Blanchard Importing and Distributing II1
After his first year at the Harvard Business School, Hank Hatch accepted summer employment with Blanchard Importing and Distributing, a Boston firm that dealt in the processing and wholesaling of alcoholic beverages. Early in June 1972 Hank met with Toby Tyler, the company's general manager, who was a recent graduate of the Harvard Business School. Toby described the initial tasks that he wanted Hank to perform: Hank, during your first few days at Blanchard, I'd like you to become familiar with the general scope of operations of the firm. As you investigate our various product lines, I think you will find that the most rapidly expanding demand for alcoholic beverages is in the wine market. At the present time we estimate that we can earn a before-tax return of 20% on any money we put into wine merchandising. However, to date, Carmen Petrillo, our Wine Division manager, and Dave Rubin, the Sales Department manager, have been unable to exploit this trend due to lack of funds needed to hire experienced wine salesmen and build up an adequate inventory of wines. Here is a recent balance sheet which shows that we have just about reached the limit of our borrowing capability [see Exhibit 1]. It appears that a reduction in inventory level is the only substantial source of funds available to us. That's where you come in. After you've become acquainted with our operations, I'd like you to spend some time analyzing the inventory situation and recommend ways in which we can economize in that area. Initially, you can look into the method we use in scheduling production runs of those beverages which we bottle ourselves. The current scheduling system, which was initiated in October 1969, calls for bottling of an Economic Order Quantity (EOQ) of an item when the stock level of that item falls below a fixed Reorder Point (ROP). This Reorder Point trigger level is equal to 3½ weeks' worth of the average weekly demand throughout the year ending October 31, 1969. I suspect that many of the EOQ and ROP quantities calculated in 1969 should be recalculated based on changes in annual demand over the past 2½ years. As a first assignment you can update the EOQ and ROP figures. While you're at it, keep thinking about ways in which we can reduce expenses and cut back on unnecessarily high stock levels — any cash which can be made available for wine merchandising will be greatly appreciated by Carmen and Dave. Product Lines
During the first week of June, Hank learned that Blanchard was a full-line alcoholic beverage house that distributed both imported and domestic goods including wine, beer, distilled spirits, cordials, and premixed cocktails. Blanchard purchased prebottled goods (called uncontrolled stock) for resale to retail outlets at wholesale prices. Uncontrolled stock accounted for 45% of the firm's annual sales. The remaining 55% of Blanchard's revenue was attributed to sale of controlled stock, those items that Blanchard bottled and sold under its own brands and private labels. In June 1972 controlled stock consisted of 158 products that Blanchard processed in its own bottling facility. These 158 items were differentiated by bottle size, type and proof of beverage, and brand label. Blanchard produced 25 items in half gallons, 63 in quarts, 42 in fifths, 12 in pints, and 16 in half-pints. Company History
The Blanchard name was originally established as a chain of retail liquor stores, the first of which was opened in 1938 by John D. Corey. In 1957 Corey became interested in wholesaling alcoholic beverages and began distributing case goods to retail outlets. To devote his full efforts to this new venture, Corey transferred ownership of the chain of Blanchard retail outlets to other members of his family. In 1964 the present warehouse and office facility was completed, and in 1966, equipment was installed to permit the conversion of raw bulk spirits to bottled goods for sale under the firm's own...
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