sample catherine confectionary write up

CATHERINE’S CONFECTIONARIES

CASE WRITE UP

Professor Wilbon

June 1

Catherine’s Confectionaries Case Write Up June 1, 2012

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Executive Summary

Issue Presented

Catherine Horton has a knack for cooking, but not as much for fundamental business

analysis. In an attempt to grow her business to meet the demand of her customers, Catherine

has found herself overextended with respect to finances and time. Because she attempted to

grow her business without a clear business strategy, she is in a situation where she is paying

rent that she apparently cannot afford for a space that is so large it is forcing her to hire

unskilled labor in an effort to utilize the space by taking walk-in customers (something outside

of her core competency and business model: preparing food for events). Because of the high

demands on her she recently has hired two more individuals (one to help cook and one to help

manage), an infrastructural decision that her finances don’t necessarily justify. Thus, Catherine

is suffering from ill-advised structural and infrastructural decision-making (Introductions to

Supply Chain Management, Bozarth & Handfield, 2008, pp. 23-24).

Brief Answer

At this juncture, Catherine needs to re-think her business strategy and decide whether

she would like to downsize her business, maintain the size of her business, grow her business

further or close the business. My recommendation is for Catherine to downsize her business

while possibly making the business more profitable by being more selective about her clientele

and finding creating ways to cut costs.


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Analysis of Alternatives

Catherine’s first order of business is to conduct a better analysis of her business and

create and then implement a strategy that will allow her to function in a cash flow positive

manner. After such strategy is created, Catherine will have to determine whether she needs to

(i) downsize her business to make it more manageable, (ii) maintain the size of her business. (iii)

grow the business or (iv) shut down the business.

First Step: Creating a Business Strategy

Business strategies are important because they are “the mechanisms by which

businesses coordinate their decisions regarding their structural and infrastructural elements.”

(Bozarth & Handfield, 2008, p.24). Bozarth & Handflied states that a business strategy must

identify the firm’s targeted customers and determine what functions are needed to provide

value to the same. First, Catherine should look at her revenues over the past 7 years and

determine which segment of her business has been the most profitable. Catherine has 3

different types of customers: walk in, business to business and individual orders (See Appendix

A for a further breakdown of such customer segments). Although her business to business

customers probably generate the most revenue, they also require the most care because of the

constant changes to the mix and quantity of items being made. Because of these logistics, it

would probably be wise to hire some help cooking and managing the food items provided in the

business to business portion of her business. The individual orders were probably not as

profitable (because they were not as consistent), but the longer notice time probably makes

Catherine’s life much easier. Also, she was able to run the individual order business pretty


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efficiently from her own kitchen. The walk in business is a by-product of her leasing situation

and is more than likely a cost center because of the hired help that is needed to serve such

customers. Catherine also needs to consider her costs and how she may be able to lower them.

For instance, it could be that in a support process portion of her business (Bozarth & Handfield

p. 46) such as purchasing ingredients or equipment that she needs to consider shopping for

new vendors or negotiating with her current ones to lower costs. Catherine can also consider

reviewing ratios such as productivity (Productivity=outputs/inputs, Bozarth & Handfield p. 56)

that can let her know if she needs to consider increasing the output the company gets from a

particular input.

After taking a close look at revenues and costs, Catherine needs to take a look at her

local competition to determine who is competing that might take business from her. This will

allow her to perform some type of forward looking financial analysis on where she believes her

business might go in the next couple of years. Finally, Catherine has to put a dollar amount on

the value of her leisure time in the short term. Her business to business customers are more

than likely going to require more strenuous work on her part from client management to

management of hired help. However, her individual order business seemed to be a little more

manageable. After considering these factors Catherine would be prepared to make a choice as

to how her business will need to move forward to reach her personal goals.

