Demand in Operations

Problem Statement

Blanchard importing and distribution is a full-line alcoholic beverage house that distributed both imported and domestic goods including wine, beer, distilled spirits, cordials and premixed cocktails. Blanchard was first opened in 1938 by John D. Corey and in 1957 entered into the business of wholesaling alcoholic beverages and began distributing case goods to retail outlets. In June 1972, the firm’s annual revenue was $4 million, of which $3 represented sales to the seven Blanchard retail stores.

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 (ROP) trigger is equal to 3.5 weeks’ worth of the average weekly demand throughout the year ending October 31, 1969. One of the issues faced by Blanchard was that the Reorder Point (ROP) is not adjusted to take care of annual demand change over the past 2.5 years. The EOQ and ROP points need to be recalculated to adjust for the change in annual demands.

Another issue faced by Blanchard is the high expenses encountered, they also need to cut back on the unnecessarily high stock levels. As per the company estimates that the company can earn a before-tax return of 20% on any money we put into wine merchandising. However, the managers have been unable to utilize this trend due to the restrictions in hiring experience wine salespersons and in building up an adequate inventory of wines.

Blanchard importing and distribution has reached the limit of borrowing capability as evident from the balance sheet and the only source of fund available is through reduction in the inventory levels.

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Recommendations

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Supporting Analysis

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Appendix Tables and exhibits