles are clearly
differentiated among the different employee functions in the bakeshop, with the exception of a
saleslady's promotion to becoming a cashier. Employees are generally promoted on the bases of
a positive attitude towards work, high work attendance and competence in carrying out duties.

26
As such, preparation for succession relies primarily on the employee's experience and past
performance.

Finance Perspective Customer Perspective

 Industry-wide slowdown in revenues  Market share in 2011 decreased by
 P1.77 million average gross revenue for 0.0015% for packaged goods and
January to March 2012, from a P1.82 0.0011% for unpackaged goods
million average gross revenue for October  Incorrectly baked bread, reduced
to -December 2011 freshness, and taste inconsistency
 Highest cost of goods sold recorded at 70% as most common reasons for
of gross revenues (October 2011 to May customer dissatisfaction
2012)  The three branches are easily
 Cost of goods sold 61% of gross revenues in accessible to target market
May 2012
 Average profit margin for January to May
2012 at 6%
 Average inventory turnover for January to
May 2012 at 12.31x
Internals Perspective Learning and Growth Perspective
 40%, 30%, and 50% of SKUs of Paco,
Cubao, and Kalentong respectively have  One new SKU per week
more then 10% deviation from expected  No record of employee turnover
yield  Daily morning drills and journal
 No quality standards/measures keeping for employees
 Average raw materials productivity (Jan-12  No streamlined progression
to May-12): 31.01%
 Average peso per labor hour productivity
(Jan-12 to May-12): 129.91%
 Peso per energy usage productivity (Jan-12
to May-12): 713.30%
 Average total productivity (Jan-12 to May-
12): 24.11%

27
D. Recommended Core Strategies and Key Programs
1. Company Goals and Objectives
Breadstop aims to replicate the business model of the bakery chain of his parents, Little
Saints Bakery, here in Metro Manila. It is a seven-branch bakeshop in the province of Nueva
Ecija where the branches are located at public places and neighborhoods near segment D/E
households. The vision of Little Saints, as the word ‘saint’ connotes, is to bring quality breads to
low-income households in the province.
Similarly, Breadstop shares the same vision, but it just more nuanced to the service of urban poor
households. The replication is measured in two levels: profitability and scale.
For profitability, it aims to achieve an industry-competitive 13% profit margin given its
current dismal margin of over 4%, within the next three years. The industry profit margin is
pegged at a range of 10-15%.
For scale, it aims to have eight branches by 2018, its tenth year anniversary. The target
revenue is 80 Million in 2018 Pesos. As one would notice, the number eight is a recurrent theme
since it opened in January 8, 2008, its name is B8 Breadstop and the owner’s name has eight
letters. In order to reach this scale, Breadstop has a three year plan focused on improving internal
operations and setting up 2 additional branches by 2015.

2. Key Business Strategies

Best-Value Cost Leadership
Breadstop aims to fulfill its vision of quality breads for the masses by using a best-value
cost leadership strategy. In essence, this simply means offering the best quality of products at the
lowest price possible amongst competitors.
Cost Restructuring and Lean Manufacturing
As previously mentioned, Breadstop wants to be at par with the Artisan/Unpackaged
Sector of the Baked Goods Industry in terms of profitability. Given the necessity to keep the
selling price at the lowest value possible, Breadstop aims to achieve the target margins through a
cost restructuring and lean manufacturing strategy. A cost leadership strategy could adjust its
margins by changing the cost structure. Lower variable and fixed costs increase the profit
margins. Lean manufacturing becomes instrumental to minimize the wastage of raw materials
and resources to support the thrust of lowering the cost and maintaining the selling price.

28
Market Development via Geographic Expansion
Breadstop plans to achieve the scale of eight branches by 2018 through market
development. It plans to build five more company-owned branches in other urban poor/low-
income metropolitan areas. Franchising was ruled out as an option since the owners wanted to
establish Breadstop as a “family company”, that it is owned and operated by one clan only. The
family wanted to prove that even Filipinos can own family enterprises, similar to the Filipino-
Chinese community.

3. Key Programs
Initially, there were no official programs that were running to achieve in pursuit of the
aforementioned key business strategies. Instead, there were certain initiatives taken to support
these strategies. However, Mr. Ray Pine, a younger brother of Mr. Bien Pine and marketing
consultant of Breadstop, recommended two programs to formally classify the initiatives: Project
Today and Project Tomorrow.

Project Today
Project Today is the short-term initiative of Breadstop to polish its business model, fix
the operations, and create a business that is replicable and scalable. In other words, this directly
supports the strategies for Cost Restructuring and Lean Manufacturing. In this regard, the
company is currently doing the following under this project:

Employee Training. Bakers undergo a fifteen-day rotation stint around the different
steps of bread production in order to be familiarized with the entire baking process. This allows
them to understand better the importance of each step of the bread production, and learn from
each other the best practices to minimize waste. Meetings are regularly held in order for them to
share their learning and diskarte how to do the job better.
Minimization of Electricity Costs. Minimizing unnecessary use of electricity controls
cost. Lights are turned off for certain parts of the production chain that are not used especially
when done or when demand is not very high.
Employee Motivation Programs. Mr. Bien Pine is well-trained in Organizational
Behavior, and he shares his expertise by launching programs that motivate employees to work

29
more efficiently, honestly and productively. He has introduced numerous programs like spiritual
counseling, journal writing, and life planning to encourage the employees to do their job
responsibly and save costs borne out of laziness and irresponsibility at work.

Project Tomorrow
Project Tomorrow is the more forward-looking initiative aimed at rolling out the
geographical expansion of Breadstop. Currently, the following initiative is undertaken:

Location Hunting. The parents of the owner have a personal real estate/commercial
space agent that looks for possible branches. He is currently busy inquiring for possible venues,
preparing quotations, and observing the market potential of these stores. The following venues
are being eyed already:
1. Galas
2. Novaliches

E. Operations Strategy
1. Product Innovation and Development
Currently, Breadstop produces 115 SKUs, although a Pareto Analysis later in this paper
would show that only 19 of these 115 SKUs make up 80% of the total revenue. Hence, in line
with the business strategy of managing cost, Breadstop has to consider delisting some of the
SKUs that are bringing the cost of goods sold at exorbitant levels, compared to the industry and
its benchmark, Little Saints Bakery.
Moreover, product development is key to employ modular analysis such that variety is
achieved with minimal cost. Lastly, in line with the Market Development strategy, Breadstop has
to understand its market and come up with products that are responsive to the needs and
feedback of the community. Community bakeries rely on the word-of-mouth and referrals in the
neighborhood, and the attunement of the product line to the consumer profile is key to success.

2. Process Design, Integration, or Reengineering

30
 Since Breadstop’s profit margins are comparatively lower than the industry and the
benchmark (Little Saints Bakery), a key operational strategy is to streamline the process to
minimize waste and unnecessary cost to attain the target margins. Cost management is crucial for
a cost leadership strategy, and the processes determine how raw materials are used (affecting
cost of goods sold) and how resources are managed (managing the operational expenses). The
details of the Process Design Strategy will be further explained in the Third Chapter of the paper.
3. Capacity Extension or Improvement
As discussed, market development will happen through company-initiated geographic
expansion. Currently, it employs a Cross-Baking System where each branch produces certain
SKUs for all the other Breadstop branches. An inbound-outbound logistics is shown in Page 57
for a clearer illustration. In this regard, Breadstop has to reevaluate if its current in-store
production facilities have the capacity to supply the breads to the next branches.
More importantly, Breadstop has to consider the creation of a commissary where bread
production will be centralized. The company has to determine the volume that necessitates this
transition in order to increase the capacity and supply the new demand.
4. Supply Chain Expansion or Improvement
Given the strategy of geographic expansion, Breadstop has to undertake an optimization
strategy of the distribution of tasks between the retail outlets. The strategy is to prove through a
cost-benefit analysis that a Centralized Commissary and Procurement System yields savings and
better control compared to the current Cross-Baking System.
Inevitably, supply chain has to expand given the increasing demand in support of the LS
strategy of market development. In this scenario, Breadstop has to find the optimal inbound-
outbound logistics scheme for the transfer of raw materials and finished goods from the
commissary to the different branches, assuming a Centralized Commissary System is found to be
more optimal.
5. Quality Improvement
Community bakeries rely on the word-of-mouth promotion of the residents to their
neighbors in order to successfully penetrate that market. Hence, cost of quality is extremely
pivotal for the survival of the branches.

31
 For Breadstop, one of the reasons of the declining revenue is the quality of the products.
The company has received customer complaints primarily commenting on the quality of breads
more than customer service of waiting time or the attitude of the salesladies.
As a result, Breadstop struggles to fundamentally achieve its vision of providing quality
breads to low income households and tangibly, a continually worsening brand image harms its
credibility when it decides to expand to other places.
In this regard, Breadstop has to employ two Quality Assurance strategies. First it has to
employ inspection/QA checks in steps where there are major changes in the product. The benefit
of this inspection point has to outweigh the incremental cost of the labor and time spent to
conduct the check. More importantly, Breadstop does not have key product quality indicators
that guide the employees how to determine rejects. Even with inspection points, the management
assumes that quality checks are a “common sense” matter, when in fact, a lot of substandard
products are sold to the consumers.

II. OPERATIONS AUDIT: DISCUSSION/ASSESSMENT OF CURRENT PRACTICES

A. PRODUCTS
Product Mix

Breadstop Bakery offers mass market breads, pastries and cakes. 115 stock-keeping units
(SKUs) that fall under three product categories: Daily Breads, Specialty Breads, and
Kalamunggay Health Breads.

The Daily Breads category covers fast-moving variants that are expected to last for only
one day, except for loaf and buns that extend to 5-7 days. In terms of the process, daily breads
are baked from pre-mixed dough that undergoes a proofing process. Popular products are Pan de
Sal, Pan de Coco and cheese bread, and this line accounts for more than 79.25% percentage of
revenue. 52 SKUs belong to this category.

On the other hand, the Specialty Breads line uses ingredient mixes with higher fat
content given the use of egg, sugar and special flavoring. There are 60 SKUs in this category,
and these prdoducts are expected to last longer than daily breads, given a shelf life of 3 days to 1
month. Each SKU requires a different mix, whereas the 52 SKUs under daily breads only come
from three basic dough pre-mixes. In terms of process, specialty breads need not undergo a

32
proofing process as they are immediately put inside the oven. Common variants are egg pies,
custard cakes, and macaroons.

Lastly, Breadstop developed a new line of vitamin-enriched breads under the category
“Kalamunggay Health Breads”. A fraction of the flour base is replaced with a squash and
malunggay puree; hence, the name Kalamunggay (kalabasa and malunggay). There are three
SKUs in this category: Kalamunggay Loaf Bread, Kalamunggay Tasty, and Kalamunggay pan de
sal. Exhibit B shows the detailed the product list divided into the three aforementioned
categories. Ideally, all three branches should carry the 115 SKUs; however, some SKUs are not
carried by Cubao and Kalentong primarily because of observed low demand in these areas.

Exhibit A: Product Snapshots

(From L-R, T-B: Pan de Sal (Daily bread), Crinkles (Specialty Bread), and Kalamunggay Loaf
(Kalamunggay Health Breads))

33
 Exhibit B: Product Categories of BreadStop as of July 2012

Daily Breads SKUs (52)

Bacon Torte Ensaymada Small Mongo Bread Tasty Large
Bahukas Everlasting Mongo Buttermelt Tasty Medium
Bolyos Footlong Mongo Roll Tasty Small
Buns Hiwa-
Hiwalay Halfman Multi Grain Toasted Bread
Cheese Bun Hambrioche Pan de Coco Ube Basket
Choco Ring Hot Monay Pan de Lito Ube Bread
Choco Roll Hotdog Brioche Pan de Sal Ube Buttermet
Cinnamon Hotdog Buns Peanut Toast Ube Cream Big
Cream Loaf Kababayan Big Putok Ube Cream Small
Donut Kababayan Medium Putok Pan de Sal Ube Roll
Egg Roll Kababayan Small Sided Cheeze Wheat Bread
Ensaymada Big Meltdown Spanish Roll Wheat Loaf
Ensaymada
Medium Mongo Basket Stroucel Wheat Pan de Sal

Specialty Breads SKUs (60)

Assorted Cake Choco Moose Slice Halfmoon Cookies Pianono Mocha
Assorted Donut Cookies Heart Cake Pianono Peanut
Bacon Torte Cream Puff Heart Donut Pianono Small
Banana Cake Crinkles Hopia Baboy Pianono Sugar
Bites Small Custard Rectangle Hopia Ube Pianono Ube
Brazo de
Mercedez Custard Round Hotdog Brioche Pineapple Pie
Brownies Balot Darling Kababayan Pineapple Sandwich
Brownies
Moist Donut Lengua Polvoron Cookies
Cake Round Donut Big Mamon w/ Cheese Pudding
Cake Torte Donut Small Merengue Big Small Bites
Canister Cake Egg Pie Merengue Small Special Pie Cake
Cheese Cake Egg Roll Mountain Cake Sweetheart
Choco Behive Half Roll Choco Muffin Toasted Bread
Choco Mamon Half Roll Mocha Onion Calzone Torta
Choco Moist Half Roll Ube Pianono Choco Yema Cake

Kalamunggay Health Breads SKUs (3)

Kalamunggay Loaf Kalamunggay Pan de Sal Kalamunggay Tasty

34
Revenue Contribution Per Category

Daily Breads Category as the primary driver of Revenue

Daily breads contribute 79% of the total revenue of BreadStop, while Specialty Breads
and Kalamunggay Health Breads comprise 20% and 1% respectively. This reveals an important
insight about the customers tapped by the community bakeries. Daily breads are cheaper and re
branded to be everyday, mass-market staples. Evidently, almost 80% of the revenue comes from
this category even if Specialty Breads have eight more SKUs.

The group decided to analyze the revenue contribution per branch, and the results were
relatively consistent. Daily breads comprise 68% of the revenue in Cubao, 75% in Kalentong,
and a dominant 83% in Paco. Specialty breads, amidst the higher price, do not command stronger
sales because of the price sensitivity of the market, while Kalamunggay Health Breads has yet to
be standardized and promoted to the market. Figure 10 shows the Revenue Contribution by
product category along with two Revenue Contribution tables by value and by sales percentage.

Total

Kalentong

Paco

Cubao

0% 20% 40% 60% 80% 100%

Daily Special Kalamunggay

Figure 10. Revenue Contribution by Category

35
 REVENUE CONTRIBUTION (%)
Daily Special Kalamunggay Total
Cubao 68% 32% 0% 100%
Paco 83% 15% 1% 100%
Kalentong 75% 25% 0% 100%
Total 79% 20% 1% 100%

REVENUE CONTRIBUTION (PHP)

Cubao Paco Kalentong Total
Daily 1,274,579 8,538.088.5 3,491,760 13,304,427.5
SKU # SKUs
Special Revenue
609.011 (PHP) Cum.
1,559,149.667 Frq.
1,179,345 Category
3,347,505.667
1 Pan de Sal
Kalamunggay 1,930 3277742.0
133,205 20%0 135,135Daily
2 Bolyos 2804020.0 36% Daily
3 Buns (Wholesale) 1725266.0 47% Daily
4 Tasty Large 804595.0 51% Daily
5 Putok 701113.0 55% Daily
6 Buns Hiwa-Hiwalay 500080.0 58% Daily
7 Kababayan 481089.0 61% Special
8 Tasty Medium 433400.0 64% Daily
9 Bahukas 401710.0 66% Daily
10 Egg Pie 306432.0 68% Special
11 Tasty Small 265620.0 70% Daily
12 Hopia Baboy 257276.0 71% Special
13 Pandelito 237582.0 73% Daily
14 Hopia Ube 227721.0 74% Special
15 Hotdog Buns 221521.0 75% Daily
16 Ube Cream Big 206598.0 77% Daily
17 Cinnamon 197725.0 78% Daily
18 Custard Rectangle 196326.0 79% Special
19 Hambrioche 184716.0 80% Daily
Special, Daily,
20-115 Others 3356536.2 100%
Kalamunggay

Table 11. SKUs with Top Revenue Contributions

Pareto Principle in Best-Selling Variants. The revenue contribution of the variants was
tabulated and the Pareto principle is observable in each of the stores and indeed, Breadstop as a
whole. This reflects the situation that in the 115 SKUs, 19 of them make up the 80% of the sales.

36
 0
2000000
4000000
6000000
8000000
10000000
12000000
14000000
16000000
Pandesal
Bolyos
Buns (Wholesale)
Tasty Large
Putok
Buns Hiwa-Hiwalay
Kababayan
Tasty Medium
Bahukas
Egg Pie
Tasty Small
Hopia Baboy
Pandelito
Hopia Ube
Hotdog Buns
Ube Cream Big
Cinnamon
Custard Rectangle
Hambrioche
96 other SKUs
Hot Monay
Meltdown
Kalamunggay
Spanish Roll
Assorted Cake
Crinkles
Pandecoco
Torta
Ube Roll
Breadstop All Bread Categories, 140 SKUs

Mongo Roll
Pianono Choco
Figure 11. Pareto Chart of Best-Selling SKUs Across All Branches

Cheese Cake
Yema Cake
Banana Cake
Pianono Peanut
Pianono Ube
Pianono Sugar
Pianono Mocha
Special Pie Cake
Ube Basket
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%

37
100%
 SKUs Revenue Cum. Frq.
1 Pan de Sal 3277742 24%
2 Bolyos 2804020 45%
3 Buns (Wholesale) 1725266 58%
4 Tasty Large 804595 64%
5 Putok 701113 69%
6 Buns Hiwa-Hiwalay 500080 73%
7 Tasty Medium 433400 76%
8 Bahukas 401710 79%
9 Tasty Small 265620 81%
10-52 Others 237582 83%

Table 12. SKUs with Top Revenue Contributions in the Daily Bread Category

Pareto within the Daily Breads Category. Daily breads comprise 79% of the sales of
Breadstop, with the 52 out of the 115 SKUs under this category. Moreover, pareto can be
observed within the daily breads category. 9 out of the 52 (17%) SKUs contribute to 81% of the
category’s sales. Figure 12 shows the top 9 SKUs, their revenue contribution and a pareto chart
to illustrate the pattern graphically.

Breadstop Daily Breads

100%
12000000 90%
80%
10000000 70%
8000000 60%
50%
6000000
40%
4000000 30%
20%
2000000
10%
0 0%
Hot Monay
Pandesal

Flower Ensaymada
Tasty Large

Buns Hiwa-Hiwalay
Tasty Medium

Ube Cream Big

Cinnamon

Kalamunggay

Ube Roll
Spanish Roll

Peanut Toast
Meltdown
Bolyos

Mongo Roll

Cheese Buns
Buns (Wholesale)

Putok

Bahukas
Tasty Small

Mongo Basket
Hotdog Buns

Hambrioche

Pandecoco

Cream Loaf

Ube Cream Small

26 Other SKUs
Pandelito

Ube Basket

Ensaymada Small

Figure 12. Pareto Chart of Best-Selling SKUs in the Daily Breads Category

38
Product Design

Breadstop’s recipes are meant to be superior to most community bakeries. The owner
underwent numerous Baking Science courses in order to craft high-quality recipes. When the
owner was still a student in the University of Asia and the Pacific, he conducted a Product
Superiority Test amongst 40 respondents, all from the Broad C market. He used three product
samples: Product X (Breadstop), Product Y (Community Bakery Leader – Julie’s), and Product
Z (Industry Leader - Gardenia) for two best-selling baked goods: pan de sal and tasty. Prices
weren’t revealed to the respondents in order to simply assess the competitiveness of the recipe.
The group decided to run ANOVA tests to these survey results in order to achieve statistical
significance with respect to the conclusions.

TASTY BREAD Julie's Bakeshop Breadstop Gardenia

Sweetness (Tamis) 2.8 3.5 3.55
Texture 3.3 3.45 4.3
Smell 4.611111111 4.578947368 4.789473684
Lambot 3.65 3.7 4.1875

Table 13. Average Rating per Customer Attribute for Tasty Breads

Pan de Sal Julie's Bakeshop Breadstop Gardenia

Sweetness (Tamis) 3.3 3.5 3.4
Texture 3.3 3.4 3.1
Lambot 2.9 2.8 3.3

Table 14. Average Rating per Customer Attribute for Pan de Sal

At Par with Julie’s Bakeshop. The results showed that Breadstop did not have any
statistical difference with Julie’s Bakershop in the customer attributes for both pan de sal and
tasty, except for the better sweetness level of Breadstop’s Tasty Bread. This shows that
Breadstop is indeed at par with the recipe formulation, even of a bakery franchise that has over
100 stores nationwide.

Lagging Behind Gardenia. On the other hand, Gardenia’s competitive advantage in

baking science and technology showed with its statistical superiority over Breadstop (and Julie’s)
in texture and softness for the tasty loaf. Gardenia’s best performing product is indeed its tasty

39
bread, but its pan de sal was only able to get a significant win over the two community bakeries
in softness. In summary, Breadstop is trailing to its packaged/industrial benchmark, Gardenia.

Product Innovation

The company has increased the number of SKUs from 77 in 2008 to 115 as of June 2012.
In Breadstop’s more than three years of existence, it has launched 137 SKUs and 22 have been
dropped or removed because of poor sales or unavailability of the filling or flavoring.

It is noteworthy though that out of the 19 SKUs that make up 80% of the October 2011-
May 2012 data, 7 came from 2008. 2009 and 2010 both had 1 variant in the list, being Cinnamon
Bread and Hambrioche respectively. Kalamunggay Health Breads have yet to significantly
contribute to the total revenue amidst investments in new packaging and legal proprietary fees.

