arks People Tab Window Help einhar x Gacnl or floor codes HB Harvard Business Pu X Module 6: Overview X ads/LeClubFrancaisduvin.pdf The Ordering Process Once the forecast of a particular wine is established, Le Club places an order with the wine grower. Ordering occurs several months before publishing the catalog and at a point when little information beyond the wine experts' personal opinions is available. Upon receiving the order, the grower decorates the bottles with a label unique to Le Club and sends the order to Le Club's warehouse in Dijon (some 300km south of Paris). Le Club's exclusive label prevents consumers from comparing prices with supermarkets offerings and allows Le Club to enjoy comfortable gross margins of about 50%. Le Club's shipping and handling cost of 1.25 Euro per bottle are not included in the 50% gross margin (i.e., for a bottle with 10 Euro retail price, Le Club pays about 5 Euro in procurement costs and 1.25 Euro in transportation costs). The Club pays the wine grower 75 days after having received the shipment". If the forecast of a wine coincides with demand-or comes close to it-these payment conditions are very favorable for Le Club. In many cases, the company is able to collect payments from the end customer before settling the bill with the wine-grower. However, such desirable cash flows are not always the case. If Le Club has overforecasted sales for the catalog season, excess bottles are stored in the warehouse and are likely to be discounted in a future catalog. As a rule of thumb, Zanella assumes that an overbought white wine needs to be discounted by 40% of its retail price (i.e. a 10 Euro bottle would be sold for 6 Euro) to liquidate the inventory, but a red wine on average needs only a 30% discount, as red wine is less perishable (a white wine typically must be sold within two years or disposed). This liquidation is done via Le Club's catalog La Cave (see above). Bottles sold this way will also cost 1.25 Euro per bottle in shipping and handling. On average, Le Club warehouses white wines eight months and red wines 15 months. In addition to Le Club's cost of capital, which Zanella estimates at 15%, there are direct and indirect warehouse operations costs about 0.10 Euro per month per bottle. If, however, Le Club lacks sufficient supply of a particular wine, it misses almost all of the associated profit margins. Only rarely is it possible for Zanella to place additional orders for wines that he had underforecasted. The Customer Experience Customers ordering wines from the Etiquette catalog (i.e., those who chose not to receive La Selection but still wanted to purchase wine from Le Club) place their order by mail, phone, fax, or over the internet. As a large portion of Le Club's customers are in their 60s, orders by mail are rather common. This key customer segment has been with Le Club for many years loads/LeClubFrancaisduvin.pdf The Customer Experience Customers ordering wines from the Etiquette catalog (i.c., those who chose not to receive La Selection but still wanted to purchase wine from Le Club) place their order by mail, phone, fax, or over the internet. As a large portion of Le Club's customers are in their 60s, orders by mail are rather common. This key customer segment has been with Le Club for many years. Customers do not have to pay for any shipping and handling costs. A typical customer order consists of 12 bottles of wine of three different types. While customers placing orders by phone and online can directly be informed if a particular wine is out of stock, the majority of This is, under French law, the maximum time a firm can wait before settling a procurement bill with a small or medium sized company. customers (mail and fax) are not aware of the availability of wines for their order. Thus, typically, all demand for a wine that remains unfulfilled is lost. Given the complications associated with stock-outs, Le Club aims at high availability for its wines throughout the catalog season. Decision Zanella thought of the more than 200,000 bottles that Le Club currently held in its warehouse. Unfortunately, he thought, we cannot ship the leftover St-Emilion bottles to the customers waiting for a Ctes du Rhne. The Ctes du Rhne (Dne Notre Dame des Pallieres), another red wine, was also featured in the January 2004 catalog. Forecasted to sell 10,000 bottles, it ultimately experienced a demand of over 11,000. Zanella replaced his wine glass with a cup of coffee and opened up his Excel file containing information on demand, wine characteristics, forecast information and realized demands (Exhibit 1) that he uses to track the accuracy of his old forecasts. Reviewing the forecasts for the next catalog season, he set about creating a first draft for the orders he would place with the growers in the