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Sun after storm

Sun after storm. A Case Study on Even’ Star Organic Farm. Dream Chasers From Sun Yat-sen University. ZHANG Wei HUANG Peilong PENG Weijian LIU Mengning. Introduction. Brett. Manager of Even’ Star. Members of IMA. Outline. A. Case Overview. A1 Storm before Sun. B1 A STORM Framework.

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Sun after storm

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  1. Sun after storm A Case Study on Even’ Star Organic Farm Dream Chasers From Sun Yat-sen University ZHANG Wei HUANG Peilong PENG Weijian LIU Mengning

  2. Introduction Brett Manager of Even’ Star Members of IMA

  3. Outline A. Case Overview • A1 Storm before Sun • B1 A STORM Framework B. Current Situation Analysis • C1 Quantitative Method • C2 Qualitative Method C. Apportion Analysis • C1 A Differentiation Strategy D. Strategy Positioning • E1 Short-Term Decision • E2 Mid-Term Planning E. Utilization & Implementation • E3 Long-Term Strategy • F1 Weather Conditions F. uNcertainty • F2 Petrol Price Increase Goal: To help Even’ Star Organic Farm maximize profits in the long run.

  4. Case Overview Current Situation Strategy Analysis Utilization & Implementation uNcertainty Apportion Analysis A1 Case overview A STORM Framework Analysis Social Conditions Technical Conditions Organizational Conditions Revenue Conditions Market Conditions Apportion Analysis A SUN Solution Strategy Analysis Utilization &Implementation uNcertainty

  5. Current Situation Case Overview Strategy Analysis Utilization & Implementation uNcertainty Apportion Analysis STORM Framework B1 Social Conditions • Industry Retrospect: • Growing Consumption of Organic Products • Huge Gap between Supply and Demand: Maturity Decline Introductory Growth Total Market Sales Organic Farming Organic Product has a blooming future

  6. Current Situation Case Overview Strategy Analysis Utilization & Implementation uNcertainty Apportion Analysis STORM Framework B2 Technical Conditions – Planting Procedure Stored in containers Covered with black plastic $ 133 per acre 2 Seedlings 4 Containers 1 Seeds In the greenhouse $ 1 per seed $ 700 per acre Irrigation $ 50 per acre 3 Produce Yield is seriously infected by weather conditions

  7. Current Situation Case Overview Strategy Analysis Utilization & Implementation uNcertainty Apportion Analysis STORM Framework B2 Technical Conditions – Transportation Transportation of Product Truck $ 7000 Variable Cost: $ 0.13+ $ 0.21= $ 0.34 per Mile Depreciation of Truck $7,000 for100,000 Miles 6 hours 2 hours 180 miles 8 hours 70 miles Distance Time 220 miles Restaurant is the most time and distance consuming

  8. Current Situation Case Overview Strategy Analysis Utilization & Implementation uNcertainty Apportion Analysis STORM Framework B3 Organizational Conditions Planting Work Brett 3 days per week Transporta- tion Work 4 days per week Brett 50 + Every week Packing Work Brett Part-time Laborers $ 10 per person $ 44 per week Brett works almost everyday without rest.

  9. Current Situation Case Overview Strategy Analysis Utilization & Implementation uNcertainty Apportion Analysis STORM Framework B4 Market Conditions Low High Selling Price Restaurant CSA Farmer’s Market Restaurants Community-Supported Agriculture Upscale restaurants Fixed product catalogue every week Advantages for farmers: 1.Get to spend time marketing the food early in the year 2.Receive payment early in the season, which helps with the farm's cash flow 3.Have an opportunity to get to know the people who eat the food they grow Farmer’s Market High risk/high return 10% spoilage rate CSA is getting popular in the US

  10. Current Situation Case Overview Strategy Analysis Utilization & Implementation uNcertainty Apportion Analysis STORM Framework B5 Revenue Conditions – Channels Restaurants have the highest margin and revenue per week. Farmer’s Market Restaurant Restaurants make up 56% of the revenue CSA Restaurants have the highest margin per week

  11. Current Situation Case Overview Strategy Analysis Utilization & Implementation uNcertainty Apportion Analysis STORM Framework B5 Revenue Conditions – Channels Time is most effectively used in Restaurants CSA shares the highest rate of return. More time of CRM can be spent in the restaurant channel and the CSA has the highest potential of Profitability. Rate of Return (Revenue/ Variable cost)

  12. Current Situation Case Overview Strategy Analysis Utilization & Implementation uNcertainty Apportion Analysis STORM Framework B5 Revenue Conditions – Produce Yield Profit structure of each Breed Farmer’s Market CSA Restaurants Tomatoes’ output has far exceeded the others and its elasticity of demand is relatively little.