Year Number of SKUs Added Notable SKUs Launched

2008 77 (Launch) Pan de Sal, Tasty, Buns, Pan de Coco, Spanish,
Ensaymada
2009 31 Fruit and Veggies Cup Cakes: Pineapple, Lemon,
Malunggay, Carrot
2010 13 Stuffed Breads: HAMbrioche, Meltdown, Sided Cheeze,
Onion Calzone, Bacon Torte, Hotdog Brioche
2011 3 Kalamunggay Health Breads: Kalamunggay Loaf,
Kalamunggay Tasty, Kalamunggay Pan de Sal

Exhibit C: Year-by-Year SKUs Launched

(T-B: Stuffed Breads Line launched last 2010: Meltdown, Sided Cheeze, Onion Calzone, Hotdog
Brioche, HAMbrioche)

40
Product Development

Figure 13. Product Development from Idea Generation to Product Launch

Product Development Process. Breadstop does not have a documented and systematic
method of product development. The diagram above shows the informal procedure of how new
products are launched. Usually, the father of the owner usually goes to food and franchise expos
here and abroad. Since the father is also an experienced baker and baking technologist, he shares
the idea to his son, the owner of Breadstop. Alternatively, the owner himself gets new ideas from
demos flour and flavoring suppliers offer. For instance, flour millers like Foremost and flavoring
suppliers like Purico hold product demonstrations with the use of their own product.

Afterwards, the prototype is developed by the owner and his master baker. Then, if the
dad approves the quality and taste of the prototype, a meeting is set to cost the product, orient the
bakers of the process, and the price list is updated. Lastly, the product is launched in all three
branches, and the subsequent order quantity is just dependent on the evaluation of the cashier
(also known as the store selling supervisor).

Weaknesses in Product Development. The 115 SKUs of Breadstop seems to point to an

excellent idea generation mechanism to invent all these variants, flavors and fillings. However,
the underperformance of most of the SKUs, especially the newer ones, shows the flaws of the
process. First, there is minimal customer interaction, research and/or feedback system in order to
find out the changes in a Filipino’s appetite and food interest. Most of the ideas come from expos
and suppliers, but these new product initiatives are not nuanced to the community-based markets
of the Breadstop branches.

41
 Moreover, the new product initiatives do not undergo a systematic study in order to study
its market potential, the reliability of the suppliers, and the incremental value it adds to the
current portfolio. For instance, several SKUs almost fulfill the same demand even if the other
SKU has lower profitability or longer production process. This will be shown later in the paper.

When new products are released, they are treated like a normal SKU, wherein there is no
sampling, promotion or pilot run of the variant in small quantities. Instead, products are
displayed and expected to be sold like the others. At best, salesladies are briefed to suggest the
variant to the customers.

Lastly, the product development process does not encompass product improvement. All
the efforts cover the launch of new product initiatives, but the current SKUs are not reviewed for
reformulation, improvement or adaptation to changing customer preferences.

The impact to the business of these flaws can be see in the 22 SKUs dropped the past
three years, and how the new variants have yet to make a significant contribution in the revenue
of the business. In the 19 SKUs that comprise the 80% of sales in the Pareto Chart, only 2 of the
19 coms from new variants launched after the opening in 2008. These two variants only
contribute a percentage point in the cumulative frequency, and this illustrates the
underperformance of these new variants. The rest barely contribute a percentage point amidst the
investment in new flavoring, adjustments in production schedule, and re-training of employees.

The Birth of Kalamunggay Health Breads. Kalamunggay

Health Breads is the biggest line of innovation to be released by
Breadstop in four years. It is the first bakery to use a kalabasa-
malunggay dough to make breads. The idea was catalyzed by the
owner’s father, Mr. Reynaldo J. Pine. He was troubled by the
increasing price of flour back in the 4th Quarter of 2010, and he
learned in the Baker’s Fair that squash (kalabasa) could be used as a
substitute to a fraction of the flour base. Mr. Reynaldo owns 7
bakeries in Nueva Ecija himself, and he noticed the growing
popularity of a new entrant, Emong’s Malunggay Pan de Sal. Kalamunggay Pan de Sal

42
 As a result, he brought up the idea to his son, the owner of Breadstop. A meeting was set
to explore a baking formulation that will mix Malunggay and Kalabasa in dough pre-mixture.
After three days of testing, the first Kalamunggay health bread line was born: a tasty bread, a
loaf bread, and pan de sal. The father-and-son tandem liked the taste and quality of the prototype.

Mr. Manuel Bien Pine then started writing down the procedure and ingredients necessary
to come up with batches of the three new SKUs, and his parents started computing for the cost of
the bread. With all the production and sales adjustments clear, they decided to launch the
Kalamunggay Health Breads line during Breadstop’s third year anniversary, back in 2011.

With the belief in the potential of the line given the increased consciousness on health
and wellness, Mr. Manuel Bien Pine invested on registering the Kalamunggay label in the
Intellectual Property Rights Office. He also hired a digital artist to design a logo and a new
packaging design to give this category a look different from the others.

Today, with the group’s analysis of the performance of Kalamunggay, the product has yet
to prove its potential given a minimal 1% contribution in the sales of Breadstop. In fact, the
Kalentong and Cubao branches for its underperformance have dropped the line. Previous product
innovations have contributed more, even with lesser investment.

Quality Function Deployment. Breadstop neither uses House of Quality nor Value
analysis for Quality Function Deployment. However, Breadstop employs a modular chain
principle for daily breads; Specialty breads and Kalamunggay require individual mixes instead of
a common pre-mixture. For 49 of the 52 daily breads, they all come from three types of dough
prepared by the scaler. Basically, these pre-mixes undergo the process to be explained in the next
section, but different fillings, stuffing, or flavoring is placed.

43
 Total Number
Method Bread
of SKUs
Pan de Sal (30 grams)
Straight-Dough 2
Putok Pan de Sal
Tasty Small
Sponge and Dough Tasty Medium 3
Pullman
Putok
Buns, Bolyos, Buns Hiwa-hiwalay
No-time-dough 45
All other Daily Bread SKUs, except Wheat
Bread, Wheat Loaf and Wheat Pan de Sal

Table 15. Types of Bread Produced per Baking Method

B. PROCESS DESIGN

Key Processes

Breadstop Bakeshop uses three different methods in production: no-time-dough method,

straight-time-dough method and sponge-and-dough method. No-time-dough is used for breads
that have high turn-over rate and do not require long shelf-life such as Putok, Buns and Daily
Breads. Straight-time-dough, on the other hand, is the method used for breads like Pan de Sal
which are produced immediately wzhen demand is higher than available labor capacity to
produce. Lastly, sponge-and-dough method is used for breads like Tasty which have richer flavor
and better crumbs compared to daily breads. In addition, breads produced through sponge-and-
dough method normally cost higher and require longer shelf life than daily breads.

Buns. Each batch of bun production is expected to produce 360 buns. To produce one
batch of buns, first, a half-sack (or 12.5 kilograms) bun pre-mix is mixed with other necessary
ingredients using a spiral mixer for approximately 7 minutes. Then, the thick mixture or the
dough will be placed in a dough roller for flattening. This process is called pasada and this takes
around 2 minutes for buns. After flattening the dough, it will be weighed and cut into the
required size, and will then be placed in the rounder divider for molding. The rounder divider can
only accommodate 2.120 kilograms or 36 pieces of buns per run, thus there will be 10 runs per
batch. After molding, the whole batch will be transferred to a proofing room where they will

44
remain there for around 5 hours to allow the yeast to rise. After which, it will be transferred to
the oven for 10-minute baking. However, the oven can only accommodate 84 pieces per run, thus
to bake all 360 pieces, there will be 5 oven runs per batch. Exhibit F.1shows the detailed flow
and the standard times of each process.

Tasty. Breadstop produces three types of Tasty Breads: Pullman, Small Tasty Bread and
Medium Tasty Bread. The expected yield per batch of Tasty Bread depends on the type being
produced. For Pullman Tasty, it is expected to produce 30 Pullman breads per batch while for
Small and Medium Tasty, expected yield is at 80 and 36 Tasty breads respectively.

To produce one batch of Tasty Breads, half a sack (or 20 kilograms) of Tasty pre-mix is
mixed with flour and other ingredients in the spiral mixer for 12 minutes. Similar to the process
of producing buns, it will then be flattened using a dough roller. However, pasada for Tasty
takes a longer time so as to ensure compactness and better crumbs of bread. Then, the dough will
be weighed and cut according to required size depending on the kind of Tasty Bread to be
produced. It will then be placed in the molding tray and after which, it will be transferred for
proofing to allow the yeast to rise. After approximately 2 hours, it will be transferred to the oven
for 30-minute baking. However, the oven can only hold 12 Pullman molds or 27 Small Tasty
molds or 18 Medium Tasty molds at a time, thus the baking time per batch of Tasty breads also
depend on the kind of bread being produced. Exhibit F.2 to F.4 show the detailed process and
standard times for producing different types of Tasty Breads.

Pan de Sal and Daily Bread. Pan de Sal and Daily Breads are produced using straight-
time-dough and no-time-dough method respectively. The production process for these kinds of
bread is similar to that of producing Tasty Breads. The difference in processes lies in the time
allocated for each step in the process and in the number of pieces that the oven can accommodate
per run. The oven can accommodate 33 plantsa or 660 pieces of Pan de Sal and Daily Bread per
run. Moreover, for the production of Pan de Sal, it requires an additional process which they call
bench. This entails 30 minutes of settling down prior to dough flattening. Exhibit F.5 and F.6
show the detailed process and standard times for each step in producing Pan de Sal and Daily
Breads, respectively. One production batch of either Pan de Sal or Daily Breads is expected to
yield 660 pieces of bread. Table 1 shows summary of key processes and expected yield for each
product.

45
 The processes to be presented were purposely de-scoped to only cover daily breads since
79% of the revenue comes from this category. In fact, volume of specialty and Kalamunggay
breads are very low that the capacity of the machine is far from being met by these categories.
Nonetheless, the capacity of all the machines would be presented.

Standard Expected
Machine Time Yield per
Method Process
Product Used (in batch
minutes) in pieces
No-Time
Buns Dough Mixing Spiral Mixer 7 360
Pasada Dough Roller 2
Weighing
Cut & Weigh Scale 4
Rounder
Molding Divider 2
Transfer to
Proofing Room Bread Rack 1
Proofing Proofing room 300
Transfer to Oven Tray 1
Baking Oven 50
Transfer to tray Tray 1
Cooling Bread Rack 40
Pullman - 30
Sponge and Medium - 36
Tasty Dough Mixing Spiral Mixer 12 Small - 80
Pasada Dough Roller 30
Make-up and Weighing
Molding Scale 10
Transfer for
Proofing Tray 1
Proofing Proofing room 120
Transfer to Oven Tray 1
Baking Oven 60-90
Transfer to tray Tray 1
Cooling Bread Rack 40

Table 16.A. Summary of key production process and expected yield: Buns and Tasty

46
 Expected
Standard
Machine Yield per
Product Method Process Time
Used batch
(in minutes)
in pieces
Straight
Pan de Sal Dough Mixing Spiral Mixer 6 660
Bench Table 30
Pasada Dough Roller 20
Make-up & Weighing
Molding Scale 30
Transfer for
Proofing Tray 1
Proofing Tray 120
Transfer to Oven Tray 1
Baking Oven 10
Transfer to tray Tray 1
Cooling Bread Rack 40

Daily No-Time
Bread Dough Mixing Spiral Mixer 6 660
Pasada Dough Roller 20
Make-up & Weighing
Molding Scale 30
Transfer for
Proofing Tray 1
Proofing Tray 120
Transfer to Oven Tray 1
Baking Oven 10
Transfer to tray Tray 1
Cooling Bread Rack 40

Table 16.B. Summary of key production process and expected yield: Pan de Sal and Daily
Bread

47
Processes Technology

Each production house has at least one spiral mixer, a dough roller, weighing scales, a
gas oven and a digital oven, trays and bread racks. The Paco bakery also has a rounder divider
and a proofing room, and the Cubao bakery has two planetary mixers.

Mixers. The spiral mixer is one of the most important equipment of the bakeries. It is
named for its spiral-shaped hook. It is made up of 3 main parts: the hook, the bowl, and the main
body. The bowl rotates while the hook stays in place. It is used to mix and knead bread and other
types of dough. The bowl can be tilted. The planetary mixers are primarily used to mix fillings,
dough, etc. for special breads. They have removable hooks (dough hook, whip, and flat beater)
and a removable bowl. The mixers of Breadstop have a 40-quart capacity, which can
accommodate approximately 15 kilos of dough.

Dough Roller. The dough roller is a floor equipment. Major components include: 1) an
adjusting lever, 2) control switch, 3) and 3 rollers – 2 used for flattening the dough and 1 for
infeed. The roller is used for pasada, where dough is rolled and flattened until smooth.

Oven. Each production house has a gas oven and a digital oven. The digital oven has 3
decks that can accommodate 6-7 plantsa per deck. Capacity of the oven differs per SKU. The
runs between batches are continuous thus the digital oven is fully utilized. The bakeries usually
only use the gas oven when the digital oven fails.

Rounder Divider. The rounder divider is used to perfectly divide and shape dough into
equal pieces. Its two main components are the divider head, which divides and shapes the dough,
and the dough pallet, where the pieces are placed. The dough pallet is placed on the crank plate.
The handle is pulled to lower head onto the pallet. The rounding lever is used to shape the dough
into small round pieces. The rounder divider has a capacity of 2.120 kilos. Each pallet divides
the dough into 36 pieces.

48
 Exhibit D: Parts of a Rounder Divider

Proofing Room. The proofing room is an insulated room that mixes heat and humidity to
provide uniform and faster dough rising. The room has a higher temperature and keeps
temperature and air pressure uniform to assist fermentation. Proofing takes around 2.5 hours with
gas. Depending on the amount of yeast proofing without gas takes 4-6 hours. Breadstop’s
proofing room can accommodate around 10 bread racks.

Tools. Breadstop has both floor and countertop weighing scales. The weighing scales are
used to make sure each piece has the same amount of dough and ensure consistency of the
product.

The production houses also have trays and bread racks – 4 are employed for cooling and
10 for proofing. Breadstop has an excess of trays and bread racks are rarely fully utilized.

49
 Exhibit E: Tools and Machinery

(L-R, T-B: Bread rack, mixer, digital oven, dough roller)

A summary of the tools and machinery with corresponding capacity and which part of the
process it is used can be found below:

Tools and
Capacity Activity Product
Machinery
40 quarts Mixing Buns, tasty, pan de sal,
Spiral
~ 15 kilos of dough daily bread, specialty
mixer
breads
Dough -- Pasada Buns, tasty, pan de sal,
roller daily bread

50
 -- Cutting and weighing Buns
Weighing of dough
scale Make-up and molding Tasty, pan de sal, daily
bread
Rounder 2.120 kilos Molding dough into Buns
divider 36 pieces per run buns
Proofing 10 bread racks Proofing Buns, tasty, pan de sal,
room daily bread
7 plantsa Baking Buns
12 buns/plantsa

84 buns per run

12 pieces of Pullman Tasty
Oven
Or 27 pieces of tasty (small)
Or 18 pieces of tasty
(medium)
33 plantsa, 20 pieces/plantsa Pan de sal
660 pieces per run Daily bread
-- Cooling Buns, tasty, pan de sal,
Trays
Transfer daily bread
18 trays/per rack (4 bread racks) Cooling Buns, tasty, pan de sal,
Bread racks (10 bread racks) daily bread
proofing

Table17: Machines and Capacity

Technological Competence

Not much investment has been made on technologies. Most machines were acquired
when the branch opened. Recently, however, the Cubao branch bought two new mixers although
they have yet to be used. Compared to nearby bakeries, Breadstop is more advanced than its
competitors.

51
 In terms of know-how, the owner is very knowledgeable with regards to baked goods,
enabling the company to release new products frequently. Mr. Bien Pine also believes in cross-
training. He trains his bakers in all areas as to ensure that Breadstop will be able to produce even
when there is a shortage of bakers.

Process Performance

Breadstop’s management solely base operational performance on sales since

management’s primary concern is only whether or not they are making money out of the
business. There are no established key performance indicators (or KPIs), especially in the
operations department, to ensure quality and consistency of products and operations, and also to
provide baseline information about performance of key processes of the business.

Analyzing the processes of producing buns, Tasty breads, Pan de Sal and Daily Bread, it
can be noted that the bottleneck for the processes vary. For buns, the proofing stage is identified
as the bottleneck of the production process. This is primarily due to the fact that the proofing
stage takes a longer time versus other activities in the process. In addition, this stage requires the
batch to be situated in a proofing room that can only hold 2160 buns per proofing. For all
variants of Tasty breads, the bottleneck identified is baking. This is primarily caused by the
limited number of Tasty bread moldings that can be placed in the oven per run. As for Pan de Sal
and Daily Bread, the bottleneck is the make-up and molding process which was primarily driven
by the available capacity per hour of this stage.

52
Exhibit F.1. Buns Production Exhibit F.2. Pullman Tasty Bread Production

53
Exhibit F.3. Medium Tasty Bread Production Exhibit F.4. Small Tasty Bread Production

54
Exhibit F.5. Pan de Sal Production Exhibit F.6. Daily Bread Production

55
Exhibit F.7. Daily Bread Production

56
 Table 18 summarizes the different performance measures identified and computed.

Throughput time Cycle Time

Product (in minutes) Bottleneck (in minutes)
Buns 408 Proofing 300
Pullman Tasty 305 Baking 90
Small Tasty 275 Baking 90
Medium Tasty 305 Baking 60
Pan de Sal 259 Make-up & Molding 30
Daily Bread 229 Make-up & Molding 30
Table 18. Summary of process performance measures for buns, Tasty breads, Pan de Sal
and Daily Breads.

Production Reliability. A random sampling study was conducted which compares the
expected yield versus the actual yield of selected products in all three production facilities of
Breadstop and the main production facility of Little Saints Bakery Chain. Litlle Saints Bakery is
a family bakery owned by Mr.Bien’s parents, and serves as the benchmark of
BreadstopAccording to management, the acceptable deviation from the expected yield is only
10%. Anything beyond that would be considered as low efficiency. The following tables show
the results of the study.

Table 19. Efficiency of Sample SKUs per Branch

BreadStop Paco Production

Bread Expected Yield Actual Yield % Error Remarks
Choco Roll 333 317 4.80% Tolerable
Spanish Bread 333 290 12.91% Low Efficiency
Linga Buns 60 52 13.89% Low Efficiency
Cheese Bread 333 320 3.90% Tolerable
Putok 566 530 6.36% Tolerable
Pan de Sal 1333 1180 11.48% Low Efficiency
Buns 360 330 8.33% Tolerable

57
 Choco Bronzon 167 120 27.93% Low Efficiency
Birdsnest 167 157 5.99% Tolerable
BreadStop Cubao Production
Bread Expected Yield Actual Yield % Error Remarks
Pandecoco 333 288 13.51% Low Efficiency
Ensaymada 333 322 3.30% Tolerable
Putok 566 555 1.94% Tolerable
Pullman 122 110 9.84% Tolerable
Pan de Sal 566 540 4.59% Tolerable
Pusit Big 111 95 14.41% Low Efficiency
Tasty Small 230 210 8.50% Tolerable
Starbread 111 90 18.92% Low Efficiency
BreadStop Kalentong Production
Bread Expected Yield Actual Yield % Error Remarks
Pandelito 416 370 11.11% Low Efficiency
Cheese Bread 333 290 12.91% Low Efficiency
Pan de Sal 1132 1000 11.66% Low Efficiency
Silang Big 111 98 11.71% Low Efficiency
Spanish Roll 333 320 3.90% Tolerable
Hopia Big 250 225 9.91% Tolerable
Putok 566 520 8.13% Tolerable
Pandecoco 167 154 7.51% Tolerable
Hopia Small 83 70 15.92% Low Efficiency
Based on this, it is notable that despite being new in the bakery business relative to Little
Saints, Breadstop’s process performance in terms of production reliability is not far from that of
Little Saints. Moreover, it can also be noted that based on the acceptable range of percentage
error, on the average there is 40% chance of having products with low productivity which in this
case means under-performance in production.

58
Inbound and Outbound Logistics

Flour, Premix,
Made-to-order cakes,
and tasty breads

Daily breads,
made-to-order
cakes and tasty
breads
Cubao Paco Daily breads
Branch Branch and buns

Buns

Flour, Premix,
Made-to-order cakes,
and tasty breads
Buns

Kalentong
Branch

Daily breads

Figure 14. Breadstop’s inbound and outbound logistics scheme

Acquisition of Raw Materials. Figure 13 shows the flow of raw materials and finished
goods among three Breadstop branches.

Breadstop sources its raw materials from different suppliers. All raw materials needed by
all branches are delivered to Breadstop Cubao which is the branch responsible for both the
production of pre-mixes for all products and distribution of flour and pre-mix to other branches.
The quantity of pre-mix produced and delivered depends on the quantity requested by the other
branches the following day.

Distribution. All Breadstop branches have their own production areas where Pan de Sal
and other daily breads are produced on a daily basis in each branch. Moreover, Breadstop
implements a cross-baking scheme in which certain branches are assigned as sole producers and
distributors of specific products. Specifically, Paco branch is assigned as the sole producer of
buns which will be distributed to all other branches while Cubao branch serves as the supplier of
special pastries and Tasty breads for the other two branches.

59
 The distribution of the different products is as follows: (1) the delivery van from Cubao
Branch loads the requested quantity of flour, pre-mix, made-to-order cakes and Tasty breads for
Paco and Kalentong. Then (2) the van delivers to Paco branch to unload requested items and
after which, (3) to load the requested supply of buns for both Cubao and Kalentong. (4) The
delivery van then goes to Kalentong to drop off its requested items and once done, (5) it goes
back to Cubao to unload the requested buns from Paco. In case of urgent delivery of supplies
however, it delivers the needed supplies even after its routine trips.

