Eurofood Case Analysis

EuroFood Case compendium History EuroFood was created by French restaurateur, Mr Vigneau which specializes in the importing and distributing of food products from Europe to Hong Kong. EuroFood has faced a riddle with memorial cost. The Olivier Company decided to buy EuroFood on the condition that inventory aims has to be reduced from its afoot(predicate) level of 11 million Hong Kong Dollars to at least 4 million Hong Kong Dollars (assumption). In order to earn the inventory reduction a plan of action has to proposed which details the solution to the menses utmost levels of inventory. each(prenominal) the products brought to Hong Kong be shipped either by plane or through and through cargo boats (channels of distribution). The exclusively perishable products shipped through airplanes have no inventory records to be kept. The only inventory of Euro Foods is the products shipped via boats. The products shipped through boats are divided in general into two types 1. Complete Co ntainer Contains products shipped from the resembling supplier. Complete container takes almost 20 days to ship from Europe to Hong Kong and be 0. Hong Kong Dollars per kilogram 2. Consolidated container Contains products shipped from a group of suppliers use the same container as a rented facility. This ecstasy takes about 30 days to reach the customer and costs about 3 Hong Kong Dollars per kilogram. Main Problem * The accredited level of inventory of Euro Foods is worth $11 million. This is too much compared to the Olivier Company which has the same volume of trade as Euro Foods with a corresponding inventory level of only $4 million. The order quantity is high due to wrong forecasting which leads to high inventory costs * Some products have higher inventory costs than its annual gross revenue( Eg The product Carton Peach has an inventory cost of $437,113 and an annual sale of $ 253,248 which lead to profits of only $68,377) * Due to higher inventory levels of the product s the annual profit from the respective products are significantly lower compared to products which has lower inventory level. There are too many product categories (around 200 antithetic products) which has higher inventory levels and lower annual sales(Eg The product Crozes Hermitage 1984 has $158 annual sales but the inventory level is $2045 and total profit is only $47) Solutions * Cut down the products which has low profit and low annual sales but high inventory costs(EgCrozes Hermitage 1984 * Concentrate on top sale products like for example UHT merry cream 1 Liter, Portion Butter Unsalted etc. hose annual sales are high compared to inventory costs * Make the forecasting of all products more entire by using better forecasting techniques which can reduce the inventory level and ordering quantity more accurate * Top sale products like Whipping cream and Butter has to ordered more frequently base on the accurate forecast (using combined container) rather than storing it beca use these products can go bad easily. Combine the products from the same supplier to reduce the ordering quantity(Eg Products from Supplier Besnier can be combined into the same container) * Negotiate with current suppliers to reduce the ordering cost * Seek third party distributors to get a lower shipping cost if negotiation with current suppliers does not work out. Assumption * The holding costs and inventory costs affect the profit of the products * Time Frame in which the inventory reduction has to be achieved is irrelevant(Assumption)