coming week (Exhibit 2). Once again, Le Club would offer an exciting new collection of wines. However, the task of forecasting and ordering was not an easy one. x Gacnl ar floor codes - X HB Harvard Business Pu x W Module 6: Overview ClubFrancaisduvin.pdf Year 02 02 02 01 Color Rouge Blanc Rouge Rouge 03 02 03 02 Ros Rouge Blanc Rouge 02 I 03 Rouge Rouge Ros Blanc 03 03 Appellation Designation FAUGERES L'enclos des Moulins GRAVES Ch. Cabannieux GRAVEC Ch. Haut Pommarede PESSAC LEOGNAN Ch. Haut Nouchet CARTON PANACHE 6+2+4 BORDEAUX CLAIRET Ch. De Marsan COTES DE BOURG Ch. Florimond ENTRE DEUX MERS Ch. La Grande Mtairie BORDEAUX Ch. Gillet - FIDELITE CARTON PANACHE sauf bordeaux Bordeaux Rserve du Club VDP des Coteaux de L'Ardcher a Reserve Rouge du Club VDP des Cteaux de L'Ardche La Rserve Ros du Club VDP du Comt Tolosan La Rserve Blanc du Club CARTON PANACHEE Les Rserves du Club CABERNET D'ANJOU Goulaine SANCERRE Le Chtillet - Balland Chapuis CHINON Clos des Petites Croix - FIDELITE ALOXE CORTON Ch. Philippe le Hardi BOURGOGNE ALIGOTE Dne des Lauriers GIVRY La Busynoise COTEAUX DU LYONNAIS Pot des Voraces - 50 cl CDR Vill RASTEAU Domaine Combe Julire CIGONDAS La Payouse COTES DU VENTOUX Gabriel Meffre (6) CARTON PANACHE CORBIERES (6) Ch. La Mondiere GAILLAC Dne de Borio Vieille MINERVOIS Domaine des Arcades - FID MADIRAN Folie de Roi Retail price ( per bottle) 6.80 9.90 8.40 18.90 12.15 5.50 7.20 5.15 4.65 5.95 4.50 3.25 3.30 3.30 3.59 5.60 12.00 5.85 21.90 7.20 12.90 5.35 8.90 13.90 5.60 9.47 5.70 5.80 Forecast 12000 750 1000 1300 3200 4000 1300 1500 6000 6000 2900 3500 2900 2300 3000 3000 1800 4500 1200 1100 900 3000 900 1000 1200 3000 1300 2500 4000 12000 03 02 02 02 03 02 03 02 99 03 Ros Blanc Rouge Rouge Blanc Rouge Rouge Rouge Rouge Rouge 01 03 00 01 Rouge Rouge Rouge Rouge 5.21 9.00 Exhibit 2: Wine information about the upcoming catalog season. The average gross margin is 50% (.e. a 10 Euro bottle is purchased from the grower for 5 Euro). A carton panache is a mixture of several wines. in sufficient detail to explain your approach. 4. (20 points) How much of each wine listed in Exhibit 2 would you order? Explain /justify your decisions. If it is deemed tedious to do the calculations for all the listed wines, answer this question for at least a relevant sample of wines including VDP des Cteaux de L'Ardche (Rouge), PESSAC LEOGNAN, GIGONDAS, GRAVES (Ch. Haut Pommarde). arks People Tab Window Help einhar x Gacnl or floor codes HB Harvard Business Pu X Module 6: Overview X ads/LeClubFrancaisduvin.pdf The Ordering Process Once the forecast of a particular wine is established, Le Club places an order with the wine grower. Ordering occurs several months before publishing the catalog and at a point when little information beyond the wine experts' personal opinions is available. Upon receiving the order, the grower decorates the bottles with a label unique to Le Club and sends the order to Le Club's warehouse in Dijon (some 300km south of Paris). Le Club's exclusive label prevents consumers from comparing prices with supermarkets offerings and allows Le Club to enjoy comfortable gross margins of about 50%. Le Club's shipping and handling cost of 1.25 Euro per bottle are not included in the 50% gross margin (i.e., for a bottle with 10 Euro retail price, Le Club pays about 5 Euro in procurement costs and 1.25 Euro in transportation costs). The Club pays the wine grower 75 days after having received the shipment". If the forecast of a wine coincides with demand-or comes close to it-these payment conditions are very favorable for Le Club. In many cases, the company is able to collect payments from the end customer before settling the bill with the wine-grower. However, such desirable cash flows are not always the case. If Le Club has overforecasted sales for the catalog season, excess bottles are stored in the warehouse and are likely to be discounted in a future catalog. As a rule of thumb, Zanella assumes that an overbought white wine needs to be discounted by 40% of its retail price (i.e. a 10 Euro bottle would be sold for 6 Euro) to liquidate the inventory, but a red wine on average needs only a 30% discount, as red wine is less perishable (a white wine typically must be sold within two years or disposed). This liquidation is done via Le Club's catalog La Cave (see above). Bottles sold this way will also cost 1.25 Euro per bottle in shipping and handling. On average, Le Club warehouses white wines eight months and red wines 15 months. In addition to Le Club's cost of capital, which Zanella estimates at 15%, there are direct and indirect warehouse operations costs about 0.10 Euro per month per bottle. If, however, Le Club lacks sufficient supply of a particular wine, it misses almost all of the associated profit margins. Only rarely is it