Benchmark. Breadstop’s cross-baking scheme differs from the commissary scheme

implemented by other community bakery chains. As compared to Breadstop’s cross-baking
scheme in which a branch is assigned as supplier of specific products, in a commissary scheme,
branches only produce hot breads and just rely on the commissary for all the other products.
Other community bakery chains such as Little Saints Bakery Chain and Julie’s Bakery use this
commissary scheme to minimize capital expenditure on production facilities, and at the same
time, to allow faster expansion of bakeshops for wider coverage. Benchmarking with Julie’s, an
industry leader, and Little Saints Bakery, a community bakery chain in Nueva Ecija, Breadstop
can look into the commissary scheme of these bakery chains to further improve production
efficiency, and at the same time, minimize costs driven by the number of production facilities
being utilized.

Furthermore, industry leader, Gardenia, uses a more advanced commissary scheme which
utilizes sophisticated technology that ensures superior quality products. Also, Gardenia makes
use of a unique, extensive distribution system that ensures freshness of products. Based on this,
Breadstop can look into how recent technology can improve bread-making processes.

Figures 15 and 16 show the inbound and outbound logistics scheme of Little Saints and
Julie’s, respectively.

60
 Flour,
Daily breads,
and Special Breads Paco
Paco
Pandesal
Roman
Roman

Flour,
Daily breads,
and Special Breads
Sunrise
Sunrise Pandesal

Flour,
Daily breads,
and Special Breads
Sangitan
Sangitan Pandesal

Zulueta
Flour,
Daily breads,
and Special Breads
Tinapayan
Tinapayan Pandesal

Flour,
Daily breads,
and Special Breads
Mabini
Mabini Pandesal

Flour,
Daily breads,
and Special Breads
Gapan Pandesal

Figure 15. Little Saints Bakery Chain inbound and outbound logistics scheme for Each of
the Locations of its Branches in Cabanatuan City

61
Figure 16. Julie’s Bakeshop’s inbound and outbound logistics scheme

Retail
Distributor
1

Retail
Distributor
2

Gardenia FINSIHED
Manufacturing
Plant GOODS

Retail
Distributor
3

Retail
Distributor
4

Figure 17. Gardenia’s inbound and outbound logistics scheme

62
C. LOCATION PLANNING

As mentioned, Breadstop has branches in Kalentong, Cubao and Paco. These locations
were primarily chosen based on potential foot traffic within the area and secondly, based on the
demographics of the communities within the area. Additionally, it must be noted that Breadstop
is a community bakery which primarily caters to markets C and D. Given these criteria, it is
therefore appropriate that the locations chosen for all three areas are near plazas, schools and
other frequently visited areas to ensure high foot traffic for all branches. Moreover, it is also
important to note that the locations chosen for both branches in Cubao and Paco are near NHA
communities where a number of urban poor communities, which belong to Breadstop’s target
market, reside. The following figures show the map and corresponding site photo for each
branch.

Figure 18. Map of

Breadstop Paco Branch

Figure 19. Façade of Breadstop Paco

Branch

63
Figure 20. Map of Breadstop Kalentong Branch

Figure 21. Façade of

Breadstop Kalentong
Branch

64
 Figure 22. Map of Breadstop Cubao Branch

Figure 23. Façade of

Breadstop Cubao Branch

Furthermore, in terms of operating space, all three locations have the right size and space
for operations specific for each branch. For instance, Cubao, which houses majority of

65
productions, it has allocated 120 sq.m. of its area for production and storage since it requires
larger space compared to other branches for production of specialty and Tasty breads as well as
hot breads. On the other hand, for Paco, which ranks second in terms of volume of production
among the three, it has allocated 80 sq.m for production. However, for Kalentong, which only
produces hot breads, it does not need much space and thus only 40 sq.m. was allocated for its
production operations.

Criteria for evaluating alternative locations. For future prospects, it must be noted that
the same set of criteria must be used in searching for alternative locations:

1. High foot traffic within the vicinity;

2. Accessibility for target market (i.e. Urban Poor Communities);
3. Available space for operations; and finally
4. Competition within the area.

D. FACILITIES LAYOUT

Figure 24. Breadstop Cubao - Floor Plan

66
 Figure 25. Breadstop Cubao - Production Facilities Layout

Figure 26. Breadstop Cubao – Tasty Bread Production Process Flow

67
 Figure 27. Breadstop Paco – Floor Plan

Figure 28. Breadstop Paco – Production Facilities Layout

68
 Figure 29. Breadstop Paco – Buns Production Process Flow

In the production areas of Breadstop, the general layout can be characterized by two
notable similarities. First, the molding table is always at the center of the production area. This
position allows the bakers to easily move the batches around the area since they pass through the
molding table at multiple points in the entire process—molding, weighing and cutting to name a
few. Second, all the other machines are located around the molding table according to their
position in the production process. The spiral mixer is situated beside the dough roller as most of
the SKUs pass through the roller directly after the mixing activity. The oven is also placed near
the molding table, where the baked goods are placed in trays or molds before entering the oven.
An overview of the layout for both Cubao and Paco branches can be found in Figures 23 and 26,
respectively.

The positions of the facilities were determined by the owner based on the usual
production layout of bakeries. The entire area provides enough empty space for the bakers to
freely move around as they transfer batches, either in trays or racks, from one activity to another.

69
As seen in Figure 24, the flow of the process for producing tasty bread follows a clockwise
movement around the area from the weighing scale to the oven and back to starting point for
slicing. The same cannot be said for the buns production process in Paco as illustrated in Figure
27. The flow is not as smooth as the tasty bread production due to various considerations: (1)
another bakery was leasing the area before Breadstop so the location of the rooms can no longer
be moved, and (2) the bakery produces at least 50 other SKUs and so the current layout takes
into account the flow for each production process (e.g. some daily breads move directly from the
molding table to the oven, while some need to pass through the proofing room).

Over time, the layout of Breadstop has continuously improved its production as
experience aids in the decision of how to further improve on the efficiency of the process. In
terms of layout, the location of facilities in the Paco bakery can be rearranged to allow a more
efficient flow, similar to the Cubao branch. The positions of the oven and the divider/rounder, so
that the process can flow in a smoother movement from the new raw materials room, through the
machines, and finally to the shelves (see Figure 28).

Figure 30. Breadstop Paco – Proposed Facilities Layout

70
E. CAPACITY PLANNING

Demand Forecasting

Breadstop projects its future production levels by using a technique similar to “jury of executive
opinion”. In each of the branches, the selling area supervisor estimates the demand for the next day based
on the sales of the current day, and use that figure to order from production areas. The use of this
technique gave rise to two issues: (1) the back-order rate (which refers to the number of items of a
product placed on sale that remain unsold at the end of the shelf life) continues to fluctuate, reflecting the
inaccuracy of the forecast, and (2) the forecast is completely dependent on the production supervisor,
because past experiences show that when production supervisor resigns or is on-leave, the back-order rate
(which is simply the deviation of the forecast from actual sales) increases considerably beyond the
allowable rate.

Pandesal, Kalentong Branch

1400
1200
1000
800
600
400
200
0
12-Aug

19-Aug

26-Aug

16-Sep

23-Sep

30-Sep
5-Aug
15-Jul

22-Jul

29-Jul
1-Jul

8-Jul

2-Sep

9-Sep

7-Oct

Current Actual Proposed

Figure 31. Actual Sales, Current and Proposed Forecasted Sales for Pandesal Production

71
 Current Technique Proposed Technique
Forecasted Actual Deviation Forecasted Actual Deviation
10-Jul 823 636 29.5% 388 636 39.0%
20-Jul 553 453 22.2% 354 453 21.9%
30-Jul 684 426 60.5% 415 426 2.6%
9-Aug 587 418 40.4% 426 418 1.8%
19-Aug 540 450 20.0% 398 450 11.5%
29-Aug 522 431 21.1% 533 431 23.6%
8-Sep 637 414 53.8% 496 414 19.8%
18-Sep 538 441 21.9% 482 441 9.3%
28-Sep 541 430 25.9% 473 430 9.9%
8-Oct 1274 1030 23.7% 685 1030 33.5%
MAD 141 MAD 120
MAPE 31.4% MAPE 27.5%

Table 20. Forecasted vs. Actual Sales in Current and Proposed System

In improving the forecast of demand, the daily forecasted and actual sales of pandesal in the
Kalentong branch is used, as shown in Table 1.The sample covers the period July 1, 2011 to October 8,
2011, when it recorded a deviation from the actual number of pandesal sold with a MAPE of 31.4%,
equivalent to an average deviation of 141 breads every month. In order to improve the current method, the
proposed technique should at least have a smaller mean-absolute deviation.

As demonstrated through the use of the exponential smoothing approach, the average deviation
from actual sales can still be decreased to 27.5% or 120 pandesals. Figure 1 clearly illustrates how
employing this new technique minimizes the deviation. However, it may be noted that this sample
forecast may still be improved by taking into consideration some regular fluctuations, like the higher sales
in weekend than in weekdays. In the long run, this can be reduced as more data can be used to account for
the seasonality of sales.

Capacity Analysis

Capacity of the Process for Bun Production. Assuming that all machines and other tools
are working under perfect condition, and that there is no shortage on manpower, the hourly
capacity of the process for buns is 432 pieces with proofing as the bottleneck.

Production of buns is done by batches, maximizing capacity of the machines. Thus,

mixing, pasada, molding, and transfers have capacity of 1 batch per run, equal to a yield of 360

72
pieces. As for proofing, assuming that only buns are produced at a given time, the proofing room
can hold as many as 2160 pieces per run (given that capacity of proofing room: 10 racks, 18
trays per rack, 12 buns per tray). Each run in the oven can only accommodate 84 buns.
Computing for the hourly capacity of each activity, we arrive at 432 buns as the hourly capacity
of the whole process.

Standard Time Capacity Hourly

Activity (in minutes) per run Capacity
Mixing 7 360 3085.714
Pasada 2 360 10800
Molding 2 360 10800
Transfer to
Proofing Room 1 360 21600
Proofing 300 2160 432
Transfer to Oven 1 360 21600
Baking 10 84 504
Transfer to Tray 1 360 21600
Cooling 40 864 1296

Table 21. Capacity of Buns Production

Capacity of the Process for Production of Tasty. Adopting the same assumptions as in the
analysis of the capacity of bun production, the hourly capacity of the process for tasty is obtained
as 24 pieces for Pullman, 36 for medium tasty, and 54 for small tasty.

Capacity per run for most of the activities is the number of yield, namely mixing, pasada,
make-up and molding, and transfers. Capacity for proofing (molding trays are just stacked and
no longer use bread racks) and cooling are no longer considered since these activities can
accommodate very large numbers of tasty units.

73
 The capacity for this process is obtained with the assumption that only one type of tasty is
made at a given time.

Pullman Medium Tasty Small Tasty

Standard Capacit Hourly Capacit Hourly Hourly
Time (in y per Capacit y per Capacit Capacity Capacit
Activity minutes) run y run y per run y
Mixing 12 30 150 36 180 80 400
Pasada 30 30 60 36 72 80 160
Make-up and
molding 10 30 180 36 216 80 480
Transfer to
Proofing Room 1 30 1800 36 2160 80 4800
Proofing 120 -- -- -- -- -- --
Transfer to Oven 1 30 1800 36 2160 80 4800
Baking 30 12 24 18 36 27 54
Transfer to Tray 1 30 1800 36 2160 80 4800
Cooling 40 -- -- -- -- -- --

Table 22. Capacity of Production of Tasty

Capacity of the Process for Pan de Sal and Daily Bread Production. Both the processes
for pan de sal and daily bread have a capacity of 1320 pieces per hour. This capacity has been
obtained with the assumptions that all machines work in perfect condition, that there is no
shortage in manpower, and that only either pan de sal or daily bread is produced in a given time.

To maximize the capacity of the machines, mixing, pasada, make-up and molding,
transfers, and baking are done by batches of 330. Having 4 racks (and each rack accommodating
18 racks) in the main area, both the bench (applicable only to process for pan de sal) and cooling
activities have a capacity of 1440 pieces per run. The proofing room contains 10 racks, thus
proofing has a capacity of 3600 pieces per run. Looking at the hourly capacity of each activity,

74
we arrive at make-up and molding as the bottleneck and 1320 pieces as the hourly capacity of the
whole process.

Process for Pan de sal Production

Standard Time Capacity per Hourly
Activity (in minutes) run Capacity
Mixing 6 660 6600
Bench 30 1440 2880
Pasada 20 660 1980
Make-up and
molding 30 660 1320
Transfer for
proofing 1 660 39600
Proofing 120 3600 1800
Transfer to Oven 1 660 39600
Baking 10 660 3960
Transfer to tray 1 660 39600
Cooling 40 1440 2160

Table 23. Capacity of Pan de Sal Production

Process for Daily Bread

Standard Time Capacity per Hourly
Activity (in minutes) run Capacity
Mixing 6 660 6600
Pasada 20 660 1980
Make-up and
molding 30 660 1320
Transfer for
proofing 1 660 39600

75
 Proofing 120 3600 1800
Transfer to Oven 1 660 39600
Baking 10 660 3960
Transfer to tray 1 660 39600
Cooling 40 1440 2160

Table 24. Capacity of Daily Bread Production

The flow of the key SKUs is summarized in the figure below.

Figure 32. Process Flow of Key SKUs

76
F. WORK SYSTEMS

Figure 33. Number of Employees Per Function

The Job Design

Mandated from all employees is an attitude of optimism and a pleasant disposition
towards work. This manifests uniquely for every worker, provided the differences in employee
roles across the bakeshop (see Table 23).

Employee Role Skills/Attributes Required

Function
Store Manager Ensure business operations meet Efficient data management
customer and owner requirements Capable of troubleshooting
Good team motivation
Production Schedules and manages production Accurate demand forecasting
Supervisor activities in assigned branch Efficient resource
management
Selling Area Oversee salesladies Train tinderas
Supervisor Act as cashier Decent arithmetic skills
Fill in daily sales reports Attentive to detail

77
 Baker Handle production process from Decent culinary (baking)
start to finish skills
Precise, attentive to detail
Saleslady Interact with and meet customer Good public relations
requests Decent communication skills
Deliver payments to cashier Staying alert and lively

Table 25. Employee Specifications and Requirements

Role differentiation demands different sets of skills for a particular function. The store
manager, directly accountable to the owner himself, certifies the alignment of business
operations with the demands of both the owner and the customers. As such, this position entails
good data management skills, in the form of encoding forms on behalf of the owner and
inputting data (sales, purchases, etc.) into the computer, among others. Secondly, in the owner's
absence, the store manager is in charge of ensuring smooth operations in the workplace. So in the
event of unforeseen circumstances, the store manager's experience should help him/her make
wise decisions in response to problems encountered. Thirdly, as head of the three branches, the
store manager carries on the unsaid role of motivating the entire workforce, so as to carry out
customer and owner requirements more efficiently.

In charge of scheduling and managing production levels in the assigned branch, the
production supervisor needs to be aided accordingly in predicting future demands, while taking
into consideration the production area's capacity. That said, a great asset to the production
supervisor would be accurate demand forecasting. Moreover, with demand fluctuations,
production may be at levels below average. At times like this, a lot of the manpower would be
freed up, and be left available to do other work. Also, raw materials should be used
appropriately, and thus the need for efficient resource management, be the resource, manpower
or raw materials.

The specificity of the selling area supervisor's roles has led to very concrete skill
requirements. To better oversee the salesladies and assess their performance, the selling area

78
supervisor must have a critical eye, and set standards for both her and the salesladies to follow.
Moreover, she should be competent to give advice, and if possible, provide training based on her
own experience. Secondly, as cashier, she must possess decent arithmetic skills, as this will help
ease her job. Even with calculators available, the mind's capacity to verify perceived information
can reduce the risk of demanding the wrong amount of money from the customer or giving a
false amount as change, thereby securing the profitability of the business. Thirdly, the task of
filling in daily sales reports requires conscientiousness or a careful attention to detail, so as not to
falsify any real sale incurred within the day.

Bakers, stationed at the very heart of production and operations, need some experience in
baking, as it would be costly for the baker to commit mistakes in the production process, such as
using the wrong amount of raw materials, which would lead to poor product quality, and
eventually, customer dissatisfaction. Similarly, the baker needs to pay careful attention to detail,
especially in terms of product proportion and durations of each operation in the production
process.

As the salesladies serve at the frontline, interacting with customers, and meeting their
orders, it is mandatory that these women possess good public relations, decent communication
skills, and the ability to remain alert and lively, even after serving a day's worth of customers. By
providing customers with quality service, Breadstop will be remembered for more than just its
bread.

Entering B8: Joining the Workforce

Detailed below are the specific criteria for each employee category, depending on the
skills required per function (see Table 24).

Employee Criteria
Saleslady - 18 years and above
- Highest ed. attainment: First Year HS
- Must pass Math exam
- Pleasing personality
Baker - At least one year experience in baking
Cashier - Most trusted saleslady

79
 Store Manager - Proficient in MS Word and Excel
- Knowledgeable in using the Internet
- Educational attainment: High School
graduate
Production Supervisor - Most trusted baker

Table 26. Pre-requirements to Employment

Employees in Breadstop don't undergo any formal training. New hires undergo a one-day
orientation, where the new employees will be introduced to the company, its rules (do's and
don'ts), the roles involved in work as well as the branch where they are stationed.

On a daily basis, all employees are required to perform morning drills in pairs, where one
saleslady acts as a customer; and this is done under the observation of the owner himself or the
store manager. At the end of the day, employees are to fill out ten thanksgiving items in their
journals (personal diaries). Management mandated this routine to inculcate a sense of gratitude
and optimism in the company's workforce. Occasionally, the bakeshop sends some of its
foremost employees as representatives in training seminars.

Workplace Conditions: Providing Employees the Best

The conduciveness of the workplace plays a critical factor in the
performance of employees, either motivating them to work hard,
while feeling comfortable in a shared environment; or making
them feel the monotony of day-to-day routines. As such, B8 has
sought measures to let its employees know that the company
cares for its people, by providing clean working areas and radio
music to keep employees awake and alert, especially during early
mornings and siesta periods. Moreover, the company places a
premium on sanitation, thereby inculcating in the minds of its
employees the importance of hygiene in their line of work,
especially of those in charge of production. Observing strict rules
like washing hands before resuming work, and wearing hair nets
at all times during shifts are some of the measures sought by the

80
bakeshop. Furthermore, employees, upon their own approval, are provided with pensions and
health insurances such as SSS and PhilHealth benefits, respectively.

However, as noted by the owner himself, employees haven't been performing at the level
required of them. As such, management has been trying to look into other possible ways to
motivate employees, to grant them satisfaction in their work, while ensuring that customers are
provided with only the best quality in terms of product and service.

Lastly, there are still risks of accidents since bakers closely interact with the machines.
For instance, in the dough roller, the arms of the worker are put inside the machine to guide the
rolling process. This poses risks of losing a finger or some injury due to such a close interaction.

81
G. SUPPLY CHAIN MANAGEMENT

1. MATERIALS REQUIREMENT PLANNING

Figure 34. Functional flowchart for the Procurement Process of Raw Materials and Packaging Materials

82
 As shown in figure x, materials planning starts from the checking of current stock of raw
materials within each store’s production line. In Cubao, the team leader of each of the four shifts
– Cakes Day and Night Shifts and Breads Day and Night Shifts – then reports to the warehouse
man the remaining stock for each raw material. The warehouse man, who is in-charge of keeping
the required level of raw material, also checks the remaining raw materials in the warehouse and
then summarizes the balance of raw materials. He, then, creates a list of raw materials for
replenishment to be forwarded to the owner’s mom, Mrs. Pine, who is currently Breadtsop’s
purchasing officer. Similarly for Paco and Kalentong branches, the master baker in each branch
checks the amount of raw materials available while the branch selling supervisor checks the
amount of remaining packaging materials. After which, both master baker and selling supervisor
report the raw material and packaging material level to the store supervisor, who is in-charge of
keeping the desired level of raw materials and packaging materials in each store. The store
supervisor then creates a list of raw materials and packaging materials for each store that needs
to be replenished based on expected demand. This list will then again be forwarded to the
purchasing officer, Mrs. Pine. With all the requests on hand, Mrs. Pine will then review the list to
check for nuances, and then summarize the request from the warehouse man and the store
supervisor. Finally, Mrs. Pine will order the raw materials from the designated suppliers.

Materials
Breadstop’s raw materials for the three product categories namely Daily Breads,
Specialty Breads and Kalamunggay Health Breads do not vary so much as all of them require the
basic ingredients for bread making such as flour, sugar, salt, lard and others. They only differ in
the amount required per raw material for each SKU. Moreover, as mentioned in previous
sections, Daily breads come in various forms, however, unlike specialty breads that require
different base; Daily breads have only one formulation. What separate the different variants are
the added ingredients in one SKU to that of others for instance cheese in cheese bread and ube-
fillings for Ube Buns. The following table, Table G.1., shows where each raw material is used
and where each is sourced.