  13. Apportion Analysis Case Overview Strategy Analysis Utilization & Implementation uNcertainty Current Situation Social Conditions Technical Conditions Organizational Conditions Revenue Conditions Market Conditions STORM Conditions Apportion Analysis

  14. Apportion Analysis Case Overview Strategy Analysis Utilization & Implementation uNcertainty Current Situation Classify Relevant Cost and Non-relevant Costs The Restaurant Channel The CSA Channel The Farmers’ Market Channel • Cost of seed &seedling • Fertilizer cost • Plant, care &harvest • Packaging • Fuel • Maintenance &repair • Depreciation of tangible assets • Communication cost • Cost of seed &seedling • Fertilizer cost • Plant, care &harvest • Packaging • Cost of seed &seedling • Fertilizer cost • Plant, care &harvest Relevant Cost • Fuel • Maintenance & repair • Depreciation of tangible assets • Preparation for the truck • Fuel • Maintenance & repair • Depreciation of tangible assets • Communication cost Non-relevant Cost We should focus on the relevant cost

  15. Apportion Analysis Case Overview Strategy Analysis Utilization & Implementation uNcertainty Current Situation Caselot for CSA • Foundation of Adjustment: • Different profit margin of different crops • Variability and Abundance • Long term CRM (Focus on CSA)

  16. Apportion Analysis Case Overview Strategy Analysis Utilization & Implementation uNcertainty Current Situation C1. Quantitative Analysis – Linear Programming Step One List all the constrained conditions & objective function The Restaurant Channel The CAS Channel The Farmers’ Market Channel Tomatoes (large) • 2.175X • 0.125Y • 31-(2.175X+0.125Y) Tomatoes (small) • 3.5X • 0.141Y • 45-(3.5X+0.141Y) • 0.4X • 0.05Y • 13.33-(0.4X+0.05Y) Watermelon • 0.15X • 0.094Y • 5.6-(0.15X+0.094Y) Okra • 0.2X • 0.07Y • 4.8-(0.2X+0.07Y) Basil • 0.9X • 0.15Y • 22.33-(0.9X+0.15Y) Cucumber Sweet potatoes • 0.33X • 0.11Y • 7.11-(0.33X+0.11Y) Winter squash • 0.225X • 0.22Y • 8.88-(0.225X+0.22Y)

  17. Apportion Analysis Case Overview Strategy Analysis Utilization & Implementation uNcertainty Current Situation Quantitative Analysis – Linear Programming Step One List all the constrained conditions & objective function Constrained Condition • 0 ≤ 31-(2.175X+0.125Y) ≤31 1. Constrained by products • 0 ≤ 45-(3.5X+0.141Y) ≤ 45 • 0 ≤ 13.33-(0.4X+0.05Y) ≤ 13.33 • 0 ≤ 5.6-(0.15X+0.094Y) ≤ 5.6 • 0 ≤ 4.8-(0.2X+0.07Y) ≤ 4.8 • 0 ≤ 22.33-(0.9X+0.15Y) ≤ 22.33 • 0 ≤ 7.11-(0.33X+0.11Y) ≤ 7.11 • 0 ≤ 8.88-(0.225X+0.22Y) ≤ 8.88 2. Constrained by working hours 0≤5+1.183X+0.6208Y≤24 3. Constrained by truck capacity 0 ≤ 130.06-(7.883X+0.8617Y) ≤ 40 Objective Function Z=3081.47-32.918X-0.62601Y

  18. Apportion Analysis Case Overview Strategy Analysis Utilization & Implementation uNcertainty Current Situation Quantitative Analysis – Linear Programming Step Two Feasible Region within the restrained conditions （8.98，31.63）

  19. Apportion Analysis Case Overview Strategy Analysis Utilization & Implementation uNcertainty Current Situation Quantitative Analysis – Linear Programming Step Three Optimal solution of linear programming Because of integer programming Optimal solution: Quantity of Restaurants served: X=9 Quantity of CSA subscribers: Y=32 Maximized relevant profits per week: Z=3081.47-32.918×9-0.62601×32 ≈$ 2764.18

  20. Apportion Analysis Case Overview Strategy Analysis Utilization & Implementation uNcertainty Current Situation Quantitative Analysis – Planned Sales Structure The Restaurant Channel The CSA Channel The Farmers' Market Channel 3 2 9 Average Weekly Restaurant Delivery Composition (Total for 9 Customers) Average Make-up of a Single CSA “Box” (Total for 32 Subscribers) Average Weekly Sales

  21. Apportion Analysis Case Overview Strategy Analysis Utilization & Implementation uNcertainty Current Situation Qualitative Analysis Solvency Significant debt Time of Cash-in Flow To buy and build the farm, Brett spent a lot from saving and assumed significantdebt. Restaurant Channel: CSA Channel: Receive $400 from each subscriber at the beginning of the 15-week season. Farmers’ Market Channel:Cash sale To improve the cash flow performance Increase the sales of CSA channel and Farmers’ market while decrease the sales of restaurant channel.

