Transcribed Text
Bay Area Bakery Company Case
New Bakery Proposal
Bay Area Bakery Company was a regional baker and distributor of bread and
operated six bakeries, shown on the map in Figure 1. The manager of
transportation and customer service for Bay Area Bakery Company was asked to
prepare a report outlining the effect of the proposed San Jose, California,
baking facility on the company's physical distribution system. The problem
centered around the fact that marketing territories served by the Santa Cruz
and Stockton bakeries had increased rapidly in population, necessitating
consideration for locating and equipping a new baking plant at San Jose.
Varying costs of labour, ingredients, and operations affected the total cost of
baking a standard quantity of bread at each of the locations. This average cost
for each of the bakeries is shown in Table 1, along with the daily capacity at
each location. The full line of the company's goods was baked at each of the six
locations.
Bay Area sold its products at an average delivered price of $3.00 per cwt. and
maintained uniform delivered prices on comparable quantity orders throughout
its marketing territory. Average daily sales from each bakery for each major
center of consumption are shown in Table 2.
To control physical distribution costs closely and to maintain tight control over
the freshness of baked items, Bay Area operated its own fleet of privately
owned local delivery trucks and over-the-road units. It was the transportation
and customer service manager's job to minimize transportation costs from each
of the baking plants to market areas. Within the limitations of the company's
operations, he had achieved levels of costs shown in Table 2. He had also
prepared an analysis of projected delivery costs between all company baking
facilities and market areas, as shown in Table 3, included in this projection
were those costs of delivery which could be expected between the proposed
plant at San Jose and other market areas.
Table 1 Bay Area Bakery Baking Costs and Capacities
Bakery Plant
Locations
Baking Costs
($s per cwt)
Daily Baking
Capacity
(in cwt) Plant Value ($s)
Santa Rosa 19 500 150,000
Sacramento 17 1,000 300,000
Richmond 16 2,700 810,000
San Francisco 17 2,000 600,000
Stockton 18 500 150,000
Santa Cruz 21 800 240,000
Total 7,500 2,250,000
San Jose 17 1,200 4,000,000
Table 2 Current Bay Area Bakery Operating Strategy
Major Market Areas Bakery of Origin
Quantity
(in cwt)
Production
Costs ($s)
Transportation Costs
($s)
Santa Rosa Santa Rosa 300 5,700 600
Sacramento Sacrament 500 8,500 750
Richmond Richmond 600 9,600 600
Berkeley Richmond 400 6,400 400
Oakland Richmond 1,100 17,600 1,320
San Francisco San Francisco 1,300 22,100 1,300
San Jose Santa Cruz 600 12,600 1,260
Santa Cruz Santa Cruz 100 2,100 200
Salinas Santa Cruz 100 2,100 280
Stockton Stockton 400 7,200 600
Modesto Stockton 100 1,800 260
Total 5,500 95,700 7,570
Table 3 Estimated Delivery Costs Between Bakeries and Market Areas
From Bakery Plant Locations ($s per cwt)
To Major
Market Areas Santa
Rosa Sacramento Richmond
San
Francisco Stockton Santa Cruz San Jose
Santa Rosa 2.00 4.40 3.20 3.20 4.20 4.80 4.20
Sacramento 3.90 1.50 2.90 3.60 2.50 4.50 3.90
Richmond 2.00 2.40 1.00 1.40 2.60 2.60 2.00
Berkeley 2.00 2.40 1.00 1.40 2.60 2.60 2.00
Oakland 2.20 2.60 1.20 1.20 2.60 2.40 1.80
San Francisco 2.20 2.80 1.40 1.00 2.80 2.60 2.00
San Jose 3.70 3.90 2.50 2.50 2.90 2.10 1.50
Santa Cruz 4.80 5.00 3.60 3.60 4.00 2.00 2.60
Salinas 5.60 5.60 4.20 4.40 4.60 2.80 3.20
Stockton 3.70 2.50 3.10 3.10 1.50 3.50 2.90
Modesto 4.80 3.60 4.00 4.00 2.60 4.20 3.60
A major reason for the suggested new baking plant at San Jose was the
especially rapidly growing market which the area represented. It was expected
that this market would double in the next 5 years, compared to an expected
10-percent increase in other markets (except in San Francisco which was likely
to remain constant) during the same period. Also, the inefficiencies involved in
serving San Jose from the Santa Cruz bakery could be relieved by the
construction of a more efficient bakery in the growing San Jose market.
A bakery with daily capacity of 1,200 cwt. was planned. It was estimated that a
facility of this size would cost $4 million fully equipped, and would be able to
turn out bakery products at an average cost of $17 per hundred pounds. The
expected 5-year increase in demand is shown in Table 4.
Table 4 Projected Daily Demand Bay Area Bakery
Demand (in cwt)
Major Market Areas
Current Five Years Growth
Santa Rosa 300 330 110%
Sacramento 500 550 110%
Richmond 600 660 110%
Berkeley 400 440 110%
Oakland 1,100 1,210 110%
San Francisco 1,300 1,300 100%
San Jose 600 1,200 200%
Santa Cruz 100 110 110%
Salinas 100 110 110%
Stockton 400 440 110%
Modesto 100 110 110%
Total 5,500 6,460 117%
Discussion Questions
1. As manager of transportation and customer service for Bay Area Bakery
Company, would you agree with the proposal to build a new baking
facility in San Jose? Formulate and solve a mathematical programming
model(s) to support your opinion. Make any necessary assumptions
regarding inflation and future building and production costs.
2. If you do not agree with the proposal, what action would you
recommend for consideration by other members of the company's top
management group? Is the current distribution pattern optimal?
3. If we project similar market growth for 10 years, what effect will this
have on the decision about whether and when to build a new plant?
4. What additional factors would have to be taken into consideration
before reaching a final decision in this matter?
Adapted from J. L. Heskett, L. M. Schneider, R. M. Ivie, and N. A. Glaskowsky,
Jr. (1973), Case Problems in Business Logistics
This material may consist of step-by-step explanations on how to solve a problem or examples of proper writing, including the use of citations, references, bibliographies, and formatting. This material is made available for the sole purpose of studying and learning - misuse is strictly forbidden.
This proposal is not a valuable one as the programming model does not suggest of building a new baking facility in San Jose. As San Jose is providing an optimum solution of where the company is saving a certain amount on an individual day but as the company is planning to build a new plant it may understand the problem of fund and hence this suggestion is not beneficial for the bakery (Schneider, Ivie, and Glaskowsky). ...