83
Table 27. List of raw materials and key SKUs

Supplier
Raw Material Key SKUs Amount Unit Supplier
Contribution
Chocolate Chip Philippine Foremost and
1st Class Flour Cookies 480 grams Milling Corporation 100
Banana Muffins 60 grams
Buns 10,000 gram
Hot Pan de Sal 10,000 gram
Sweet Dough 10,000 gram
Tasty 10,000 gram
Putok 6 Kg 2,880 gram
Putok 3 Kg 960 gram
Kalamunggay
Sponge 3,000 gram
Kalamunggay Tasty 5,700 grams
Kalamunggay
pandesal 2,400 gram
Philippine Foremost and
3rd Class Flour Putok 6 Kg 2,880 gram Milling Corporation 100
Putok 3 Kg 960 gram
Bahukas 3,000 gram
Kababayan 1,150 grams
All purpose Philippine Foremost and
flour Crinkles 870 grams Milling Corporation 100
Special Ensaymada 900 grams
Philippine Foremost and
Cake Flour Pianono 600 grams Milling Corporation
Cheese Cake 600 grams
Choco Cake 150 grams
Yema Cake 650 grams
Custard Muffin 650 grams
Behive 250 grams
Cupcake 550 grams
Special Ensaymada 100 grams
Banana Muffins 540 grams
Kababayan 1,150 grams
Light Brown
Sugar Sweet Dough 2,200 gram Alex Ong ( Paco, Manila) 100
White sugar Egg Pie 600 grams Alex Ong ( Paco, Manila) 100
Crinkles 650 grams
Pianono 360 grams
Half-Moon 800 grams
Polvoron Cookies 1300 grams
Cheese Cake 200 grams
Choco Cake 200 grams

84
 Supplier
Raw Material Key SKUs Amount Unit Supplier
Contribution
White sugar Yema Cake 30 grams
Custard Muffin 30 grams
Kababayan 1,800 grams
Washed Sugar Buns 1,600 gram Alex Ong ( Paco, Manila) 100
Hot Pan de Sal 2,400 gram
Tasty 2,200 gram
Margarine Crinkles 550 grams Alex Ong ( Paco, Manila) 70
Half-Moon 300 grams Vita Foods 30
Cupcake 140 grams
Chocolate Chip
Cookies 100 grams
Special Ensaymada 150 grams
Sweet Dough 100 gram
Putok 6 Kg 110 gram
Putok 3 Kg 30 gram
Lard Crinkles 200 grams Alex Ong ( Paco, Manila) 100
Half-Moon 800 grams
Polvoron Cookies 1100 grams
Chocolate Chip
Cookies 135 grams
Banana Muffins 300 grams
Buns 450 gram
Hot Pan de Sal 600 gram
Sweet Dough 500 gram
Tasty 500 gram
Putok 6 Kg 180 gram
Putok 3 Kg 60 gram
Bahukas 300 gram
Kalamunggay Tasty 300 grams
Kalamunggay
pandesal 300 gram
oil Pianono 50 grams Alex Ong ( Paco, Manila) 100
Half-Moon 400 grams
Choco Cake 30 grams
Yema Cake 250 grams
Custard Muffin 250 grams
Kababayan 900 grams
Instant Yeast Special Ensaymada 15 grams Sonlie International Inc. 100
Buns 100 gram
Hot Pan de Sal 80 gram
Sweet Dough 100 gram

85
 Supplier
Raw Material Key SKUs Amount Unit Supplier
Contribution
Instant Yeast Tasty 100 gram
Putok 6 Kg 45 gram
Putok 3 Kg 12 gram
Kalamunggay
Sponge 5 gram
Bahukas 40 gram
Kalamunggay Tasty 49 grams
Kalamunggay
pandesal 5 gram
Skimmed Milk Hot Pan de Sal 200 gram F Y Sons Inc. 100
Sweet Dough 120 gram
Tasty 400 gram
Condensed
Milk Cheese Cake 1 can David Wong (Divisoria) 100
Kababayan 1 can
Evaporated
Milk Bahukas 0.5 can David Wong (Divisoria) 100
Powder Sugar Crinkles 430 grams David Wong (Divisoria) 100
Yema Cake 300 grams
Custard Muffin 300 grams
Behive 300 grams
Cupcake 300 grams
Chocolate Chip
Cookies 240 grams
Chocolate Chip
Cookies 75 grams
Special Ensaymada 250 grams
Banana Muffins 240 grams
Milk Egg Pie 420 grams David Wong (Divisoria) 100
Cupcake 50 grams
Special Ensaymada 50 grams
Banana Muffins 36 grams
Egg Egg Pie 12 pieces Uniwide 70
Crinkles 9 pieces Alex 30
Pianono 18 pieces
Cheese Cake 5 pieces
Choco Cake 10 pieces
Yema Cake 20 pieces
Yema Cake 20 pieces
Custard Muffin 20 pieces
Custard Muffin 20 pieces
Behive 3 pieces
Cupcake 330 grams

86
 Supplier
Raw Material Key SKUs Amount Unit Supplier
Contribution
Chocolate Chip
Egg Cookies 145 grams
Special Ensaymada 100 grams
Special Ensaymada 200 grams
Banana Muffins 330 grams
Sweet Dough 400 gram
Tasty 200 gram
Putok 6 Kg 5 pieces
Putok 3 Kg 2 pieces
Kababayan 15 pieces
Baking powder Crinkles 30 grams Tita KC's Food 100
Pianono 30 grams
Polvoron Cookies 10 grams
Cheese Cake 15 grams
Choco Cake 20 grams
Yema Cake 10 grams
Custard Muffin 10 grams
Behive 10 grams
Cupcake 30 grams
Banana Muffins 20 grams
Kababayan 15 grams
Baking soda Crinkles 20 grams Tita KC's Food 100
Cheese Cake 15 grams
Behive 10 grams
Chocolate Chip
Cookies 25 grams
Banana Muffins 6 grams
Butter Cheese Cake 225 grams Asco 100
Behive 225 grams
Cupcake 200 grams
B.O.S Buns 40 gram Vita Foods 100
Hot Pan de Sal 40 gram
Tasty 50 gram
Kalamunggay
pandesal 120 gram
Cocoa Powder Crinkles 350 grams San Mei Foods 100
Choco Cake 50 grams
Behive 50 grams
Chocolate Chip
Cookies 30 grams
Chocolate Chocolate Chip
Chips Cookies 270 grams 100

87
 Supplier
Raw Material Key SKUs Amount Unit Supplier
Contribution

Cornstarch Egg Pie 90 grams Tita KC's Food 100

Cream of
Tartar Yema Cake 10 grams Asco 100
Cream of
Tartar Custard Muffin 10 grams
Food Coloring Bahukas 3 gram Enriquez (Divisoria) 100
Kalamunggay Achievers Food and Bakery
FRL pandesal 180 gram Ingredients 100
Fructose Cupcake 83 grams 100
Chocolate Chip
Cookies 75 grams
Banana Muffins 90 grams
Putok 6 Kg 480 gram
Putok 3 Kg 160 gram
Kalamunggay
Sponge 18 gram
Kalamunggay Tasty 700 grams
Kalamunggay
pandesal 300 gram
Glucose Crinkles 180 grams Tita KC's Food 100
Emulsifier Pianono 70 grams Asco 100
Choco Cake 30 grams
Kalamunggay
Kalabasa Sponge 36 gram Cabanatuan 100
Kalamunggay Tasty 180 grams
Kalamunggay
pandesal 360 gram
Kalamunggay
Malunggay Sponge 10 leaves Cabanatuan 100
Kalamunggay Tasty 60 grams
Kalamunggay
pandesal 25 gram
Ripe Banana Banana Muffins 420 grams Cabanatuan 100
Salt Crinkles 10 grams Tita KC's Food 100
Cupcake 6 grams
Chocolate Chip
Cookies 2 grams
Special Ensaymada 15 grams
Banana Muffins 9 grams
Buns 130 gram
Hot Pan de Sal 140 gram
Sweet Dough 150 gram
Tasty 160 gram

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 Supplier
Raw Material Key SKUs Amount Unit Supplier
Contribution
Achievers Food and Bakery
Syrup Yema Cake 150 grams Ingredients 100
Custard Muffin 150 grams
Magimix Special Ensaymada 5 grams 100
Chocolate Chip
Molasses Cookies 20 grams 100

Suppliers
Currently, Breadstop has 17 suppliers, which are detailed in table X, for all its raw
materials and packaging needs. All suppliers have been with the company for five years or ever
since the start of the company’s operations. These suppliers were chosen based on price,
availability of supplies, terms and transaction conditions and finally, quality of products –
whether the quality fits Breadstop’s standards. Payments to these suppliers are usually done
through online or check transactions.
Despite instances wherein there are multiple suppliers for certain raw materials and for
packaging materials, most of the raw materials are still sourced through a single supplier only. In
this case, suppliers need not compete for pricing against other suppliers. However, management
ensures that they get supplies at their lowest cost possible to maintain the relationship with those
suppliers. Table 28. List of Breadstop’s Suppliers
SUPPLIERS
Philippine Foremost and Milling Corporation
Alex Ong ( Paco, Manila)
Sonlie International Inc.
Achievers Food and Bakery Ingredients
F Y Sons Inc.
Lucy Orolfo
Prosales Marketing
David Wong (Divisoria)
Myto Trading (Divisoria)
Enriquez (Divisoria)
Prudential Plastic Manufacturing
San Mei Foods
Uniwide
Tita KC's Food
Alex
Vita Foods

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Procurement Strategies
As mentioned, Breadstop’s procurement system is currently managed by the owner’s mom. This
system heavily relies on the experience and supplier relations of Mrs. Pine with the different suppliers in
this industry. Moreover, provided that there are multiple suppliers for certain raw materials such as
margarine and egg, suppliers are then selected based on two criteria: (1) the prices they offer for each raw
material and (2) availability of the amount of supplies needed.
When prices of raw materials are expected to remain constant, standard supplier-customer
transaction happen wherein the purchasing officer orders and pays for the raw materials needed, and these
will be delivered on the agreed date of the two parties. However, in case that the management predicts a
sudden price change for a specific month, the purchasing officer will make advance payments for orders
but delay delivery for raw materials needed for latter periods. This way, management will pay for current
supply cost. However, each supplier imposes a maximum order quantity for this kind of agreement to
prevent excessive ordering.

Critique
In terms of Breadstop’s sourcing strategies, it primarily employed a single-source model for most
of its raw material needs and it basically leveraged on the strong ties it has with its suppliers. However,
this model is very risky as it is highly-dependent on the supplier’s business conditions and capability to
deliver all raw material requirements whenever they are needed. Moreover, although suppliers provide
Breadstop with good terms and conditions for transaction, it might also be good for Breadstop to keep
suppliers more competitive to ensure that they continue to serve Breadstop with quality products at their
lowest cost possible. This will not only possibly lower cost but also allow Breadstop to at least control
supplier’s bargaining power.
Moreover, Breadstop’s current materials requirement and replenishment strategy, which
is based on estimated demands for each SKUs, could still be improved by having more accurate
demand forecasts to optimize the lead time and quantity of raw materials. Furthermore, by
having a more systematic forecasting method, Breadstop will no longer just rely on supervisor’s
estimates, as it is possible to have supervisors who are new to the position and to the industry
therefore will not be able to forecast accurately.

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G. SUPPLY CHAIN MANAGEMENT (Con’t.)

2. Inventory Management

Breadstop keeps two types of inventory: one for raw materials, and another for finished
goods. Raw materials inventory includes all ingredients and supplies needed in bread production.
The exhibit below lists the main raw materials used by Breadstop, their respective shelf lives,
suppliers and where they are delivered. Finished goods inventory, on the other hand, is
comprised of all daily and specialty breads transferred from the production area to shelves for
distribution or showcases for selling. All of the three branches have their respective inventories
based on the SKUs sold but a general policy for replenishment, storage and distribution is
followed across all branches.

Raw Materials Shelf Life Suppliers Delivered to

Branch
1st Class Flour 2 months Philippine Foremost and Paco Branch
(Montana Spring) Milling Corporation
3rd Class Flour 2 months Philippine Foremost and Paco Branch
(Gold Key Flour) Milling Corporation
Cake Flour 2 months Philippine Foremost and Cubao Branch
(Snow Silk Flour) Milling Corporation
All Purpose Flour 2 months Philippine Foremost and Cubao Branch
Milling Corporation
Instant Success 2 years Sonlie International Inc. Paco Branch
Yeast
Sugar (White, Light 6 months Alex Ong (Paco, Manila) Cubao Branch
Brown, Wash)
Lard 1 year Alex Ong (Paco, Manila) Cubao Branch
Skimmed Milk 1 year F Y Sons Inc. Cubao Branch
Salt 2 years Tita KC's Food Cubao Branch
Fruit Syrup (Sugar) 1 year Achievers Food and Cubao Branch
– Fructose Bakery Ingredients
Alex ong (Paco, Manila),
Eggs 1 month Cubao Branch
Uniwide

Exhibit G. List of Raw Materials and Corresponding Shelf Life, Suppliers and Branch
Delivery

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Stocking and Replenishment

Exhibit H. Transfer of Raw Materials Across Breadstop Branches

Raw Materials. The process for replenishment of raw materials can be divided into two
parts: 1) central replenishment, which includes restocking of inventory in central storage areas,
and 2) branch replenishment, which concerns restocking of inventories in branches.

The central replenishment process is illustrated in the functional flowchart discussed in

the procurement strategies. Two areas are considered as center storage facilities for their
particular raw materials. The Paco branch holds the 1st class flour, 3rd class flour and yeast, while
all other materials are warehoused in the Cubao branch. These two branches maintain a safety
stock sufficient to fulfill demand for at least three more days, including orders from other
branches. Inventory checks are conducted by the production supervisors of the respective
branches on a daily basis. When the inventory reaches the safety stock level, the production
supervisors inform Mrs. Pine, who then places an order to the suppliers. The requested raw
materials are then delivered by suppliers to the corresponding branches, where it is received by

92
the checker to ensure that all requested materials arrived. On a normal basis, deliveries occur ten
days after an order is placed, but rush deliveries can be received the following day after ordering.

Exhibit I. Functional Flowchart for the Branch Replenishment of Raw Materials

For the branch replenishment process, regular RM inventory inspections are conducted
by all the branches. The production supervisor records the level of raw materials inventory to
keep track of daily usage and consumption. This data will also help them in estimating the
amount of raw materials needed by the branch for the week. The supervisor orders weekly and
these raw materials are received the next day while premix ingredients and bread crumbs are
delivered on a daily schedule. Once the delivery arrives, the branch production supervisor cross-
checks the deliveries against the orders placed. When there are discrepancies, the supervisor of
the receiving branch calls the supervisor of the source branch to adjust the delivery receipts.
When all records are adjusted, raw materials are moved to the production area or in storage.

Breadstop bakeries experience difficulty with this system, especially in meeting the
demands of customers. There is no standard minimum stock level to be maintained across all
branches and their respective supervisors decide when to inform Mrs. Pine for procurement, and
their subjective estimates lead to some instances of shortages.

When a particular branch experiences shortage, raw materials are sourced from the
nearest grocery or supermarket. This has a two-fold impact: 1) quality is compromised because
raw materials bought from nearby markets are different from the standard used, and 2) buying

93
from these groceries is more expensive because these goods are subject to retail prices, as
compared to the discounted prices of bulk purchases.

Exhibit J. Functional Flowchart for the Branch Replenishment of Finished Goods

Finished Goods. Since the bakery produces bread daily, the level of finished goods
inventory maintained by the company depends on the demand in a particular day. Given the
perishable characteristic of bread, the company does not keep finished goods inventory of daily
breads for more than one day. Buns and loaves have their respective expiration dates.

Breadstop replenishes finished goods inventory on a daily basis for most SKUs, while
fast-moving bread products, such as pandesal, are stocked twice, following the two production
schedules within a day. In restocking outsourced breads, the cashier checks total sales for a given
day, and places an order of bread from other branches (buns from Paco, loaves and special
breads from Cubao). The source branch then compiles all orders and schedule production to
fulfill the requests. The next day, a delivery receipt is prepared by the production supervisor and
the finished goods are delivered to the destination branches. The receiving cashier cross-checks
acquired items against receipt and calls source branch for any adjustments. Once complete, the
delivered goods are placed in either the shelves or showcases.

In restocking breads that are produced in-house, the number of required goods is given to
the production supervisor who will schedule production for the store. Breads are produced early

94
in the morning just in time for the arrival of customers. The supervisor notes the number of
goods produced and the breads are placed in the showcases. This process is conducted twice in a
day because there are normally two production schedules daily. When particular SKUs have
been stocked out, the cashier will again request for producing these breads in order to fulfill
demands in the afternoon.

Finished goods are ordered and received on a daily basis while raw materials are ordered
once a week following a specific schedule. The following exhibit shows the assigned date of
order for the different branches, and their respective arrival dates.

Branches Ordering Day Delivery Day

Paco Monday Tuesday
Kalentong Sunday Monday
Cubao Thursday Friday
Exhibit K. Ordering and Replenishment Schedule

Storage and Handling

Exhibit L. Storage Layout of Raw Materials

Raw Materials. Raw materials are kept in storage areas in their respective branches. One
person is in-charge of checking the amount of raw materials and authorizing withdrawal. In the
Cubao branch, a checker receives the deliveries from the suppliers, and orders from the Paco and
Kalentong branch. Moreover, he is in-charge of creating the premix for bread production.
Furthermore, he supervises the loading of supplies from storage to the delivery truck.

95
 In Paco and Kalentong, the production supervisor manages the storage of raw materials
inventory. At the beginning of every shift, the master baker requests for pullout of raw materials
with amount depending on the production schedule for that shift. The production supervisor then
authorizes this request and oversees withdrawal from storage, ensuring that the amount pulled
out is equal to production needs.

Almost all of the raw materials are kept in a normal storage facility, except for some
delicate supplies like butter which are kept in cold storage. The shelf lives of these materials
vary, but they are move quickly in and out of storage due to the fast and daily production of
bread, resulting to having no instance of spoiled raw materials.

Exhibit M. Planogram and Sample Daily and Special Bread Showcases

Finished Goods. Finished goods are stored in either bread showcases or shelves. The
former contains the unpackaged daily and special bread, as shown in the exhibit above. In storing
breads in the showcases, the general policy is to place the new products and highest-priced SKUs
at the top level while the known SKUs are displayed at the lower levels. Most of the breads that
are easily sold occupy the top levels of the showcases, and the other SKUs are moved up once

96
these levels are stocked out. As illustrated by the planogram above, there are separate showcases
for the daily and special breads. Most common daily breads at the top are cinnamon, meltdown,
hambrioche and donuts, while hard, toasted breads like bahukas, putok and peanut toast occupy
the bottom level. Other daily breads like cheese buns, pandecoco, Spanish bread, mongo and ube
rolls are placed in the middle part. Meanwhile, for special breads, special pie cakes, yema cake,
custard and torta are located at the top part; cookies, polvoron, crinkles and brownies at the
bottom; and pianono variants in the middle level.

In a tray, the breads are arranged according to the batch they were produced, where the
latest batches are placed in front, while earlier produced breads take up the back part of the trays.
This ensures that those that were produced first are the ones that were pulled out first for sale,
following the FIFO method.

Exhibit N. Shelves Displaying Packaged Buns and Loaves

On the other hand, buns and loaf breads are stored in the shelves, as shown above. There
is no particular order followed in arranging these finished goods, but the salesladies try to group
them according the expiration dates printed on their packaging. Products with the earliest expiry
are pulled out first, similar to the FIFO method employed in handling the daily and special
breads.

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G. SUPPLY CHAIN MANAGEMENT

3. Materials Handlind/Distribution Systems

Exhibit O. Inbound and Outbound Logistics Across Breadstop Branches

All Breadstop branches have their own production areas where pandesal, other daily
breads and special breads are produced. The Paco bakery produces all the buns which are
distributed to the other branches, while the Cubao branch supplies the tasty bread and special
pastries to both Paco and Kalentong. These finished goods and the premix ingredients are
delivered daily while raw materials, requested by both Paco and Kalentong, are delivered in a
week’s time. This is the cross-baking scheme employed by Breadstop.

Distribution

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 Exhibit P. Daily Schedule of the Delivery Van

The distribution of finished goods and raw materials among Breadstop branches begins at
the Cubao bakery. The delivery team is composed of two workers: a driver and a porter. By 11
pm, the porter begins loading the van with all materials and finished goods specified by the
production supervisor based on the requests of other branches. The delivery van leaves Cubao
around 12:30 am and travels to Paco for 45 minutes. Upon arrival, all orders of the Paco branch
including flour (cake and all purpose flour), premix, made-to-order cakes and tasty breads, are
unloaded and the van waits until all goods to be delivered to Kalentong and Cubao are ready for
loading. After loading the flour (1st class and 3rd class) and buns from Paco, the van leaves Paco
at 3:30 am to go to Kalentong, to drop off the goods ordered. It then proceeds to the market place
to deliver wholesale buns to retailers. After visiting all these areas, the van travels back to Cubao
to bring back its orders from Paco.

This delivery scheme was implemented because it first picks up all goods up for delivery
(Cubao and Paco) and unloading follows when the van passes by the designated branches of
delivery. Urgent deliveries are also made to branches that requests rush transport of supplies. The
deliveries are made in the morning just in time for the production schedules of each branch and
the influx of customers.

The internal distribution scheme also employs checks to ensure that proper amount of
materials are brought to the right destination, as discussed in the stocking and replenishment
process. Once received in the bakeries, acquired items are cross-checked against the requested
number of products per type. If there are discrepancies in the numbers, the cashier calls the
branch were the materials originated in order to adjust the receipts in both areas.

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 Exhibit Q. Layout of Materials in the Delivery Van

In loading the van, the primary equipment used includes crates that carry the finished
goods or breads. Boxes are also used as containers of raw materials. There is no special container
for delicate goods like cakes. Instead, the porter holds these goods during delivery to prevent
deforming the products. Within the van, goods are positioned according to their destination. All
raw materials are placed at the innermost part, while breads occupy the outer area. Kalentong
breads are loaded first because it is the last destination of the delivery, while breads for Paco are
placed near the end of the van for easy unloading and re-loading.