Downsizing the Business

One of Catherine’s alternatives is to downsize her business by only catering to her

individual customers or to customers that offer similar business conditions as her individual


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customers. The pros to this decision are that she can (a) cut costs by terminating her current

lease and working from home again, (b) manage the business on her own and possibly cut the

cost of an employee to help her cook and (c) have a little more time for leisure and not be

completely stressed out about the business constantly. The cons to this solution are that

Catherine could be “leaving some money on the table” by refusing to continue to work with her

business to business customers (or at least the ones that require last second changes and tight

deadlines), her revenue will not be as consistent (and thus her profitability may be affected)

and she may not feel as challenged with this limited amount of work.

Maintain Size of Business

Another alternative for Catherine is to maintain the size of her business and try to make

it more profitable. The only way that she would be able to do this is by increasing the

company’s revenue and maintaining costs, or finding ways to cut costs. Catherine’s company

can increase revenues by either increasing prices, providing more service to the company’s

current customers or attracting new customers (or some combination of these). Raising prices

could be difficult with respect to business to business customers because of their price

sensitivity, and these customers provide the most consistent revenue. However, if Catherine’s

research reveals that she really has no competition in the area then she may have to consider

commanding a higher dime for her product. If the company tries to provide more service to its

customers, then Catherine will have to rely heavily on Mary to help her prepare quality food in

a timely fashion. Finally, attracting new customers is always vital to maintaining and growing


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businesses. This allows the company to diversify its customer base and not be overly

dependent on one client.

The pros to maintaining the size of the business are that with the right decision making

Catherine can increase her profits, she can have a successful fully operating business, and if

profits reach a certain level she can hire enough skilled labor to ensure that her job is to

develop business and oversee the company and not necessarily take part in the day to day

grind. The cons to maintaining the size of the business are that in the short term Catherine is

going to have to expend a high level of energy working hard and also be creative in finding ways

to cut costs. Some possible ways to cut costs are as follows: (1) negotiating a reduction in her

lease payment with her landlord, (2) discontinuing the walk-in business and thus possibly not

needing her MBA hire (although he could be useful to help her run the overarching business),

and (3) finding a better solution for compensating Mary such as reducing her salary but

providing her a bonus tied to the revenue brought in by the company or giving her an equity

stake in the company. Another con is that even if she is able to build a cash flow positive

company that is profitable, being the CEO of a firm is still a fair amount of work and pressure,

thus she would be removed from what she loves doing (trying new recipes and being

innovative).

Grow the Business

Catherine can also consider growing her business. Many of the requirements of

maintaining the business would come into play here (generating more revenue and cutting

costs), but finding additional financing would be of great importance if she decided to grow her


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business. Catherine would have to consider taking out a loan (either from a bank or relatively

high net worth friends) or searching for equity investors. If financing were to be raised,

Catherine would need a very strong plan on how she was going to generate a return for such

investors (such as lowering costs and generating more revenue to increase profitability over the

next 18 months). The pro to this plan is that with the correct strategy Catherine could possibly

build a profitable empire that could put her in a strong financial position. The cons to this plan

are that this type of effort would probably mean that Catherine would have to work even

harder over the next 5 years and that she is going to be on the hook with respect to financial

returns to investors (which increases the stress on the company and on her personally).

Shut Down Business

If Catherine determines that the work she must put in to maintain her business is not

worth the business itself, she should consider shutting it down. At this juncture she only has a

handful of employees so the fall out would be minimal. She could have a fire sale of her

equipment and she would have to find a manner in which to terminate the lease (if the lease is

in the company’s name and the company dissolves this may provide an out on that front). The

cons to this idea are that she would lose her source of income and also not realize her dreams

of running her business effectively. The pros are that she would be able to have some pressure

taken off her and possibly find another job that better suits her skills (such as preparing food for

another business that she does not run or going back to her initial employment if possible).