  22. Apportion Analysis Case Overview Strategy Analysis Utilization & Implementation uNcertainty Current Situation Qualitative Analysis Opportunity Cost Brett hope the farm would become profitable enough to support them both comfortably in the near future. Proper working hours and schedule should be made. e.g. working hours≤ 48h per week Personal Satisfaction

  23. Apportion Analysis Case Overview Strategy Analysis Utilization & Implementation uNcertainty Current Situation Qualitative Analysis Trend of Different Channels The restaurant channel: additional 10 potential restaurants in the coming season Good Increase The CSA channel: 33 to 90 potential subscribers growth rate of 220% of CSA channel in general Very Good Increase The farmers’ market channel: high risk and high profit with large demand

  24. Strategy Analysis Case Overview Utilization & Implementation uNcertainty Current Situation Apportion Analysis Strategy VISION: to provide high-quality & hi-end organic product S O Internal Differentiation Strategy External W T

  25. Utilization & Implementation Case Overview Strategy Analysis uNcertainty Current Situation Apportion Analysis Short-term decision – Planned Sales Structure The Restaurant Channel The CSA Channel The Farmers'’ Market Channel 3 3 8 2 9 Average Weekly Restaurant Delivery Composition (Total for 9 Customers) Average Make-up of a Single CSA “Box” (Total for 38 Subscribers) Average Weekly Sales Slight adjustment due to strategic concerns.

  26. Utilization & Implementation Case Overview Strategy Analysis uNcertainty Current Situation Apportion Analysis Short-term decision – Forecast Income Statement

  27. Utilization & Implementation Case Overview Strategy Analysis uNcertainty Current Situation Apportion Analysis Brett’s Timetable Leisure Day Communication (CSA) Farm Management TEL (Restaurant) Packing Farm Management Transportation (CSA) Farm Management Farmers’ Market Farmers’ Market Save unnecessary time so as to take care of the farm and rest

  28. Utilization & Implementation Case Overview Strategy Analysis uNcertainty Current Situation Apportion Analysis Mid-Term Planning Sensitivity Analysis Advice: Purchase a New Truck in 2 years Estimated Cost: $10,000 Capacity: 30 Cases per Trip Value Added: $5×30 × 2= $300 per Week Purchase a new truck to enhance capacity.

  29. Utilization & Implementation Case Overview Strategy Analysis uNcertainty Current Situation Apportion Analysis Mid-Term Planning Transportation Outsource Outsource transportation to restaurants to save time and cost. • Analysis: • Transportation to Restaurants per Week: • Gasoline Cost: $0.21 × 220 = $46.2 • Depreciation & Maintenance Costs: ($0.07+&0.13)×220= $ 44 • Time Consuming: 3.5 + 0.5 × 10 = 8 (hrs) • Opportunity Cost: $10 × 8 = $80 • (Based on 10 restaurants and gasoline price stays) • Advice: Outsource the Transportation to Restaurants • Cost Added: $ 150 per week • Profit Added: $46.2+$44+$80-$150 = $20.2 per week ! The numbers of restaurants are increasing . Oil prices are soaring!

  30. uNcertainty Case Overview Strategy Analysis Utilization & Implementation Current Situation Apportion Analysis uNcertainty - Weather Conditions Weather of Summer (Jun to Aug) in South Maryland: Average rainfall/precipitation: 286.5 mm Average rainy days: 22.3 days 1. Weather Best Condition Average Condition Worst Condition Weather: rainy Result: half products unsold ; 50% of unsold spoiled. Weather: sunny Result: sell out all the product. Weather: normal Result: overall spoilage rate is about 10%.

  31. uNcertainty Case Overview Strategy Analysis Utilization & Implementation Current Situation Apportion Analysis uNcertainty - Weather Conditions condition Revenue & Profit per week Action Best Revenue: $4478.12 Profit: $2137.29 Rainy days X<20 Average Rainy days 20<X<30 Revenue: $4333.81 Profit: $1992.98 Make preparation for different weather conditions. Shift the scale from farmers’ market to restaurants and CSA channel. Worst Revenue:$3756.55 Profit: $1415.73 Rainy days X>20

  32. uNcertainty Case Overview Strategy Analysis Utilization & Implementation Current Situation Apportion Analysis uNcertainty 2. Gasoline Price The pump price is raised If 2011 Nov $ ? Then The cost of delivery increases What to do Still increasing 2010 Nov $ 2.82 per gallon Enlarge the sale scale of CSA. Decrease the delivery of long distance restaurants. 10% increased 2009 Nov $ 2.65 per gallon Outsource the delivery service.

  33. uNcertainty Case Overview Strategy Analysis Utilization & Implementation Current Situation Apportion Analysis uNcertainty Increasing Price of fertilizer Mitigation: Grow those crops that use less fertilizer. Raise the price slightly. Rapid Inflation Mitigation: Increase the price Pay attention to the other uncertainties

  34. Summary A STORM framework Analysis A. Case Overview Social Conditions Technical Conditions Organizational Conditions Revenue Conditions Market Conditions B. Current Situation Analysis C. Apportion Analysis D. Strategy Positioning E. Utilization & Implementation A SUN Solution F. uNcertainty Management Accounting Approaches such as Linear Programming and Sensitivity Analysis are applied to help Even’ Star Organic Farm go from storm to sun.

  35. Thank You for Your Time! Dream Chasers From Sun Yat-sen University ZHANG Wei HUANG Peilong PENG Weijian LIU Mengning

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