Product Recall

Exhibit R. Functional Flowchart for the Pull Out of Breads from Shelves and Showcases

100
 Since Breadstop maintains the freshness of their products, a system is followed in pulling
old products out of the showcases. At the end of each day, the cashier inspects the showcases and
removes all spoiled breads, or products that are no longer saleable. All removed goods are
recorded and classified according to daily and special bread. They are then packed in boxes and
prepared for pick up during the daily delivery scheme. These products are delivered back to the
Cubao branch. Upon arrival, the Cubao production supervisor cross-checks the acquired items
against the receipt and calls the source branch for adjustments. Once all records are correct, the
items are taken to the production area where they are sorted according to future use as bread
crumbs, pudding or toast. After sorting, they are processed further, or cooked, and then delivered
back to branches with orders.

This removal of products from display is based on the subjective judgment of the cashier,
whether or not the bread is still considered good. This is due to the lack of record of the duration
of the products on the showcases, or clear standards in determining good and bad stocks.
Because of this system, it cannot be avoided that some good breads are wasted, or some bad
breads are kept and sold to customers.

H. QUALITY

Figure 35. Pareto Chart of Customer Complaints

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 According to the salesladies, quality and variability are usual complaints shared by the
customers. However, the frequency and impact of these complaints could not be measured by
simply asking these personnel; instead, the data should come from the consumers. Hence, a
customer feedback drop box was installed last June 2012, upon the recommendation of his
brothers Rem and Ray. After a month, 84 customer complaints were received. The Pareto Chart
in Figure 31 shows that 77% of the complaints were rooted in three major reasons:

1. Incorrectly baked means that customers felt there was something wrong with how the
product was baked (“mali ang luto”)
a. sunog, mahangin, tostado, hilaw
2. Reduced freshness reflects complaints if the products have been kept too long in the
display shelves for sale.
a. matigas, parang luma naman na
3. Taste inconsistency signifies how customers in the community negatively feel a
disparity in the quality compared to their previous purchase/s.
a. parang mas masarap yung dati, parang nag-iba ang lasa
Costs of Quality

Costs of quality are primarily external and appraisal. First, there are really no prevention
costs as the manager does not even want defective products to be prevented. Moreover, internal
costs are negligible since there is a very low defect rate or reject rate in the company. However,
this rate is misleading as the “quality inspector” has very low standards of rejection given the
directive of the owner to minimize waste of “slightly damanged or subpar” products.

Nonetheless, there are external and appraisal costs. First, the packager, the person in-
charge of putting packaging materials for the breads, is also hired to become the quality
inspection officer. Her salary for the two tasks is an aggregate amount of PHP 4,200 a month.
More importantly, there are external costs. People who are unsatisfied can switch to other
competitors and can even spread this around this negative feedback around the community. In
fact, the revenue has decreased by PHP 1,044,207 (11%) from Jan-May 2011 vs Jan-May 2012,
and monthly back-order rate spiked to 3.6% - the highest B.O. rate since the documentation of
results back in January 2011.

102
Quality Management Practices

Currently, their only quality management practice is Finished Goods Visual Inspection.
The worker in the packaging area is tasked to inspect whether the product seems overbaked,
underbaked, or good enough to be sold. The owner himself claimed that they try to sell their
goods if it is not “super toasted or super raw”, and just “slightly overbaked” or “slight
underbaked”. He does not do random taste inspection as well since this might give the workers
an opportunity to uncontrollably eat the baked goods.

However, the group observed that there are neither indicators nor guides to determine if
the product is “good enough”. Hence, an inexperienced saleslady can easily let some supposedly
defect goods pass.

Moreover, there are neither measures to account for environmental management nor
documented procedures of quality assurance. Everything is based on estimates, or in Breadstop’s
language, “tantsa-tantsa lang talaga eh”.

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I. OPERATIONS SCHEDULING

1. AGGREGATE PLANNING
Aggregate planning requires a medium term demand forecasting with horizon of around six to
twelve months. However, Breadstop does not implement long-term demand forecasting techniques as
they estimate the demand for the following day based on current day’s sales. They only estimate
production for longer horizons as anticipation for special seasons such as Christmas, which spans from
November to December annually. During this season, the longer production plan is specific to packaged
products only such as Tasty Breads while other products are still produced based on daily estimated
demand by the Supervisor.
Planning for December Demand
Demand for Tasty bread in the month of December is expected to reach four times its normal
levels while demand for the other breads usually just doubles around this time of the year. To meet the
high demand, the management prepares the whole production for an increase in capacity starting
November. Initially, the management calls for a company-wide meeting, involving all employees, to keep
everyone aligned with the expected increase in production, expected disposition and participation of all
employees and possible changes in working hours for some employees.

The most affected branch in this is Cubao since it is the one in-charge of producing Tasty Bread.
Furthermore, the Cubao production area will be converted to a 24-hour production area to increase
capacity of Cubao in the hopes of being able to accommodate more demand than usual. Management just
adds workers if deemed very necessary. Otherwise, the additional working hours are just spread among
current employees.

2. PRODUCTION SCHEDULING

Figure 36. Process flowchart of production scheduling

The production schedule varies per branch as each branch produces different SKUs. Moreover,
the kind of SKU and the amount of each SKU to be produced are identified on a daily basis. The process
of identifying what and how much to produce in each branch, which is shown in Figure A, initially starts

104
with the checking of the ending inventory and previous day’s sales level per SKU by the selling
supervisor in each branch. Based on these data, they forecast the demand of each SKU for the following
day and call up the Paco branch for their Daily Bread orders and Cubao for their Special and Tasty Bread
orders for the day. After receiving all orders from the other branches, the production supervisor then
creates the list of target volumes for the day, which specifies what SKUs and how much of each will be
produced. An example of which is shown in figure Y.

Figure 37. Example of Breadstop’s daily target for production.

Furthermore, to ensure that demand in certain peak hours are met, Breadstop bakers also follow a
rough production schedule, which is flexible as parts of the schedule change on a daily basis along with
the changing estimated daily demand by the supervisors. Moreover, Breadstop uses a prioritization
technique in creating their daily schedule, wherein certain products are prioritized in the schedule to meet
consumer demand for that product or to meet an agreed distribution schedule. For instance, in the case of
Pan de Sal, production must start as early as 1 AM everyday to meet the demand for fresh Pan de Sal by
around 4 to 6 AM, the usual time people go out to buy their bread for breakfast.
In employing this prioritization technique, there is a timeslot in the schedule in which a sequence
in production is followed every day while there are time slots in the production schedule that the bakers
have the liberty to choose what to bake as long as they meet demand for these SKUs on time. The parts
highlighted with a red box in the sample schedule, Table S.1 and Table S.2, are the parts of the

105
production schedule that are kept consistent from day to day while the other parts of the schedule are the
ones that vary from day to day according to the supervisor’s discretion.
Table 29. Sample production schedule for both day and night shifts
Day Shift
MONDAY TUESDAY
Time Product Volume Product Volume
6:30 AM Bahukas 100 Bahukas 125
Hot Monay 120 Hot Monay 90
Putok 200 Putok 250
12:00 NN Buns 400 Buns 300
Daily Bread - Pan de Coco 80 Daily Bread - Pan de Coco 50
Daily Bread - Bolyos 150 Daily Bread - Bolyos 120
Daily Bread - Pan de Lito 60 Daily Bread - Cheese Bun 80
Daily Bread - Spanish roll 100 Daily Bread - Kababayan 90
Daily Bread - Ensaymada 60 Daily Bread - Spanish Roll 80
4:00 PM Putok 150 Putok 200
Pan de Sal 200 Pan de Sal 300
6:00 PM OUT OUT
Night Shift
MONDAY TUESDAY
Time Product Volume Product Volume
6:00 PM Hot dog Buns 400 Hot dog Buns 400
Daily Bread - Pan de Coco 120 Daily Bread - Bahukas 200
Daily Bread - Pan de Lito 100 Daily Bread - Pan de Lito 100
Daily Bread - Bolyos 200 Daily Bread - Bolyos 200
Daily Bread - Cheese Bun 140 Daily Bread - Ensaymada 100
Daily Bread - Kababayan 150 Daily Bread - Kababayan 150
Daily Bread - Spanish Roll 150 Daily Bread - Meltdown 90
1:00 AM Pan de Sal 250 Pan de Sal 225
Putok 175 Putok 150
Daily Bread - Bolyos 150 Daily Bread - Bolyos 125
Daily Bread - Cheese Bun 90 Daily Bread - Ensaymada 90
6:00 AM Daily Bread - Kababayan 125 Daily Bread - Cheese Bun 125

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I. OPERATIONS SCHEDULING
3. JOB ASSIGNMENT
Employees across Breadstop's three branches are assigned to Sales, Production or Logistics
either during the day shift or night shift, as can be seen in Figure 1.

Figure 38. General Division of Tasks

By Shift

Breadstop's 24-hour operating schedules in Paco and Kalentong are divided into two
shifts: the day shift and night shift. Beginning and end times per shift vary from division to
division. For production, The day shift begins production at 7:00 in the morning and ends at 5:30
in the afternoon, allotting one hour for cleaning the production area prior to the start of the next
shift. Selling, on the other hand, ends at the start of the evening shift. Beginning at 6:30 in the
evening, the night shift ends at 7:00 in the morning for selling, and 5:30 the following morning
for production, again allotting over an hour for cleaning. Cubao's operations only include the day
shift.

107
Figure 39a. Employee Gantt Chart (Day Shift)

Figure 2b. Employee Gantt Chart (Night Shift)

108
Figure 40. Utilization Per Worker

Worker Work Time Idle Time Total Time Utilization Rate

Master Baker 9.5 2.5 12 79.17%
Assistant Baker 9.5 2.5 12 79.17%
Oven Baker 10.25 1.75 12 85.42%
Cashier 12 0 12 100%
Saleslady 12 0 12 100%

By Division

Sales includes product selling, which is handled by the saleslady; and cash handling,
done by the selling area supervisor who acts as the branch's cashier. Salesladies begin their
working day with a prayer and orientation (A), and are tasked solely with meeting customer
requirements (N), but during idle times, they help out in preparing paper bags, which are used as
covers when serving the bread. The selling area supervisor begins her working day with a prayer
(E). She primarily serves as the cashier, responsible for all cash inflows and outflows during her
working shift. Moreover, she is tasked with orienting and mentoring the salesladies in going
about day-to-day selling (F). She is also in charge of checking the condition of bread (G), and
preparing paper bags (H). Also, during peak hours, specifically from 3 PM - 6 PM, the selling
area supervisor assists her salesladies in selling bread (I), so as to meet customer demand more
efficiently.
The production team, managed by the production supervisor, consists solely of bakers,
who are all cross-trained to fill in manpower deficiency for any task and provide assistance to
hasten production. But on a regular basis, bakers are divided into two sub-groups: dough
preparation and baking. Each branch has a master baker per shift, who is the most experienced
and tenured baker in the branch, taking charge of dough preparation (pre-baking procedures),
which includes mixing, flattening, molding, cutting, weighing and proofing (B); and is assisted
by his fellow baker. The master baker's shift begins with preparing the necessary raw materials
and equipment (A) and ends with cleaning the production area (C). A single baker, on the other
hand, mans the baking process (D). Moreover, higher management has implemented a rotational
system that shifts baker roles every 15 days, to avoid monotony of work and regularly expose
bakers to all facets of production, thus ensuring competence of fulfilling any task should the need
arise. For example, in the first 15 days of September, Baker A would be assisting Master Baker
in mixing, flattening, molding, cutting, weighing and proofing, while Baker B in baking, cooling

109
the bread, laying out the products on the trays, and finally transferring them from the production
area to sales area. During the next 15 days of September, Bakers A and B change roles, but are
both still under the direct guidance of the master baker. (See Figure 2)
Logistics is composed of a single driver, who picks up and delivers goods from and to the
three branches on a daily basis.
By Accountability
There is a supervisor/manager for each division, with the exception of logistics. The
selling area supervisor, production supervisor and the master baker are all appointed by the
owner, based on the employees' past performance, experience in their fields of work and tenure
in the company.
Number of Employees (See Figure <Number of Employees>)
There is only one cashier per shift in every branch at any given time. Meanwhile, the
number of salesladies is greatest at Paco, 3 in the morning shift and 2 at night, with every other
branch only having one saleslady per shift. This distribution can be attributed to the sales across
branches, where the Paco branch ranks highest.
Job assignment for production varies from branch to branch, with Paco having 3 bakers
for dough preparation and 1 oven baker during the day shift; and 2 bakers for dough preparation
and 1 oven baker in the night shift. Cubao, which only operate during the day, has 4 bakers
assigned for dough preparation and 2 for baking. Kalentong, producing only daily breads, has 1
baker. The rationale behind assigning the most number of bakers in Cubao is to account for the
production of Breadstop's specialty breads and cakes.

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Figure 41. Number of Employees in a Branch, Per Division, Per Shift

4. MAINTENANCE MANAGEMENT
Ideally, Breadstop calls its equipment suppliers to do maintenance and equipment check-
ups every 3-4 months. However, due to shortcomings in management and according to the
bakers in the branches, Breadstop doesn't regularly observe standardized preventive maintenance
procedures, as the only maintenance operations constantly done in Breadstop are reactive in
nature - curative.

At the start of each working shift, the production supervisor simply checks all equipment,
to see if equipments are functioning, given that no specific person is in charge of monitoring the
machines' statuses. In the case that all machines are functioning normally, bakers can proceed to
do their daily production to meet demand. But if certain equipment isn't working, the production
supervisor immediately contacts the bakeshop's owner and explains the situation in the branch
concerned. The owner, in turn, calls the equipment supplier and relays the information for
curative maintenance. Within an hour's time, an employee from the equipment supplier arrives
and replaces the broken machine with a temporary replacement, so that production isn't stagnated

Exhibit S. Equipment Maintenance

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 while maintenance attempts to fix the equipment. If the equipment if successfully fixed
by maintenance, he re-installs the machine and brings the temporary equipment back to the
supplier. But in the case that it doesn't get fixed within the day, maintenance brings the broken
equipment back to the supplier's office, leaving the temporary equipment behind for Breadstop's
production use; and he returns the following day with the company's fixed equipment, and re-
installs it.

From past records and experiences of operations, Breadstop's equipment breaks down at
an estimated rate of 5 machines per year in every branch, caused by both external and
operational factors. External factors basically include floods, when water levels reach the
production area of the bakery, and power shortages, both causing equipment to malfunction.
Operational causes, on the other hand, are primarily attributed to mismanagement of equipment,
like placing overly heavy dough in the mixer. It is important to note that maintenance is needed,
not only during the event of a breakdown, but also when equipments no longer function normally
or optimally, such as when bread isn't cooked evenly because "hindi pantay ang luto," according
to the owner.

Asked about a recent equipment breakdown experience, the owner recalled an incident
three weeks back when the spiral mixer stopped functioning. Immediately that morning, the
production supervisor at Paco called him up and informed him about the situation in detail, that
the wire whips would no longer rotate. After their quick conversation, he phoned their supplier,
FINMAG, and relayed the problem. Over two hours later, a maintenance person from FINMAG

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arrived with a temporary replacement mixer, switched the broken mixer with the temporary one,
and began fixing the broken equipment. First disassembling the spiral mixer, the maintenance
person then checked the wire whip and saw that the inner lid had been bent and broken. The
owner said "it was an easy fix," as the maintenance staff simply had to change the wire whip.
The entire process took about two hours, and cost Breadstop Php 750.

Time to repair wasn't constant, from taking about an hour to fix, up to two days
depending on the equipment being repaired. Small equipment like the spiral mixer generally took
a few hours, but fixing the bigger machines like the oven took much longer, usually about two
days. In response to such situations, the owner would transfer equipment from the branch that
had less production requirements to the area with highest demand, in an effort to reduce lost
sales brought about by production failure. To better evaluate equipment availability at Breadstop,
the group computed for the machine availability of Breadstop's equipment, assuming a 355-day
working year and a 20-hour operating period per day. The company's machine availability is
very high, attaining an average availability of 99.45%, and considering that most of its machines
have been in use for only 3 years or less, to date. However, the company can still conduct
preventive maintenance to improve quality of performance, which isn't directly reflected by
machine availability.

Table 30. Machine Availability

Machine Average Breakdown Average Repair Machine Availability

Rate (355 working days Period (days)
per year)
Spiral Mixer 5 times a year 0.2 day 99.72%
Dough Roller 4 times per year 0.35 day 99.61%
Rounder Divider 1 time per year 1 day 99.72%
Oven 2 times per year 2 days 98.87%

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J. PERFORMANCE MANAGEMENT
1. MONITORING AND ASSESSMENT PRACTICES
Monitoring and Assessment Practices

Currently, Breadstop does not employ formal performance measures. Standards and
standard operating procedures (SOPs) are not well-defined.

Sales Performance

A key performance indicator (KPI) employed by Breadstop is profit, measured twice a

month or at least once a month by the operations manager, as its main concern is profitability.
Breadstop usually looks at sales as the major indicator for profit. Target sales for each branch are
set by management at the start of each month. Sales are recorded daily by the selling area
supervisor and actual sales are assessed at the end of the month to see if the branch was able to
meet the target. Sales are also benchmarked against historical data to see if profitability has
decreased or improved.

Besides sales, included in the assessment of profitability is backorder rate (percentage of

products unsold), monitored at the end of each day. Acceptable backorder rate is 1-3%; if
backorder exceeds this, target sales and production of bread is adjusted for the next day.

Quality of customer service was also measured through the use of customer feedback
sheets placed in Tanzan Boxes. Customers write complaints or suggestions regarding customer
service in a sheet provided by the store and then place the sheet in the Tanzan Boxes. The
production supervisor then encodes these. However, encoding became too time-consuming and
was delayed most of the time. As a result, the stores were unable to maintain the customer
feedback system and currently, it is no longer in use.

Currently, Breadstop’s only indicator to measure performance of workers is sales – if

they are able to meet target sales – and violation counts – if workers did not follow rules,
especially customer service standards, set by management. Customer service standards are
outlined below:

114
 Violations are incurred if these standards are not met. Meetings are set at least once a
month, sometimes twice a month to review performance of workers and give penalty to rule
violators.

Exhibit T. Sales performance measures currently employed by Breadstop

Operational Performance

With regards to operational performance, the only measured used by Breadstop is cost of
goods sold, assessed at the end of each month. Acceptable cost of goods sold vary for different
product lines – around 38 to 40 percent of sales for special breads, 45 percent for daily breads
and 40 to 44 percent for healthy breads. Cost of goods sold is recorded daily by the production
supervisor and assessed twice a month or at least once a month by the operations manager.
Currently, however, cost of goods sold is measured for all bread types and not per product line;

115
thus, management cannot pinpoint which product lines exceed the acceptable threshold. As such,
no corrective actions are taken to lower costs and improve profit margin.

Exhibit U. Operational performance measure currently employed by Breadstop

Reject rate – percentage of products that do not meet quality standards, an important
performance measure in the baking industry, is not recorded and assessed. Although quality is
assessed (through visual inspection) by the production supervisor after production, before breads
are packaged or put in shelves, rejects are not recorded. Furthermore, there are no clear standards
on determining good or bad stocks, so rejects are hard to assess.

Outputs and productivity of workers (measurable through output per worker hour,
shortages, average cycle time, etc.) are also not measured. According to the owner, since
production is still under capacity, there is no need to measure output and productivity of workers.

The absence of clear performance standards and key performance indicators makes
measuring performance difficult. As such problems are hard to pinpoint, improvements rarely
implemented, and progress hard to track.

Industry Key Performance Indicators

Exhibit V. Basic Key Performance Indicators in the Baking Industry

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 Key performance indicators commonly used in the baked goods industry can be divided
into sales performance indicators, operational/production performance indicators, and indicators
based on profitability.

Sales Performance Indicators

Sales performance indicators usually measure customer satisfaction and include average
waiting time, error rate on order fulfillment, and quality of customer service.

The most common indicator is quality of customer service, usually measured through
customer feedback surveys to be filled up by customers every time they purchase. These surveys
can be assessed by the management at the end of each month, and corresponding corrections
(through training, penalties, etc.) can be implemented afterwards to improve service.

Another measurement is the average customer waiting time or the average time it takes to
fulfill customer orders. Common causes for customer dissatisfaction are long lines and long
waiting times. It is usually measured by observing and timing waiting and service times.
Tracking this indicator can lead to faster customer service and a streamlined selling process.

Errors in fulfilling orders can also cause customer dissatisfaction. As such, error rates are
also commonly tracked by bakeries. Error rates can be monitored by tracking the number of
errors out of total customer orders filled and can be recorded by the selling area supervisor.
Management usually sets an acceptable margin of error and corrective actions (usually penalties)
are taken when error rates exceed this limit.

Production Performance Indicators

Commonly measured in production are productivity of workers, quality of output, and inputs.

Productivity is usually measured through actual yield – number of goods produced per SKU.
This is then compared with the theoretical yield, taking into account capacity of machines and
available work hours. Management usually sets a margin of error (range for the difference
between the actual and theoretical yield); yields outside this margin can mean slow or idle

117
workers, some new bottleneck in the process (ex. due to breakdown of a machine), high amount
of reject products, etc. Action points can include

1.) Assessing performance of workers, imposing appropriate penalties and organizing

trainings;
2.) Assessing the process and addressing bottlenecks (ex. fixing broken down machines)

Another measure for productivity is average cycle time, which is compared with the average
standard time to produce certain SKUs. Similar to yields, management sets a margin of error for
the difference between the actual and standard cycle time. Beyond this margin of error, the store
can be experiencing some new bottleneck in the process, slow or idle workers, etc. Action points
can be directed towards addressing these issues.

A common measure to assess quality would be reject rate – the amount of goods produced
that do not pass quality standards. To be measurable, quality standards must be set and be made
clear for bakers and the production supervisor. Reject rate is then tracked at each quality
assessment point in the process. This is usually monitored by production supervisor. Acceptable
total reject rate is around 10%, by industry practice.

