QSO 320 Vinho Winery Scenario
The Vinho Winery in Lodi, California, produces about one million cases of wine a year. They sell their wine wholesale to four independent wine distributors in Riverside, CA; Oakland, CA; Portland, OR; and Seattle, WA. Vinho Winery produces three varieties of wine: Ruby Red, Murky White, and Whole-Earth Organic. They use different grapes to produce the three varieties. Their production volumes (increased by grapes bought from other growers) must be planned at least a year in advance of being pressed into wine. The wine must be aged a year before being sold.
Vinho Winery advertises their wines in the areas surrounding their four independent wine distributors. The cost of this marketing is included in the wine production costs. Vinho has a contract with a private trucking company to move full truckloads of wine. A full truck will carry 24 pallets of wine, totaling 2,688 cases (16,128 bottles). The minimum shipment they will sell is a pallet of wine (112 cases). They contract out delivery of the pallets unless the cost rises higher than the cost of using one of their private trucking company’s trucks. Vinho has brokers arrange cargo to be carried on the return trip (backhaul) to avoid their trucks returning empty, resulting in needing to pay for the round trip. Little Lodi is not a major transportation destination, so only part of the return trip can be used. (For example, the return from Seattle can be used to move cargo from Seattle to Eureka, but not all the way to Lodi.)
A private equity firm recently bought Vinho Winery. They want an assessment of current operations. Once that is complete, they want plans to optimize operations. You’re the management consultant who’ll conduct the assessment and develop the plans. You’ll need to create and program spreadsheets for your analysis, then write summary statements.
You do more research on wine production and realize that it takes 3.5 pounds of grapes to make a bottle of wine. In addition, you know the price per bottle that the distributors are paying for each variety of wine:
Price for Red Wine ($) Price for White Wine ($) Price for Organic Wine ($)
7.50 8.00 12.00
You discuss wine production with the operations manager. You learn that the wineries that supply the grapes to produce the above types of wine can produce up to a total of 200,000 pounds of grapes for a six-month supply of wine bottles for the three markets. The following are the expected distribution constraints based on types of grapes. Note that current market needs will not support more than the below constraints for each type:
Red Wine Ceiling 22,000 bottles
White Wine Ceiling 24,000 bottles
Organic Wine Ceiling 12,000 bottles
The production cost per bottle stays the same as before. So the percentages of sales or revenue are 32% for red wine, 42.5% for white wine, and 52.5% for organic wine. You have gathered this additional information and are now ready to figure out the optimum production mix to maximize profit.