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Recommended Solution

Based on the information provided, I recommend that Catherine carefully thinks through her

business strategy and implement a strategy of downsizing her business slightly. This downsize

would have the following attributes:

Catherine would cater her business to individual orders and take on business to business

customers that were more flexible with respect to timing (e.g., able to give her a lengthy

notice period regarding the items they were going to order and had minimal last minute

changes).

Catherine would terminate her lease and work out of her kitchen or find a less cost

prohibitive venue. This structural decision will complement her decision to target specific

customers that will allow her to thrive in her business.

On the infrastructural front, Catherine should cut Mary’s compensation by a certain

percentage, but offer Mary a bonus based on reaching certain revenue goals. Such

compensation and bonus combined would need to exceed Mary’s current payment amount.

Catherine would discontinue serving walk-in customers. Although there is an argument that

this is a type of marketing tool, it is not worth the headache and financial stress that comes

from hiring unskilled labor and dealing with unpredictable customers. This task is outside of

her core competency and more than likely is costing Catherine money and time.

Catherine could cut Tom’s pay by at least 30% (noting that the walk-in business is being

terminated), and pay him as a part time employee (or even an outside CFO) that could help

her keep the books and stay on top of her financial situation.


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Assumptions, Restrictions and Constraints

The above recommendation is based on certain assumptions that have been made.

First, we have assumed that Catherine can terminate the lease with her landlord. This item is

definitely going to be difficult because the landlord is dependent on the income from Catherine.

We are not sure about the terms of the lease including the monthly payment, lease termination

policy, parties to the lease or penalties for breach. These are very important items that would

need to be reviewed carefully with a lawyer. Further, we have assumed that Catherine’s home

kitchen can handle an increased workload. We are not sure of the dimensions of her personal

kitchen, or the equipment that she has in such kitchen. We would need to carefully assess

whether the kitchen would be able to handle more consistent cooking, noting that previously

was the business to business portion of her business picked up she needed to move to a larger

kitchen. We have assumed that Mary and Tom are understanding and logical individuals who

don’t have better prospects at employment. This may be true for Mary, but Tom may not be

willing to take a pay cut and a decline in his duties. MBAs are known to be a prideful lot.

Finally, we have assumed that business to business customers might be willing to be more

flexible in their timing regarding ordering and their last minute needs. However, businesses

that are using Catherine’s services are trying to meet quantities and deadlines on their own, so

they more than likely want to work with a caterer that can deal with the issues that they have

to deal with from their own customers.

Further, Catherine may face certain constraints. For instance, she may need to make a

certain amount of money to maintain her standard of living, noting that she left her full time


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job to run this business. Time is also a constraint because if the business does not start moving

in the correct direction soon Catherine’s operations may start to suffer, a fact that would hurt

her ability to compete for her customers (assuming she does not have a monopoly, which is a

fair assumption because the barriers to entering this business are minimal).

Summary and Conclusion

Catherine should consider downsizing her business to make it more manageable from

both a structural and infrastructural standpoint by targeting certain customers that provide a

certain level of flexibility, terminating her lease and working with Mary and Tom to come up

with a better compensation structure. Implementing this strategy may generate less revenue

for Catherine’s business, but it may actually increase her margins and make her services more

profitable. Most importantly, it could help take some of the stress off Catherine so that she can

enjoy her work again and spend more time creating new recipes that could please her clients.

Effectively managed, this new strategy could make Catherine’s business sustainable for the

foreseeable future.


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Appendix A

Customer Type Differentiating Factors (of Customer)

Order Winners

Walk-in Piece meal ordering. What you see is what you get. Customer service is consistent face to face interaction. Orders are relatively not predictable.

Quality of taste. Reputation.

Business to business Requires higher volume and flexibility. Possibly more stringent quality compliance and deadlines. Higher likelihood of large volume repeat business.

Quality of taste. Timely fulfillment of orders. Competitive pricing.

Individual Orders High contact with customer (personal feel). Flexibility in timing.

Customer service. Options for special ordering. Personal relationship.

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