Input is usually assessed through the monitoring of wastage and usage of raw materials.
Management usually sets standards for the amount of raw materials used for producing a certain
amount of goods, and then compared to actual usage – determined by monitoring inventory.
Close monitoring of inputs can ensure consistency of products and considerably lessen cost of
goods sold.

Performance Indicators Based on Profitability

Profitability is often measured by sales and cost of goods sold and monitored by the sales
supervisor. For big market players in the baked goods industry, these figures are benchmarked
against competitors. For small, community bakeries, sales and cost of goods sold are often
benchmarked against historical data to see if there is any significant increase or decrease in the
bakery’s profit. If sales and/or cost of goods sold have significantly decreased, action points can
include increasing marketing efforts, adjusting target sales and production, assessing inputs, etc.

2. REWARDS AND INCENTIVES

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Figure 42. Value of Compensation to Employees
Breadstop's compensation scheme
Insurance
and takes many forms, which are of
Benefits varying importance to workers, as
Day-off
and indicated in Figure 42. The pyramid
Vacation
presents the various compensation
Leave
Sales-driven forms, and the value each has on
Incentives Breadstop's employees - with the ones
Additional on the lower segments of the pyramid
Allowances being of greatest worth to workers.
This structure helps management
Daily Wages assess which compensation schemes it
should prioritize, given that they have
limited resources to compensate workers.
Daily Wages
Basic to all employees is their net daily wages, which varies among employees,
depending on their roles and responsibilities, quality of performance including number of
absences, output quality and work disposition, and tenure in the company. On average, employee
wages increase every 4-6 months. Detailed in Figure <Wages> are the daily wages of employees
by function. As can be seen, the baker and the driver receive the highest pay, the former due to
the effort required of bakers in their line of work; and the latter because the company only
employs one driver, who takes care of all daily deliveries from and to the bakeshop's three
branches; and because the driver doesn't receive any lodging compensation.
Figure 43. Daily Wages by Function

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 PHP 400.00
PHP 350.00
PHP 300.00
PHP 250.00
PHP 200.00
PHP 150.00
PHP 100.00
PHP 50.00
PHP 0.00
Store Manager Production Selling Area Baker Saleslady Driver
Supervisor Supervisor

All of Breadstop's employees receive wages below the minimum wage of Php 409,
mandated by the National Wages and Productivity Commission of DOLE as of June 2012.15 Last
March 2011, DOLE charged Breadstop for underpaying its workers, some of whom, like the
supervisors and the saleslady, receive even less than 50% of the minimum wage. In response to
the charge, management reasoned out that the sum of the value of workers' daily wages and the
additional non-monetary compensation, which will be detailed in the following section, was
greater than the minimum wage amount.

Figure 44. Percentage Deficiency from Minimum Wage

Percentage of Minimum Wage Deficiency from Minimum Wage

100%

80%

60%

40%

20%

0%
Store Production Selling Area Baker Saleslady Driver
Manager Supervisor Supervisor

Additional Allowances
On top of their regular salary, employees are given additional allowances, regardless of
performance, to foster employee loyalty and in an attempt to continually motivate workers.

15
http://www.nwpc.dole.gov.ph/pages/ncr/cmwr_table.html

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Although salaries do not meet minimum wage standards, employees receive other forms of
compensation including: board and lodging inclusive of electricity and water, meals, and snacks
like bread and coffee.
Sales-driven Incentives
Incentive Received = | 10% × (Actual Net Income - Target Net Income) |
In the past, sales-driven incentives were implemented on an individual basis, with each
sales employee given bonuses corresponding to employee sales. However, this did not prove to
be effective. So in response, higher management is planning to implement a new sales-driven
incentive. Instead of an individual basis, this proposed scheme would be conducted on a branch
basis, wherein if a branch exceeds a branch's monthly target sales, all employees within the
branch will receive a shared amount equal to 10% of the profit in excess of the profit quota. This
strategy is projected to strengthen solidarity among workers within a branch.
Assessing Breadstop's incentives, the group observes that additional monetary incentives
in Breadstop are all sales-driven. And even if sales can be ultimately attributed to product
quality, there are no direct forms of incentives that would enhance the production teams'
performance.
Day-off and Vacation Leave
Besides monetary compensation, employees are also granted two-day offs per month, and
any absences on top of the day off are deducted from salary. Breadstop doesn't provide vacation
leaves, but the owner is currently studying how to provide vacation leaves with pay, in an effort
to make employees know that Breadstop cares and respects the personal lives of its employees.
According to an employee during an FGD conducted by the group, "Gusto ko sanang umuwi sa
amin nung birthday ng tatay ko, pero kailangan kong kumita para sa pamilya ko."
Insurance and Benefits
Other benefits like SSS and PhilHealth are granted to regular employees at the discretion
of the workers themselves. Currently, the company spends Php 312 per employee for SSS
benefits, and Php 100 for PhilHealth benefits. While the current leave rules weren't favorable to
employees, they felt that the loans they were able to avail from SSS helped them pay for their
family's bills and debts, according to another employee from the same conducted FGD.
Summary of Breadstop's Rewards System

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 An assessment of Breadstop's compensation scheme was generated, by benchmarking the
rewards it offered with that of Little Saints Bakery, in the five areas of compensation offered by
Breadstop (see Figure <Comparison>).
In terms of salary, Breadstop pays its employees below minimum wage, justifying that it
compensates its employees by granting them food and lodging. Little Saints, on the other hand,
also offers food and lodging, yet pays its employees above minimum wage. Both companies give
their workers 13th month pays. Breadstop and Little Saints offer the same additional allowances
to their respective employees.
The performance-driven incentives of Little Saints should be a model for Breadstop, as
the latter only offers sales-based incentives, while the former ensures that the production team is
also directly incentivized when bakers perform well.
Currently, the owner is studying measures to provide fair day-offs and vacation leaves for
its employees; to ensure constant motivation and fair treatment of workers, as is done in Little
Saints. Furthermore, Little Saints offers more insurance and benefits than Breadstop with PAG-
IBIG.
A relative comparison between the two companies shows that Breadstop should continue
improving its compensation schemes for employees, not only to improve employee relations, but
also to sustain quality performance.
Table 31. Compensation Comparison
Compensation Breadstop Little Saints
Below minimum wage; Above minimum wage;
With 13th month pay With 13th month pay
Additional Allowances Food and snacks, lodging including Food and snacks, lodging including
water and electricity water and electricity
Performance-driving 10% shared profit, when sales exceed 10% shared profit, when sales exceed
Incentives quota quota
Bonus salary if reject rate < 2%
Day-off and Vacation Leaves 2 day-offs per month; Weekly day-offs
No vacation leaves Yearly vacation leave with pay of 15
days
Insurance and Benefits SSS, PhilHealth SSS, PhilHealth, PAG-IBIG

3. CONTROL PRACTICES
Sales Control Practices
Monthly Inventory Report

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 First, the mother of the owner sends her staff to conduct an inventory check of Breadstop.
The inventory report yields the THEORETICAL SALES or Expected Sales, and this is put in
contrast to the ACTUAL SALES recorded by the Selling Area Supervisor. The general practice
is to have a percentage error of 1-4% in order to account for accounting and human errors.
Nonetheless, a disparity beyond this signals potential pilferage on the part of the Sales Team.
Fortunately, The % of error has generally been within the tolerable level.
Selling Area Supervisor
The cash register is limited only to the selling area supervisor who also acts as cashier.
However, there is no separation of duties; the selling area supervisor both records and processes
cash transactions.
Dysfunctional CCTV Cameras
CCTV cameras were installed in the Paco and Kalentong branches, however no one
really reviews the videos. Also, it is actually not necessary to have the CCTV Cameras since
there are barely any pilferages in the retail section of Breadstop.
Operations Control Practices
Production Pilferage
The stock room is open to all workers in order for them to get the raw materials they need
for production. In this regard, the ease of access easily translates to an opportunity for pilferage.
The excessive use of raw materials, as discovered in Part III of this paper, can be attributed to the
probability of pilferage.

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III. ANALYSIS AND RECOMMENDATION
A. Key Findings
The Analysis and Recommendations part will be divided into the analysis for Project
Today and Project Tomorrow. As a recap, Project Today covers the initiatives to polish the
current business model, regain lost customers, fix cost structures and further penetrate the
communities it targets. The objective is to create a replicable business model for market
development. On the other hand, Project Tomorrow focuses on the next steps in reaching the
milestone of 2 more branches in 2015, as part of the three-year plan.

Key Findings: Project Today

Table 32. Problem Tree for Project Today

After a thorough analysis of the audit, review of related literature and multiple fishbone
diagrams and problem trees, the group has found 10 key findings about Breadstop. A

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summarized problem tree is shown in Table 3A-1 to illustrate the diagnosis of Breadstop’s
profitability issues. These are the key findings of the group:

Business Financial Findings

1. Breadstop’s subpar profit margin is driven by declining revenue, and high cost of goods
sold relative to the industry and a community bakery benchmark. Operational costs are at
par with the industry and the benchmark.
Revenue-related Findings

2. Substandard production quality and bad replenishment/shelf-life monitoring are the two
leading causes of decline revenue. The leading quality complaints are incorrectly baked
bread and taste inconsistency.
3. Breadstop’s low reject rate of 0.5-1.5% is artificial as it lacks quality assurance checks in
major production steps. Quality complaints are Baking (oven) and Pre-mixing.
4. Breadstop’s sales force tends to forget/get confused which old stocks to pullout, causing
reduced freshness. These are old stocks of packaged goods such as buns and tasty breads.
5. Human error is the primary contributor of production quality mishaps; more specifically,
it is in the awareness of oven time (baking) and accuracy in reading the weighing scale
(pre-mixing).
COGS-related Findings

6. Amidst cheap source of supplies given the connections of the owner’s parents, the price
of raw materials increases because of sudden purchases in more expensive suppliers.
7. Sudden purchases are caused by bad demand forecasting and excess use of raw materials.
8. Raw materials are excessively consumed than the allowable amount as proven by the
double-digit disparity between theoretical yield and actual yield, due to suspected
pilferage and non-compliance to ideal raw material usage.
9. There are neither published key performance indicators nor performance-based
incentives/punishments for the Productions Division of the organization.
10. 19 SKUs drive 80% of the revenue, while the other 96 share the 20%. Underperforming
specialty breads have COGS reaching 78%, compared to the industry’s 45-50%.
Project Today: BUSINESS FINANCIAL FINDINGS

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1. Bottom Line: Problematic Profitability
The group used a Problem Tree in order to synthesize the audit and find the relationships
between the different problems identified across the operational functions. From the table, the
bottom line problem was Low Profitability compared to the industry standard and the
benchmark, Little Saints Bakery (LSB). Breadstop’s net income from January 2012 to May 2012
was 6%, compared to LSB’s 13% and the industry range of 12-15%, at this time of the year.
A Declining Revenue and a Ballooning Cost of Goods Sold
Afterwards, the Profit Margin was deconstructed into its different components in order to
find out the root cause of the underperformance of Breadstop. There are three major areas that
could affect the profit margin: the Revenue, the Cost of Goods Sold, and the Operational
Expenses. Revenue was compared across time, while costs were compared to industry and the
benchmark as percentages of the revenue. Table 3A-2 shows a summary of the comparative
performance of Breadstop to the industry and Little Saints Bakery.
Comparative Income Statements (Vertical Analysis)
For the Three-Month Period Ended December 31, 2011
Percent of Net Sales
Breadstop Little Saints Industry
Net Sales 100.0% 100.0% 100%
Cost of Sales 60.3% 43.3% 38-45%
Gross Profit 39.7% 56.7% 55-65%
Salaries and Compensation 15.4% 14.4%* 15-20%
Transportation Expense 0.9% 0.7% 0.5-2%
Other Operational Expenses 18.7% 22.6% -
Net Income 4.7% 19.0% 10-15%
* Provincial rates are expected to be lower
Breadstop’s Cost of Goods Sold (61%) is significantly higher than the industry’s acceptable range
of 38-40% and Little Saints Bakery’s 48%. In fact, COGS went up as high as 70% last March 2012. On
the other hand, other operational costs are significantly lower than the benchmark and within the industry
range. Labor cost is low primarily because of the company’s non-compliance to the minimum wage.

Revenue’s moving average was also declining as shown in the Financial Perspective of the
Balanced Scorecard.

Project Today: REVENUE-RELATED FINDINGS

2. Quality and Customer Service are the Causes of Revenue Decline
Weak Customer Retention

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 The group studied the possible cause of declining revenue, and the group identified the
significant drop in the number of transactions of Breadstop.
Quality and Customer Service as the Two Primary Causes
Afterwards, five possible causes were identified: bad quality that dissuades customer
purchase, lack of promotions to sustain awareness and loyalty, lack of consumer and marketing
programs to retain loyalty, product innovation and bad customer service.
First, as an industry practice, community bakeries do not need to invest heavily on promotions
since the market are just the residents around the branch. Residents in a community already
know the bakery and they are usually familiar with all the stores in the vicinity. Nonetheless, one
of Breadstop’s strengths is actually promotion since they take advantage of a Facebook account
where they closely interact with residents as their friends on the said social networking platform.
Secondly, Breadstop has already launched a Loyalty Program where frequent customers
(suki) get special discounts and freebies. Thus, they have also exhausted this in building
customer loyalty.
Also, the cause of the revenue decline cannot be product innovation since Breadstop has 115
SKUs. The group surveyed competition and the number of its SKUs only range from 15-25. In
fact, the Pareto Analysis on Breadstop’s SKUs showed that 96 of the SKUs are barely moving,
as they account for just 20% of the revenue (19 breads compose the 80%).
As a result, the probable causes of this continued decline are substandard quality and bad
customer service. Based on the same survey, bad quality characterized by “incorrectly baked”
and “taste inconsistency” and “reduced freshness” due to sloppy stock monitoring composed the
80% of thee complaints, while the 9 other complaint classifications only share the 20%.
A further analysis of the cost of quality led to the key findings of which processes were the
complaints attributable.
Table 33: Complaints and the Liable Production or Sales Process
Complaint Percentage of Sales Error or Liable Production or Sales
Total Productions Process
Complaints Error
Incorrectly Baked 33.33 Production Baking
Taste Inconsistency 17.86 Production Pre-mixing
Faulty Packaging 1.19 Production Packaging

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Hairstrand on Bread 1.2 Production Possible for All Steps of
Production
Reduced Freshness 26.19 Sales Inventory Monitoring
Long Service Time 7.14 Sales Customer Service
Cleanliness 3.57 Sales Maintenance (Store)
Inexact Change 2.38 Sales Customer Service
Wrong Quantity 2.38 Sales Customer Service
Wrong Order Given 2.38 Sales Customer Service
Disrespectful 1.19 Sales Customer Service
Not Wearing Proper Attire 1.19 Sales Customer Service
As seen in this table, production and sales almost equally share the customer complaints, with
Incorrectly Baked, Taste Inconsistency and Reduced Freshness composing 77% of the total complaints.
The rest are primarily customer service issues contributing little percentages individually.
Noticeably, baking and pre-mixing are the production steps primarily causing bad quality, while other
processes such as Proofing, Mixing and Pasada do not have complaints exclusively attributable to them.
3. Lack and Inefficient Quality Checks in Major Production Steps
Even if each SKU is done differently, the bread production process follows the same template: Pre-
Mix, Mixing, Pasada, Cutting, Molding, Proofing, Baking, Cooling and then Packaging. In this process,
checks only occur after Molding and then after Baking.
No Check at Pre-mixing. We can see that there are no checks at the pre-mixing stage if the recipe mix
weighs properly and if the right ingredients are properly placed. This is very important since the pre-mix
determines the taste of the bread, as the recipe is made here. The other step that directly affects the flavor
would be the Filling process, but observations showed that there are no errors in this stage. Filling is as
simple as putting a hotdog inside, or adding sugar on top. Hence, the taste inconsistency really happens in
he pre-mixing stage. In fact, a qualitative observation of the complaints in taste inconsistency point to the
bread recipe itself: “matabang kaysa dati” and “sobrang tamis ng tinapay”. No complaints on the filling
or flavor were actually received.

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 Mixing and Cutting and
Process Pre-mixing Filling Proofing Baking
Pasada Molding
Combining all Pre-mix turned
the ingredients to dough via Cut to right size, Put into the
Description
weighed, molded
Add meat of Fermentation
for the dough spiral mixer; filling oven
recipe Dough flattened to right shape
using roller
Taste
Possible Inconsistency Incorrecty
Complain (Iba ang lasa); Texture Proportion too Flat (Hindi Baked (sunog,
t Bad Taste (magaspang; small; Deformed Maalsa)
Lack of flavor hilaw)
(masamang mahimulmol) or filling
lasa)
%
Contributio 33.33%
n to 0% 0% 0%
Complaints 17.86%
0%

Yes: Dough is Yes, but by estimate

Weighed through (Tantsa kung pwede
Checks? None None a Manual None na); Low standards
Weighing Scale; (Sayang naman kasi
None
But Not Properly kung tatapon lang)
Done

Exhibit W. Process Details

High Percentage of Incorrectly Baked Products due to Inefficient Finished Goods Check. The leading cause of complaints is
“incorrectly baked”; and this is characterized as breads which are overbaked (sunog) or underbaked (hilaw). The only step responsible
to this is the Baking process, and this is dependent on the timing to pullout the breads from the oven.

129
 The group was investigative on two levels. First, how can there be incorrectly baked
products when baking is already automated via the oven? Second, how can incorrectly baked
products be approved given the presence of a quality check? A fishbone analysis was done.

Figure 45. Fishbone Analysis for Inconsistent Quality

First, the problem was not with the machine but man. The workers tended to operate the
oven wrongly. Since the production is continuous, workers tend to forget what time they placed
the breads in the oven and when they should pull them out. Conversely, they can forget to time
the bread and take it out prematurely.

Second, the quality check is found to be inefficient. The employee does not have key
indicators to note the quality of the bread. The owner simply said, “common sense na ‘yun eh”.
However, with the concentration of complaints in this part, quality check might not be so
common. Also, there is a culture that discourages stringency. The owner said, “Basta pwede pa,
ok nay un. Di naman sila dapat maarte, mura naman.” On the other hand, the group disagrees
with this perception since consumers can easily switch to slightly more expensive bread in
Gardenia or other competitors or simply stop buying bread, since the costs are not worth it

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anymore. Therefore, the group finds the attempt to save on wastage impractical and the low
reject rate artificial. The reject rate is at 0.5%-1.5% simply because the products are not screened
properly.

4. Reduced Freshness due to Inefficient Stock Pullout/Reverse Logistics

Reduced freshness is encountered in best-selling SKUs such as tasty breads and buns. Daily
breads like pan de sal and pan de coco are replaced everyday; hence, freshness is not an issue
here. However, packed goods like loaf breads and buns are displayed for a week, and consumers
get to buy old stocks.
First, the group theorized that there could be two possible causes: (1) the shelf life is too short
and (2) the shelf life is not properly monitored. The shelf life of Breadstop’s products is at par
with the benchmark and even better than the industry.
Ideally, the system is that the oldest ones are placed at the very back of the shelf for a First In-
First Out strategy. Every morning, they check if the breads have molds as well. Unfortunately,
consumers tend to disarrange the shelves when they choose and salesladies fail to put them again
in order; moreover, salesladies fail to really check every single product at the start of the day to
ensure quality. They are not perfect. As a result, there are complaints of sold breads that should
have been recalled.
Lastly, there are no identifiers to distinguish the
breads to be recalled and the breads that should be kept
on display. As a result, it is difficult to conduct
product recall to sustain freshness of products.
An Ishikawa diagram shows the
process of how the
aforementioned reasons were
proven.

5. Human Error in Handling Equipment

Mistakes in the recipes are found to be caused by
the failure of the scaler to follow the recipe. For instance, she tends to put more sugar than
needed or less salt than desired. As a result, taste inconsistency becomes one of the top three
complaints of the consumer.

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 The error was observed in the laxity of weighing the ingredients. Since she has to premix a lot
of recipes, the scaler does not pay enough attention to the weighing scale. When the ticker
exceeds by five to ten grams, the scaler just allows it. She defends, “Kaunti na lang yun.”
However, a cumulative sum of +5 in every ingredient can change the recipe.
The group observed that it was quite difficult to really read the weighing scale given that it is
already faded and one has to weight for the ticker to stabilize before one can read the smaller
increments of the scale. The same situation applies for the quality check in Cutting and Molding.

Project Today: COGS-RELATED KEY FINDINGS

Breadstop’s drastically high COGS relative to industry can be caused by two things: (1) High
Price of Raw Materials or (2) Exorbitant Amount of Raw Materials used. In our investigation,
both caused the relatively high cost of goods sold.
6. Amidst the access to the cheapest suppliers and flour millers, price of raw materials go
up because of sudden purchases to retailers like SaveMore and nearby convenience stores.
As shown by the Fishbone analysis, the MRP system employs an accurate method of
generating the right amount of raw materials to be purchased based on a forecasted demand
input. An Excel file is used to convert the forecasted demand from the Store Supervisors to the
corresponding amount of raw materials to be purchased. The conversion is done based on the
recipe. For instance, 100 pan de sal pieces correspond to an ideal number of sacks of flour to
produce that order; then, all those sacks of flour needed per SKU are summed up for
procurement. However, the problem is that the assumed demand is wrong; as a result, the amount
of raw materials purchased is inaccurate. In the end, sudden purchases happen.
Another cause of the sudden purchases is the excessive use of raw materials by the
employees. This will be discussed later in the
next section.

7. Theoretical Yields are not met by Actual

Output due to Suspected Pilferage and
Excess Use of Raw Materials
Analysis of yields of some main SKUs
points out to margin of errors beyond the

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tolerable amount (within 10%) between theoretical and actual yields.

