Spanish Juices Company to Reduce High Spoilage Rate

Case Type: operations strategy, value chain optimization.
Consulting Firm: Arthur D. Little first round full time job interview.
Industry Coverage: consumer goods; food & beverages.

Case Interview Question #00770: Our client Exotic Juices Company is a consumer packaged goods company located in Madrid, Spain. The company’s main business is to produce fruit pulp and extracts for manufacturing different flavored beverages. The business has been owned and managed by a Spanish family for several decades. It has revenues of 100 million Euros a year.

The client Exotic Juices Company sells its products through two major distribution channels: to restaurants and to retail stores such supermarkets. It has been facing a recurring problem of spoilage and has displayed higher spoilage rates as compared to its competitors. An Arthur D. Little case team has been engaged to help them solve this problem. What can be done to reduce their high spoilage rate?

Additional Information: (to be provided to candidate upon request)

• Distribution channels: wholesale suppliers to restaurants, supermarket private labels.
• Shelf life of 180 days with customers requiring 60 days.
• High recipe switching costs.
• Competitors’ spoilage rates are only one-fourth of our client’s.
• Spoilage occurring at the client’s distribution centers and not at the customers’ facilities.
• The client’s capacity utilization is 80%.

Possible Answer:

Question #1: Lay out the end-to-end value chain

Suggested Solution:

Demand forecast –> Sourcing –> Manufacturing –> Sales & Distribution

Question #2: Estimate the demand of pulp and extracts for our client

Additional Information: (Only Provide if Asked)

1 gram of fruit extract is required per 200 ml of beverage (industry standard)
Total market size of the restaurant channel: 1.5 billion liters
Market share in the restaurant channel: 30%
Total market size of the supermarket channel: 750 million liters
Market share in the supermarket channel: 40%

Suggested Solution:

Total demand for the client’s products: (30% * 1.5 billion liters + 40% * 750 million liters) * 1 gram/200 ml = 3.75 million kilograms

Additional Information to be provided next to interviewee:

The client’s forecasting tools and methods are out dated and generate estimates that are not in tune with the current market demand. The tool generates production requirements of 4.9 million kilograms annually.

The interviewee should be asked for reaction and possible solutions:

The client over produces by 1.15 million kilograms which would contribute to the problem of excessive spoilage. The client also faces a severe problem of over-capacity. Candidate should suggest means by which capacity can be reduced (by selling off facilities) or effectively utilized (renting to other manufacturers, for instance).

Question #3: Where else in the value chain could there be possibility of wastage or spoilage?

Suggested Solution:

Ideally the candidate should examine each step in the value chain:

Conclusion:

Final recommendation should include a summary of all the problems analyzed with insights drawn from each clearly stated. Strong candidates will also include actions to be taken.