possible for Zanella to place additional orders for wines that he had underforecasted. The Customer Experience Customers ordering wines from the Etiquette catalog (i.e., those who chose not to receive La Selection but still wanted to purchase wine from Le Club) place their order by mail, phone, fax, or over the internet. As a large portion of Le Club's customers are in their 60s, orders by mail are rather common. This key customer segment has been with Le Club for many years loads/LeClubFrancaisduvin.pdf The Customer Experience Customers ordering wines from the Etiquette catalog (i.c., those who chose not to receive La Selection but still wanted to purchase wine from Le Club) place their order by mail, phone, fax, or over the internet. As a large portion of Le Club's customers are in their 60s, orders by mail are rather common. This key customer segment has been with Le Club for many years. Customers do not have to pay for any shipping and handling costs. A typical customer order consists of 12 bottles of wine of three different types. While customers placing orders by phone and online can directly be informed if a particular wine is out of stock, the majority of This is, under French law, the maximum time a firm can wait before settling a procurement bill with a small or medium sized company. customers (mail and fax) are not aware of the availability of wines for their order. Thus, typically, all demand for a wine that remains unfulfilled is lost. Given the complications associated with stock-outs, Le Club aims at high availability for its wines throughout the catalog season. Decision Zanella thought of the more than 200,000 bottles that Le Club currently held in its warehouse. Unfortunately, he thought, we cannot ship the leftover St-Emilion bottles to the customers waiting for a Ctes du Rhne. The Ctes du Rhne (Dne Notre Dame des Pallieres), another red wine, was also featured in the January 2004 catalog. Forecasted to sell 10,000 bottles, it ultimately experienced a demand of over 11,000. Zanella replaced his wine glass with a cup of coffee and opened up his Excel file containing information on demand, wine characteristics, forecast information and realized demands (Exhibit 1) that he uses to track the accuracy of his old forecasts. Reviewing the forecasts for the next catalog season, he set about creating a first draft for the orders he would place with the growers in the coming week (Exhibit 2). Once again, Le Club would offer an exciting new collection of wines. However, the task of forecasting and ordering was not an easy one. x Gacnl ar floor codes - X HB Harvard Business Pu x W Module 6: Overview ClubFrancaisduvin.pdf Year 02 02 02 01 Color Rouge Blanc Rouge Rouge 03 02 03 02 Ros Rouge Blanc Rouge 02 I 03 Rouge Rouge Ros Blanc 03 03 Appellation Designation FAUGERES L'enclos des Moulins GRAVES Ch. Cabannieux GRAVEC Ch. Haut Pommarede PESSAC LEOGNAN Ch. Haut Nouchet CARTON PANACHE 6+2+4 BORDEAUX CLAIRET Ch. De Marsan COTES DE BOURG Ch. Florimond ENTRE DEUX MERS Ch. La Grande Mtairie BORDEAUX Ch. Gillet - FIDELITE CARTON PANACHE sauf bordeaux Bordeaux Rserve du Club VDP des Coteaux de L'Ardcher a Reserve Rouge du Club VDP des Cteaux de L'Ardche La Rserve Ros du Club VDP du Comt Tolosan La Rserve Blanc du Club CARTON PANACHEE Les Rserves du Club CABERNET D'ANJOU Goulaine SANCERRE Le Chtillet - Balland Chapuis CHINON Clos des Petites Croix - FIDELITE ALOXE CORTON Ch. Philippe le Hardi BOURGOGNE ALIGOTE Dne des Lauriers GIVRY La Busynoise COTEAUX DU LYONNAIS Pot des Voraces - 50 cl CDR Vill RASTEAU Domaine Combe Julire CIGONDAS La Payouse COTES DU VENTOUX Gabriel Meffre (6) CARTON PANACHE CORBIERES (6) Ch. La Mondiere GAILLAC Dne de Borio Vieille MINERVOIS Domaine des Arcades - FID MADIRAN Folie de Roi Retail price ( per bottle) 6.80 9.90 8.40 18.90 12.15 5.50 7.20 5.15 4.65 5.95 4.50 3.25 3.30 3.30 3.59 5.60 12.00 5.85 21.90 7.20 12.90 5.35 8.90 13.90 5.60 9.47 5.70 5.80 Forecast 12000 750 1000 1300 3200 4000 1300 1500 6000 6000 2900 3500 2900 2300 3000 3000 1800 4500 1200 1100 900 3000 900 1000 1200 3000 1300 2500 4000 12000 03 02 02 02 03 02 03 02 99 03 Ros Blanc Rouge Rouge Blanc Rouge Rouge Rouge Rouge Rouge 01 03 00 01 Rouge Rouge Rouge Rouge 5.21 9.00 Exhibit 2: Wine information about the upcoming catalog season. The average gross margin is 50% (.e. a 10 Euro bottle is purchased from the grower for 5 Euro). A carton panache is a mixture of several wines. in sufficient detail to explain your approach. 4. (20 points) How much of each wine listed in Exhibit 2 would you order? Explain /justify your decisions. If it is deemed tedious to do the calculations for all the listed wines, answer this question for at least a relevant sample of wines including VDP des Cteaux de L'Ardche (Rouge), PESSAC LEOGNAN, GIGONDAS, GRAVES (Ch. Haut Pommarde)