Table 34. Percentage error in yield of some SKUs

This difference can be attributed to a number of reasons as outlined in the Ishikawa Diagram.

However, the problem experienced by Breadstop really boils down to 1) the excessive use of raw
materials and 2) suspected pilferage.

An observation of the production process of Breadstop revealed flaws in the usage of raw
materials. Inputs are not appropriately measured; workers just recklessly use raw materials and
often find it acceptable if there are some deviations in the amount used, saying “Ah okay na ‘yan.
Kaunti lang naman pagkakaiba.” Moreover, without any monitoring of inputs, workers are not
really compelled to be meticulous in their use of inputs. As such, workers are unable to produce
as much goods as expected given the amount of raw materials used.

Raw materials inventory shrinkage that cannot be attributed to excess use of raw materials
may be caused by pilferage. Absence of any control practices to prevent and detect pilferage
makes it plausible that there is high incidence of such. Raw materials may be shrinking yet this is

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not reflected in the amount of goods produces resulting to a high margin of error between the
theoretical and actual yields, and high cost of goods sold.

8. High COGS of Underpeforming SKUs

As mentioned, Pareto of the revenue contribution of the different SKUs showed that only 19
out of the 115 SKUs make up 80% of Breadstop sales. Furthermore, among these 19 SKUs, 14
are under the Daily Bread Category while only 5 SKUs are under the Special Bread Category.
Despite the fact that Special Bread has more SKUs than Daily Bread, majority of Special Bread
SKUs have shown that they have low revenue-contribution, ranging from 0 to 0.04%.

Moreover, an analysis of the cost structure of each SKU showed that those products which
have low revenue contribution (7 out of the 10 do not even reach 1%) are actually the ones
influencing the high overall COGS in Breadstop. As shown in table 35, six out of the top ten
SKUs with the highest COGs are from the Special Bread Category with revenue contribution
varying from 0 to 0.6 % while having COGS going beyond 100%, which is way past the industry
standard of only 30 to 45% COGS. Given this, the group thinks that the wide variety of SKUs
per category, especially in Special Bread category, affects the high cost of goods sold.

Table 35. Top 10 SKUs with the highest COGS

Revenue
Category Product COGS (%)
Contribution
Special Yema Cake 202.8% 0.6%
Special Cupcake 197.8% 0.0%
Special Chocolate Chip Cookies 177.0% 0.0%
Special Pianono 164.0% 0.6%
Daily Bread Bahukas 163.29% 2.4%
Special Choco Cake 110.5% 0.0%
Special Ensaymada Big 104.8% 0.2%
Daily Bread Putok 74.52% 4.2%
Kalamunggay Health
Kalamunggay Tasty 72.89% 0.0%
Bread

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Project Tomorrow: Key Findings
In line with the thrust of Project Tomorrow, the group found two areas of concern to
successfully rollout the geographic expansion plan.
1. No Standard Area Approval System
As of today, Project Tomorrow focuses on the deployment of the location scout to identify
probable locations. The current process of location planning is through the approval of the
parents, without a standard procedure of determining the potential of the business.
Branch Cubao Kalentong Paco
Average Monthly Sales 265,573.64 318,876.92 1,152,848.95*
Index 0.23 0.28 1
*Includes gross revenues from sale of wholesale buns

Exhibit X shows the great disparity of the sales of the three branches, exhibiting the great
variance of the failure or success of the geographic expansion. The dependence of the owner to
his parents on this issue poses a question on the sustainability of the success in location planning.
Hence, there is a need to develop key indicators of the potential of a business for a more
thorough and objective assessment of potential locations.
2. Cross-Baking System creates disparity in the Efficiency and Quality of the Products
As shown in the table below, the
current system creates a big disparity in
the yield efficiency of the company. In
stores where an SKU is produced in all
three branches, there are instances when
two of the branches exceed the tolerable
level, while the other remains efficient.
For instance, for Spanish Bread, Paco and
Cubao exceeded the 10% threshold but Kalentong was at an exemplary 3.90%. Moreover, the
group conducted a sample test for the three branches and we observed that the taste of certain
breads differ from one branch to the other.

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B. Prioritization

1. Criteria Formulation

The criteria that will be used for the prioritization of problems will be four-fold: Ease of
Solution, Financial Impact, Employee Impact, and Impact on Making the Model Replicable. This
reflects the thrust to support the over-all objectives of the company to improve its profitability
and polish a business model for geographic expansion. These are the weights given to each
criterion:
Criterion Weight
Ease of Solution 10% Ease of Solution
Financial Impact 35%
Ease of solution reflects the
Employee Impact 20%
practicality behind the initiatives of
Impact on Making the Model Replicable 35%
Breadstop. Given its limited
resources, prioritization can be given to low-hanging fruit solutions to address these dangling
problems. However, ease is given the lightest weight because Breadstop ought to value impact
more than convenience. A high score of 5 denotes a quick win strategy, while a low score means
a difficulty in implementation due to probable changes in company culture and tradition.

Financial Impact

Financial impact receives the heaviest weight because this directly affects the bottom line
of the company. Financial impact can be assesses as the potential to affect the declining revenue,
the higher-than-industry cost of goods sold, or the management of operational expenses. Any of
these concerns would affect the profit margin of the company. A high score reflects a high
impact on improving the profit margin to become at part with the industry, while a low score
reflects a distant effect on the financial bottom line.

Employee Impact

Employee impact reflects the effect on a very important asset of a manufacturing

company – its people. As shown in the Fishbone Analysis, most of the root causes of complaints
regarding Incorrectly Baked Breads, Taste Inconsistency, and Reduced Freshness were under the

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“Man” branch. Hence, the prioritization should account the dynamics of how humans (the
employees) respond to the change in situation.

Impact on Making the Model Replicable

Lastly, the criteria formulation includes the second part of the over-all objective of the
company: geographic expansion. In this case, the options are assessed based on the potential
impact of making the Breadstop business model replicable and scalable in order to reach the
target of ten branches by 2018. This means that the problems that are prioritized ought to
concern the structure and process of the business in order to generate sustainable solutions.
Otherwise, the problems that are solved might just be exceptions to the rule and not create a big
impact on improving the business model itself.

2. Prioritization

Prioritization will be done on two levels: (1) a general assessment of the different parts of the profit
margin as the financial bottom line and (2) a specific evaluation of the key operational areas that affect
the parts of the profit margin identified in (1).

A. General Assessment of the Different Parts of the Profit Margin as the Financial Bottom Line
Impact on
Financial Employee Model
Income Statement Account Ease of Solution Impact Impact Replicability Score

Higher Than Industry Cost

of Goods Sold 4 5 4 5 4.7

Declining Revenue 3 4 3 4 3.7

Improvement of Other
Operational Expenses 3 2 2 4 2.8

Below than Industry yet

Higher Than Benchmark
Salary and Compensation 2 3 3 2 2.55

As seen in the Key Findings section, the low profitability can be caused by four factors: the
revenue, the cost of goods sold, labor cost, and other operational expenses. In this regard, the focus of the
recommendations will be on the reduction of cost of goods sold and efforts on increasing the revenue.

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 The improvement of the other operational expenses was given a low score in financial impact
since the reductions would not be significant anymore. Currently, Breadstop’s other operational expenses
(e.g. transportation costs) are lower than the benchmark and at par with the industry; hence, the possible
reductions are not expected to yield drastic savings. Similarly, it has a low employee impact since this
thrust is already covered by the existent efforts of Breadstop to to promote energy and gas conservation.
As mentioned in the first part of this paper, Breadstop already launched initiatives to save electricity; thus,
this has been relatively part of the organizational behavior of the employees. In the end, marginal change
would be realized.

Also, reductions in Salary and Compensation to be at par with the industry are not prioritized
because it would be extremely difficult to implement salary decreases amongst employees or to even fire
them since they are not contractual workers. Also, this does not help the model become more replicable
since this is just a stopgap solution to bring down costs without polishing the business to have more
standardized products and procedures.

B. Specific Evaluation of the Key Areas of Concern Across Different Operational Divisions

After finding the two most important parts of the profit margin, the group prioritized the concerns
affecting these sections of the income statement, using the same four standards.

Table 36: Revenue-related and COGS-related Problems

Impact on
Ease of Financial Employee Model
Problem Solution Impact Impact Replicability Score

Big Disparity in Efficiency across the Three

Branches 2 5 4 5 4.5

No Identifiers to Distinguish Products to be

Recalled (beyond shelf life) 5 4 4 5 4.45

No Standards, Procedures and Aid for

Finished Goods Quality Check 3 4 5 5 4.45

Cannot monitor the time the breads have

spent in the oven 3 5 3 5 4.4

No Criteria for Branch Location Approval 4 5 2 5 4.3

Bad Demand Forecasting 2 5 3 5 4.3

3 4 4 5 4.25
Employees Recklessy and Excessively Use

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 Raw Materials

No performance-based incentives for the

Productions Team 5 3 5 4 3.95

No control on the access of raw materials 3 4 4 4 3.9

Difficulty in Using the Manual Weighing

Scale 5 3 4 3 3.4

No Check at Pre-mixing 3 4 3 3 3.35

Too many SKUs with Higher-than-industry

COGS but revenue of less tha 0.5% 5 3 1 4 3.15

No standardized lay-out for each production

facility 2 2 4 4 3.1

Dependence of the owner on his mother for his

procurement 4 3 2 3 2.9

7.14% of Customer complaints due to long

service time 5 2 4 2 2.7

2.39% of Customer complaints due to wrong

order given 5 2 4 2 2.7

Suspected Pilferage 3 3 3 2 2.65

1.2% of Customer complaints due to hairstrand

on bread 5 2 5 1 2.55

Dependence of the owner on his father for

product development 4 3 2 2 2.55

Sudden Purchases 3 2 1 3 2.25

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C. Recommendations for Improvement

Project Today: Quick Wins

From the key findings, and after conducting a Pareto analysis for criteria formulation, the
group identified a number of quick-win strategies to reduce unnecessary costs, improve product
quality, and consequently enhance company profitability.

Issue: Quality – Customer Complaints on Taste Inconsistency due to Incorrect Recipes

1. Convert Manual Weighing Scales to Digital Weighing Scales

Human error has been identified as the primary determinant of poor quality, most especially
in weighing the dough and baking the bread. In response to weight inaccuracies, Breadstop
should consider converting from manually reading weights to using digitized scales. As
discussed, employees tend to struggle in reading the graduation ticks in the manual weighing
scale. They disregard the few grams of excess raw material placed in a recipe. This investment
will ensure accuracy and precision in the use of raw materials for the pre-mixing phase, thus
addressing product inconsistency.

2. Add an Inspection Point After the Pre-mixing Stage

Pre-mixing is the crucial stage that determines the taste of the bread. The rest of the processes
concerning the recipe simply put ordered fillings like ube or meat like a piece of hotdog. In this
regard, it entails a lot of cost for a pre-mix to undergo the entire baking process, only to find out
that it is the wrong recipe. In this regard, it is strategic to add an inspection point that ensures the
quality of the pre-mix. This can be done by getting a sample from the batch of pre-mixes,
weighing it and checking the moisture content. The table below illustrates the addition of this
inspection point in the production process:

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Issue: Quality – Customer Complaints on Incorrectly Baked Products
3. Alarm for Oven Time
As mentioned, bakers tend to forget the time they put the breads inside the oven and the time
they have to pull them out. As a result, the most prevalent complaint is on incorrectly baked
products (overbaked, underbaked), and this is attributable to the Baking step already.
In this regard, the group proposes a quick win strategy of using a cheap multiple alarm clock.
Basically, the alarm clock will be tied to the handle of the oven to remind the baker to set the
alarm before putting the breads inside. Then, beside the oven is a quick guide of the oven time
and temperature of the different breads in order to make sure that the right information is
executed. In the end, the clock will ring if it is time to take away the breads from the oven.

4. Develop Visual Checking Aids

Aside from the preventive measure of an alarm time, the quality inspector for finished goods
should be guided by a visual aid of underbaked, perfectly baked, and overbaked products. This

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addresses the difficulty of the saleslady in using her “common sense” to check the breads and at
the same time balances the need for an easy-to-understand instruction for a high school graduate
employee.

Issue: Quality – Reduced Freshness

5. Color-Coded Tapes to Monitor Shelf Life
Issues on reduced freshness have plagued the bakeshop and its
Monday
customers, as salesladies presently have no gauge for determining and
Tuesday thus fail to pull out old batches of products, a manifestation of poor shelf

Wednesday life monitoring. A key strategy to addressing this problem entails the use
of color-coded tapes, which will be attached on certain areas of the tray.
Thursday
Different colors will be used to represent the age of the bread, up to
Friday seven days, to serve as a subtle indicator to the salesladies of the

Saturday presence of any old stock. The color assignment will observe the
following pattern: red for one day old bread, orange for two, yellow for
Sunday
three, green for four, blue for five, black for six, and white for seven.

Issue: Unmet Theoretical Yield

6. Performance-driven Incentives for Yield Efficiency
An assessment of Breadstop's performance drivers presents a shortcoming in scope, in that
incentives rely primarily on sales operations, granting no added benefits for production
performance. The company may want to devise a new performance-driven incentive, taking into
consideration actual yield relative to theoretical yield. Specifically, the incentive will take the
form of variable pay, calculated by multiplying the worker's salary by the difference between the
allowable percentage error of 10% and the deviation of the actual yield from the theoretical
yield. The formula is detailed below:

Variable Pay = | Monthly Salary × [10% - |(theoretical yield - actual yield)|] |

This is a two-fold response to the excessive use of raw materials. Instead of debating whether
it is pilferage or mere irresponsibility in excessively using raw materials, Breadstop should just
foster positive reinforcement by setting a team goal for an incentive. This promotes teamwork

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for everyone to do his/her part in the process to meet the yield and minimize reject output, and
also create fairness since salesladies benefit from sales-based incentives when they exceed sales
targets.

7. Key Visual Aids on Recipe and Amount

A visual reminder can be posted on the walls of each station reminding them of the
recipe, procedure and amount they need for production. This controls the tendency of the bakers
to mix up the recipes and erroneously consume raw materials when not necessary.

8. Limit the number of SKUs

Currently, Breadstop is producing 115 SKUs, and the company is incurring inventory and
storage cost for the raw materials of these SKUs.

Analyzing each product’s COGS showed that 20 of the 115 SKUs actually have COGS
reaching more than 100% of each of the product’s revenue but a revenue contribution of less
than 0.5%. This means that Breadstop is selling these 20 products at a loss. Thus, the group
recommends that it is important for the company to reevaluate the products produced and sold to
check whether the product is contributing to the company’s profitability or just causing the
company more losses.

Through a modular analysis, thirteen out of the twenty products that were dropped were
Special Breads, and these products require a unique mixture for its base unlike daily breads that
come from one of the four types of modular dough.

In evaluating the performance of each SKU, the group considered two major factors:
(1)SKU’s Revenue Contribution and (2) SKU’s cost of raw materials. The SKUs were ranked
based on their weighted COGS which were computed by multiplying the COGS of each SKU by
its revenue contribution. Using this, SKUs with high revenue contribution and high COGS will
be prioritized and retained. Lastly, the team consulted the owner if there could be hope for either
the selling price to be increased or the cost of goods sold to be decreased. Unfortunately, at this
point, none of the twenty underperforming SKUs could be retained under these conditions.
Based on the list, the process resulted to a decrease in the number of SKUs from 115 to 95.

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 Analyzing the impact of delisting 20 SKUs showed that despite a slight decrease in gross
sales of 8.08%, it was offset by a greater decrease in weighted COGS of 33.6%. In total, the
delisting of SKUs resulted to 15.02% increase in Net Sales or an overall cost savings of
Php1,177,470.61.

CURRENT PROPOSED % Change

Sales 14,936,194.17 13,729,460.17 -8.08%
Weighted COGS 7,096,134.49 4,711,929.89 -33.60%
Net Sales 7,840,059.67 9,017,530.28 15.02%

Products Category COGS

Yema Cake Special Bread 202.76%
Muffins Cup Cake Daily Bread 197.8%
Pianono Mocha Daily Bread 164.0%
Pianono Sugar Special Bread 164.0%
Pianono Ube Special Bread 164.0%
Pianono Peanut Daily Bread 164.0%
Pianono Choco Daily Bread 164.0%
Pianono Small Special Bread 164.0%
Bahukas Daily Bread 163.29%
Ensaymada Big Daily Bread 104.8%
Ensaymada Small Daily Bread 104.8%
Lengua Special Bread 125.89%
Orange Cupcake Special Bread 134.00%
Otap Special Bread 102.10%
Banana Chiffon Special Bread 101.20%
Upside Down Special Bread 102.00%
Banana Fruit Cake Special Bread 128.00%
Buko Pandan Special Bread 101.15%
Cupcake
Choco Twist Special Bread 127.21%

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Table 37. List of remaining SKUs after delisting under-performing SKUs.
DAILY BREAD
Putok Choco Roll Sided Cheeze Cheese Buns
Wheat Bread Ensaymada Medium Halfman Ube Basket
Wheat Pan de Sal Ube Bread Footlong Pan de Coco
Pan de Sal Multi Grain Stroucel Spanish Roll
Kababayan Everlasting Choco Ring Meltdown
Wheat Loaf Putok Pan de Sal Ube Cream Small Hot Monay
Tasty Small Mongo Buttermelt Peanut Toast Ube Cream Big
Tasty Medium Mongo Bread Cream Loaf Pan de Lito
Tasty Large Ube Buttermelt Mongo Basket Bolyos
Hotdog Buns Buns Hiwa-Hiwalay

SPECIAL BREAD
Hopia Ube Donut Big Brazo de Mercedez Lengua
Hopia Baboy Mountain Cake Mamon w/ Cheese Halfmoon Cookies
Crinkles Cake Round Half Roll Choco Sweetheart
Choco Behive Choco Moose Slice Pineapple Pie Darling
Heart Cake Donut Small Special Pie Cake Choco Moist
Cake Torte w/ Pudding Cake Torte Cheese Cake Pineapple Sandwich
Bites Small Canister Cake Assorted Cake Brownies Moist
Choco Mamon Half Roll Ube Custard Rectangle Brownies Balot
Assorted Donut Half Roll Mocha Cookies Egg Pie
Heart Donut Custard Round Onion Calzone Hotdog Brioche
Toasted Bread Hambrioche Banana Cake Egg Roll
Donut Cinnamon Merengue Big Polvoron Cookies
Mongo Roll Bacon Torte Merengue Small Cream Puff
Ube Roll Torta Small Bites

KALAMUNGGAY HEALTH BREAD

Kalamunggay Tasty
Kalamunggay Pan de Sal

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Project Today: Operational Strategies

1. Seasonality-adjusted Exponential Smoothing Demand Forecasting Model

Figure 46. Functional Flowchart for Demand Forecasting

Demand forecasting will be centralized for all the branches, i.e. Paco, Cubao and
Kalentong. The entire process is illustrated in the figure above. Selling area supervisors conduct
their regular checks and recording of daily sales in their respective branches. These data will be
encoded into the computer which will then be sent to the planning supervisor at the commissary.
The planning supervisor is in-charge of keeping track of raw material stocks, estimating future
consumption via demand, and purchasing from suppliers.

Once all information needed is received from all branches, the planning supervisor
projects the demand for daily and special breads for all the branches, which need to be produced
for the next day. If the raw materials inventory level falls below the safety stock level, then the
planning head must procure additional raw materials. Otherwise, the demand forecast may be
passed to the production supervisor for scheduling.

Seasonality. Based on historical data, the amount of sales are significantly higher during
weekends than amount sales in the weekdays. In order to account for this seasonality, historical
sales are adjusted to a 7-day seasonal factor, before being run against a time series forecasting.
The forecasted data are weighed back by multiplying the seasonal factor.

Exponential Smoothing. The method to remedy the current problem is to apply the
demand forecasting technique with the least deviation from the actual sales. After running the
sets of data against various forecasting models, exponential smoothing yielded the smallest value
of mean absolute deviation and mean square error.

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2. Centralize the Bread Production (except Pan de Sal) and Inventory Management in One
Commissary

The Model: Centralized Bread Production System

Figure 47. Inbound and Outbound Logistics Under the Centralized Scheme

The shift to this centralized system is a key strategy of Breadstop which remedies several
problems of the current operations model. First, from the split raw material storage between
Paco and Cubao, all purchases from suppliers will be delivered to the Cubao branch, which
serves as the central facility for storage. Tighter control of raw materials inventory can be
implemented, which can minimize instances of spoilage and pilferage.
Second, central production of all daily and special bread, and common preparation of
premix for pandesal allows for quality checks to be conducted in one area by one trained
personnel, which can maintain standard quality across all branches. Instead of three workers
handling inspection in the three different branches, only one person will be assigned to the task
and the other two may be diverted to other bottleneck processes.
Third, centralization can refine the production process by maximizing utilization of resources
and bringing all best practices across all branches to the central hub. Since the baking of daily
breads in Paco and Kalentong will be brought to Cubao, all underutilized batch productions will
be scheduled together in order to maximize machine use. Moreover, all steps of the production
process will be controlled better.
Last, the aforementioned benefits translate to financial savings for Breadstop. Maximization of
capacity and utilization of the labor force can lead to savings in operating expenses. This

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centralization can benefit Breadstop with savings from right-sizing the labor force, arising from
removal of redundant processes. Better utilized batch productions can reduce electricity
consumption and other unnecessary expenditures. The comparison of the old model and new
model will be shown in the Business Case Analysis.
From the current cross-baking scheme, the Breadstop production system will shift to a
centralized scheme, with the Cubao branch as the commissary. All branches will be producing
their respective pandesal, but the premix and all other SKUs, both daily and special breads, will
be sourced from the Cubao bakery. (See figure above for the new inbound and outbound logistics
scheme.)

Figure X. Supply Chain Roles Under the Centralized Scheme

Supply Chain. In the centralized system, the value chains of the commissary and
branches are integrated to one another, as shown in the figure above. All purchases of raw
materials from suppliers are done by the commissary, as well as management of raw materials,
i.e. restocking, storage, and distribution. The Cubao branch produces daily and special breads for
its own bakery and all other branches. (Note: All bakeries have their own in-house production of
pandesal.) Meanwhile, the branches order their premix requirements from the commissary for
their Pan de Sal production, which are then delivered along with the orders of daily and special
breads. Once received, the branch starts its pandesal production and puts all finished goods on
sale.
Machine and Capacity. This centralization will focus almost all production in the Cubao
branch. This bakery has enough unused production area to expand its capacity in order to
accommodate production needs of the two branches. Since tasty and special breads for Paco and

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Kalentong is already being produced in Cubao under the cross-baking scheme, the only
additional demand that needs to be fulfilled by Cubao are the daily breads of the two branches,
and buns in Paco.
In order to fulfill these additional demands from the other branches, the machines used
for producing Buns and Daily Breads in Paco such as the Digital Oven with 21 planchas and
Molder Divider will be transferred to Cubao. Despite already having a Digital Oven in Cubao,
the bigger oven with 21 planchas must be transferred as the Digital Oven with 18 planchas that is
currently in Cubao cannot support the demand for Buns and Daily Breads for all three branches
and direct distribution sites. Furthermore, the molder divider is crucial for producing buns
efficiently, thus it is necessary to relocate it to the commissary which is to be placed in Cubao. In
effect, the relocation of machines to Cubao increased Cubao’s available capacity for production.
Moreover, the commissary system will need to have enough areas to accommodate additional
machines and inventory, thus expansion of floor space is needed. Furthermore, since the
commissary will also be producing buns which require a proofing room to ensure the quality of
the buns, a proofing room within the commissary must be added.
People. Currently, the labor force has more than enough time to produce breads to meet
demand from different branches which means Breadstop is under-utilizing the manpower it has
to produce bread. With the introduction of the commissary system, bakers from the Paco branch
will be reassigned to Cubao to support production. With this, the new system will not only
increase Cubao’s production capacity but will also help the management better utilize its labor
force.

Project Tomorrow

Quick Win:

1. Criteria for Location Approval

For Breadstop’s expansion strategy, it is necessary that the company retain the current
demographics of the market it serves. Thus, they should ensure that the elements that are
currently present in the three areas will also be present in the next branches that will be put up in
the next few years.

The critical elements are as follows:

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1.1 Proximity to public places such as Wet Market, Public Plaza, Churches, Schools and Offices

Based on the current branches Breadstop has, the proximity of the branch to public
places, such as those mentioned above, greatly influence the potential foot traffic in the area.
Moreover, it has also been noted that the target consumers are not likely to go out of their way to
buy bread, thus it is necessary for Breadstop to be present wherever target consumers could be
present.

1.2. Proximity to residential areas of class C and D.

Similarly, Breadstop must also be present in residential areas that are primarily
dominated by families that are within its target market. Based on interviews and observations,
Breadstop has been effective in tapping urban poor areas such as some relocation sites in the
metro.

1.3. Accessibility via public transportation

Accessibility to commuters is also key to Breadstop consumers as most of bread buyers

buy bread on their way home from work or on their way to work. Moreover, it is also necessary
that they are not only accessible to potential consumers but also visible to them even from the
road.

1.4. Availability of operational space

As any new ventures in this industry, it is necessary to have the required dimensions and
space before anything else. Also, it is important for the company to note the safety of the
location in case of any unexpected events such as flood or earthquakes.

1.5. Intensity and presence of competitors in the area

Finally, just as any external analysis, it is important to know the current market condition
of the area in order to know the right strategy in dealing with them.

Recommendation

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In order to ensure that all these will be considered, location evaluation for potential sites of new
branches is recommended to be conducted by having a scorecard for each criteria. An example of
which is as follows:

Proximity to following Public Accessibility to Public List of Current Competitors in the

Places: Transportation Ara
Years in
Church Jeep Terminal Competitor Business
Wet Market Tricycle Terminal
Dry Market Taxi Terminal
School Bus Terminal
Office FX Terminal
Plaza
Proximity to following Availability of Operational
Market-segments: Space
A Parking Space
B Production Space
C Storage Space
D Sellling Space

Potential Areas

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Here are two potentially good locantios for new branches based on their case

GALAS

NOVALICHES

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2. Standardized Breadstop Commissary Production Layout via the Deltahedron Heuristic

Commissary Layout

Figure 49. Facilities Layout of Commissary (Cubao Branch)

Layout. The layout of the Cubao branch needed to be rearranged in order to

accommodate the additional production, including buns and daily breads. From the previous
facilities layout, new equipment includes the oven and divider rounder transferred from the Paco
branch, and the creation of a proofing area near the ovens. The locations of the facilities within
the production area are based on the number of trips between machines, which is determined by
the various production processes carried out in the area. The basic policy is to place consecutive
machines beside one another as much as possible, with priority given to machines that are most
often used. Meanwhile, the entire room for pre-mixing will be retained, as well as the storage
area for raw materials.

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3. Standardized Breadstop Branch Pan de Sal Satellite Production Lay-out

Figure 50. Facilities Layout of New Branches for Project Tomorrow

The standard layout to be used in the establishment of new branches follows the
production process of pandesal, which is the only bread produced in-house (all other products
will be sourced from Cubao). Premix delivered daily will be directed towards the production area
where the first step is through the spiral mixer, and all other machines to be visited are arranged
consecutively beside it. The process ends at the bread racks where the pandesal will remain until
pulled out when customers purchase the product.

Operational Strategy:

1. Increased Utilization of the Centralized Commissary of Bread Production given the Absence
of the Need to Increase Capacity (amidst Two New Branches)

With the centralization of the whole production system of Breadstop, they will be able to
improve utilization of the machines and man power they currently have for the production of
bread
As shown in the table below, computing for utilization after the execution of Project Today
enabled us to see that there is more than enough capacity for growing the business. This

154
opportunity gave way to the possibility of expansion by year 2016. As shown in the table, adding
two more satellite branches to increase market presence can still be supported with the current
available capacity. In fact, by doing this, Breadstop will be able to increase its utilization for all
production.

PROJECT TODAY PROJECT TOMORROW 5

Demand Capacity Utilization Demand Capacity Utilization
Buns 267 10,368 0.03 1,334 10,368 0.13
Daily Bread 1,477 31,680 0.05 7,384 31,680 0.23
Pan de Sal 3,823 31,680 0.12 19,114 31,680 0.60
Special Bread 205 2,760 0.07 1,026.03 2,760 0.37
Tasty Large 29 576 0.05 144 576 0.25
Tasty Small 28 1,296 0.02 139 1,296 0.11

TOMORROW 8
Going beyond the scope, the group
Demand Capacity Utilization
forecasted for 3 more additional branches Buns 2,135 10,368 0.21
by the year 2018, and it was found out that Daily Bread 11,815 31,680 0.37
the current capacity can still accommodate Pan de Sal 30,582 31,680 0.97
Special 1,657.64 2,760 0.60
the expected demand from these additional Bread
branches. However, for Pan de Sal Tasty Large 29 576 0.05
Tasty Small 28 1,296 0.02
production, it is already on a warning stage,
which means that additional demand would mean increase in manpower.

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III. Analysis and Recommendation

D. Justifications

1. Alignment with Operations and Core Business Strategy

The recommendations were aligned with the two-fold core business strategy: cost
restructuring and lean manufacturing, and geographic expansion, through strategic executions of
the aforementioned Operational Strategies.

Breadstop wanted to be industry-competitive with its cost structure given its dismal
4.07% profit margin, and Project Today successfully lowered the cost through:

(1) a Product Development Operations Strategy where there was a cessation of the
production of underperforming SKUs with extremely high cost of goods sold

(2) a Job Performance Operations Strategy through the launch of efficiency-driven

incentives for the Productions Team to mitigate excess use of raw materials and pilferage

(3) a Supply Chain Improvement Strategy through the advanement of the demand
forecasting model to avoid costs of either sudden purchases or excessive inventory costs, and

(4) Process Reengineering Strategy where the company shifted to centralization of the
bread production and procurement system in order to save costs on multiple machines operating
across branches with low utilization and redundant workers fulfilling the same job in three
different branches.

Also, Project Today wanted a Lean Manufacturing business strategy where there would
be minimal waste and use this to support the vision of quality breads sold to low-income
households with the smallest cost possible. The group achieved the objective of quality assurance
and minimization of waste through a robust set of recommendations to prevent and respond to
quality costs:

(1) A Poke Yoke Quality Improvement Strategy where color-coded tapes were used to
monitor bread freshness and facilitate timely product recalls

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 (2) A Lean Manufacturing Strategy of using visual diagrams and alarm clock to facilitate
the better use of raw materials and equipment in order to lessen the wastage of ingredients and
rejected finished goods

(3) A simple Technological Upgrade Strategy by converting the manual weighing scales
to digital weighing scales in order to address the difficulty of the employees in using the former

Lastly, the group aligned the recommendations to the more long-term goal of Project
Tomorrow by rolling out strategies that facilitate more cost-efficient initiatives to support the
geographical expansion:

(1) a Location Planning Strategy of standardizing the key factors for area approval
(2) an Operational Lay-out strategy by employing a Operations Research in determining
the new lay-out of the production facility of the commissary and at the same time
standardizing the lay-out of the satellite pan de sal production areas in the in-store
kitchens of the retail outlets
(3) a Process Maximization strategy by showing how the utilization of the commissary
was increased by the geographical expansion because no necessary capacity
expansion was necessary to support the two new branches by 2015. However, the
group went beyond the scope and showed that this commissary could sustain the
demand of the expansion until 2018.

INVESTMENT REQUIREMENTS

INVESTMENTS UNITS COST PER UNIT TOTAL COST

Digital Weighing Scale (Small) 3 Php 6,615.00 Php 19,845.00
Digital Weighing Scale (Big) 1 37,590.00 37,590.00
Digital Timer 9 150.00 1,800.00
Baking Visual Guide 4 350.00 1,400.00
Bread Quality Posters 4 350.00 1,400.00
Desktop Computer 1 15,000.00 15,000.00
Oven (12 planchas) 1 45,000.00 45,000.00
Proofing Room 1 100,000.00 100,000.00
Php 122,035.00

Figure 51. Initial Investments for Project Today

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 The implementation of the various key steps of Project Today entails initial cash outlays
for Breadstop. A large digital weighing scale will be used by the commissary in its measurement
of raw materials, while three small digital weighing scales will be used in checking weights
within the production process. With the centralization at Cubao, the large-size oven (21
planchas) at Paco will be moved to the central hub in order to accommodate increasing demand
to be fulfilled, and replaced by a smaller oven (12 planchas). The Cubao branch must also allot a
proofing for bun production. In additional to these, digital timers will be placed at each of the
three levels of the four ovens in all Breadstop branches. Beside each oven will be visual guides
and posters illustrating images of bread quality and other fundamental baking instructions.
Finally, a desktop computer will be bought for the Kalentong branch to connect the bakery to the
commissary.

INCREMENTAL
UNITS COST PER UNIT TOTAL COST
MONTHLY COSTS
Color-Coded Tapes 10 Php 150.00 Php 1,500.00
Sales-Driven Incentives 10 870.00 8,700.00
Kalentong Internet 1 500.00 500.00
Php 10,700.00

Figure 52. Incremental Monthly Costs for Project Today

Besides the capital expenditures, the Project Today implementation will increase
Breadstop’s monthly costs by Php 10,700.00. This is primarily accounted for by sales-driven
incentives which can reach up to Php 870 per baker. Color-coded tapes are essential in keeping
track of all finished goods’ production data. Internet connection will also be installed in the
Kalentong branch.

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 INVESTMENTS UNITS COST PER UNIT TOTAL COST
Digital Oven (12 planchas) 2 Php 400,000.00 Php 800,000.00
Dough Roller 1 20,000.00 20,000.00
Spiral Mixer 1 160,000.00 160,000.00
Bread Rack 1 12,000.00 12,000.00
Stainless Working Table 2 15,000.00 30,000.00
Pans, Molds, Etc. 30,000.00 30,000.00
Bread Showcase 1 50,000.00 50,000.00
4 ft Chiller 1 50,000.00 50,000.00
Renovation 780,000.00 780,000.00
CCTV 1 45,000.00 45,000.00
Digital Weighing Scale (Small) 1 7,500.00 7,500.00
TOTAL Php 1,984,500.00

Figure 53. Initial Investments per New Branch Opened for Project Tomorrow

As for Project Tomorrow, the cost of setting up a new branch is Php 1,984,500.00 in
total. 800,000 of which will be spent in purchasing two new digital ovens with 12 planchas. The
new branch will be producing Hot Pan de Sal, therefore it also needs to invest in dough rollers,
Spiral Mixers, Digital Weighing Scale and Bread Rack, which would cost them 20,000, 160,000,
7,500 and 12,000, respectively. Furthermore, the basic tools such as stainless working table,
pans, molds and other baking tools, as well as the Bread showcase, should be retained in each
branch. All in all, this will cost around 110,000. A 4ft chiller must also be bought for storage
purposes and this would cost Breadstop around 50,000. Finally, a CCTV, costing 45,000, will be
bought and installed for security.

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BUSINESS CASE ANALYSIS

Breadstop Income Statement

For the Years Ended December 31, 2012
(in Php except for ratios)
5-Months 2012* 2013* 2014* 2015* 2016*

Total Gross Sales 8,447,620.92 20,607,349.06 20,813,422.55 21,229,691.00 24,767,972.83 28,768,000.44

Cost of Sales 5,241,556.04 11,583,741.96 10,565,628.97 10,193,397.19 12,555,748.11 14,871,181.44

Gross Profit 3,206,064.88 9,023,607.09 10,247,793.58 11,036,293.81 12,212,224.72 13,896,819.01

Rent Expense 704,805.60 1,691,533.44 1,776,110.11 1,864,915.62 1,958,161.40 2,056,069.47

Salaries and Compensation 1,292,147.32 3,162,053.57 3,487,797.32 4,061,232.23 4,815,304.27 5,709,389.15

Utilities Expense 272,943.70 600,476.13 630,499.94 662,024.93 695,126.18 729,882.49

Other Operating Expenses 399,859.23 959,662.14 978,855.39 998,432.49 1,018,401.14 1,038,769.17

Net Income 536,309.04 2,609,881.81 3,374,530.82 3,449,688.53 3,725,231.72 4,362,708.74

*Projection

COGS Margin 62% 56% 51% 48% 51% 52%

Gross Profit Margin 38% 44% 49% 52% 49% 48%

Profit Margin 6% 13% 16% 16% 15% 15%

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 Savings in Electric Consumption from Centralization

Current Consumption after Change in

Branch
Consumption Centralization Consumption
Cubao Php 11,927.57 15,000.00 (3,072.43)
Kalentong 11,270.82 6500.00 4,770.82
Paco 17,257.49 6500.00 10,757.49
Total Savings 12,455.88

In addition to savings from delisting SKUs, the company can earn savings in utilities
expenses such as electric consumption by centralizing production in the Cubao branch.

By the end of 2016, Breadstop should have established two more stores at a total
investment of about Php 4 million, and contributing to Breadstop's total revenues and net income
which will total Php 28.7 million and Php 4.3 million in 2016, respectively.

Overall, the benefits of investments in operational efficiency and expansion will be

reaped through a decrease in COGS margin to 52% and an increase in the profitability of the
business to 15% by the end of 3 years.

Implementation Plan

Timetable

Implementation of operational strategies involves two phases: executing the quick-win

strategies (called “project today”) and carrying out expansion (called “project tomorrow”).

The first six months would be dedicated to the execution of Project Today – fixing
operational processes, improving quality of products through setting clear quality standards and
establishing quality assurance checks, improving employee performance, and bringing down
costs. This also includes a more complete penetration of Breadstop’s current areas of operations.

Laying down the foundations for Project Tomorrow, the Cubao branch will be operated
as a commissary after the overhauling of Breadstop’s operations. An important aspect of
establishing the commissary scheme is centralization – capacity, production, raw materials, etc.
are now centralized in the Cubao branch. This entails shifting capacity from the two other
branches to the Cubao branch, changing the logistics, centralizing the baking process and
demand forecasting, among others. All these will be established and changes made for a year
after the sixth month.

Project Tomorrow will be started by after a year and a half of carrying out Project Today.
Locations will be scouted, capacity assessed and adjusted, to give way to the new branches as
Breadstop expands. The first two new branches of Breadstop will be established by 2016.
Expansion will continue such that by 2018, Breadstop will have a total of eight branches.

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Figure 54. Gantt Chart of Implementation

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Responsibility Assignments

Given the changes in the business model and the change from the cross-baking scheme to the
commissary system, changes in job design and responsibility assignments are certain.

With the commissary scheme, the number of bakers in the branches will be decreased as most of
the baking will now be done the Cubao branch. Moreover, without much production in the
branches, there is no longer a need for a production supervisor for each branch. As such, quality
checks, determining production schedule and inventory management for the branches will now
be under the master baker.

With a centralized demand forecasting, Breadstop will have to hire a planning supervisor. She
will be in charge of forecasting demand, determining sales in each branch, and procurement of
raw materials. The production supervisor will now be called the commissary supervisor and there
will be two in Breadstop’s commissary. They are in charge of raw materials inventory
management, production schedule, production report, quality control, allocation of finished
goods to each branch, and daily deliver reports.

Figure 55. Responsibility Assignments

Monitoring Plan

To monitor the implementation of these quick-win and long-term strategies, a close tracking of
Breadstop’s progress is needed. More attention must be given to the implementation of quick-
win strategies to improve the current business model. Establishment of the commissary and
expansion will not be possible if management is unable to polish the business model as to make
it replicable and scalable. Close tracking of employee performance, customer satisfaction, sales,

163
and cost of goods sold is needed to assess the impact of the quick-win strategies – if they do
deliver the benefits assessed in the formulation of these strategies. Employee response to these
changes is also important to monitor as employee acceptance is crucial to the success of the
program.

Establishment of the commissary scheme will be monitored by tracking progress of the

renovation and the move through centralization. What is important at this stage is that the
commissary scheme be already in place a year and a half after the implementation of these
operational strategies.

During expansion, close monitoring of capacity is very essential. Opening new branches means
increasing the demand on Breadstop’s current capacity. Monitoring capacity should be done to
ensure that they are able to deliver goods to customers at every branch. Moreover, expansion is
employed to increase sales and gain economies of scale. As such, tracking of sales and costs is
essential to see what impact that new branch has on the overall performance of the company.

164
Appendix 1: ANOVA for the Product Superiority Tests
Group 1: Julie’s; Group 2: Breadstop; Group 3: Gardenia

ANOVA table: Sweetness (Tasty)

p-
Source SS df MS F value

Treatment 7.03 2 3.517 9.48 .0003

Error 21.15 57 0.371

Total 28.18 59

Post hoc analysis

p-values for pairwise t-tests

Group Group Group

1 2 3

2.8 3.5 3.6

Group 1 2.8

Group 2 3.5 .0006

Group 3 3.6 .0003 .7961

ANOVA table: Texture (Tasty)

Source SS df MS F p-value

Treatment 11.63 2 5.817 15.53 4.13E-06

Error 21.35 57 0.375

Total 32.98 59

Post hoc analysis

p-values for pairwise t-tests

Group 1 Group 2 Group 3

3.3 3.5 4.3

Group 1 3.3

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 Group 2 3.5 .4415

Group 3 4.3 3.17E-06 4.94E-05

ANOVA table: Smell (Tasty)

Source SS df MS F p-value

Treatment 0.03 2 0.017 0.07 .9351

Error 14.15 57 0.248

Total 14.18 59

ANOVA table: Softness (Tasty)

Source SS df MS F p-value

Treatment 4.03 2 2.017 8.12 .0008

Error 14.15 57 0.248

Total 18.18 59

Post hoc analysis

p-values for pairwise t-tests

Group 1 Group 2 Group 3

3.7 3.7 4.3

Group 1 3.7

Group 2 3.7 1.0000

Group 3 4.3 .0009 .0009

ANOVA table: Pan de Sal Sweetness

Source SS df MS F p-value

Treatment 0.20 2 0.100 0.21 .8137

Error 13.00 27 0.481

Total 13.20 29

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 ANOVA table: Texture (Pandesal)

Source SS df MS F p-value

Treatment 3.80 2 1.900 3.83 .0344

Error 13.40 27 0.496

Total 17.20 29

Post hoc analysis

p-values for pairwise t-tests

Group 1 Group 2 Group 3

3.3 3.4 4.1

Group 1 3.3

Group 2 3.4 .7534

Group 3 4.1 .0172 .0349

ANOVA table: Softness (Pan de Sal)

Source SS df MS F p-value

Treatment 1.40 2 0.700 1.14 .3352

Error 16.60 27 0.615

Total 18.00 29

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Euromonitor International: Baked Goods in the Philippines.

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Bakeries-v2>.

Gardenia Philippines Website, <http://www.gardenia.com.ph/index.php>.

Goldilocks Website, <http://www.goldilocks.com.ph/about-us/>.

Pine, Luzviminda. Interview. 20 August 2012.

Pine, Manuel Bien. Interview. 1 August 2012.

Pine, Remrod Ray. Interview. 17 August 2012.

Pine, Reynaldo. Interview. 29 July 2012.

“Pinoy Tasty, generic bread, debuts at P36 per loaf”. GMA News Network, accessed from
<http://www.gmanetwork.com/news/story/202660/news/nation/pinoy-tasty-generic-bread-
debuts-at-p36-per-loaf>.

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