Final Report Group7 Case1 Scharffen Berger Rev02 2ys45

Supervisor

: James Baulch

Group

:7

Team

: Jorge Franco Zapata Anu Shree Fermi Trafianto Tuncay Akdeniz Hu Jingwen Wang Jianfeng

Scharffen Berger Chocolate Company Web Tutorial – Case Study 1

2012

TABLE OF CONTENTS

1

INTRODUCTION .................................................................................................................. 3

2

QUESTION 1 ........................................................................................................................ 4

3

QUESTION 2 ........................................................................................................................ 7 3.1

MODIFICATIONS SUGGESTED: .................................................................................. 11

4

QUESTION 3 ...................................................................................................................... 14

5

CONCLUSIONS................................................................................................................... 17

6

BIBLIOGRAPHY AND REFERENCES .................................................................................... 18

2

Scharffen Berger Chocolate Company Web Tutorial – Case Study 1

2012

1 INTRODUCTION Since it was founded by Robert Steinberg and John Scharffenberger in 1996, Scharffen Berger has competed in quality chocolate business that considers ingredients, manufacturing methods, taste and pricing as important factors to provide taste experience. Being one of the few companies that manufactured chocolate “From Beans to Bar”, Scharffen Berger had a prospective future with a 10 fold sales growth in 5 years to $10 million in 2004 and a projected annual growth for chocolate segment of 15-20% between 2000 and 2010. Its primary products were unsweetened, extra dark, bittersweet, semi-sweet, mocha, mint, nibby bar and milk chocolate with a different blend of several carefully selected beans for each chocolate type. This company offered up to 80 different chocolate products to both direct chocolate consumers and food service industries in the form of chocolate bars with different sizes, drinking chocolate, cocoa powder and chocolate-covered figs. The company boosted the sales not only by optimizing its five retail stores, other various retail outlets and its own website but also by gaining distribution with large gourmet chains as well as smaller chains, single stores and non-traditional specialty chains. As the main strategic plan of the company, Scharffen Berger committed to “produce chocolate of the highest quality possible from the finest cacao beans available” to meet customer’s expectations and to gain market share. Quality had to be managed both in the production process and the final products to maintain Scharffen Berger brand equity. This sort of quality control across all the stages involved lead to the excellent product quality. Hence, even at Scharffen Berger the 'process quality' meant and ensures 'product quality' in the form of creating one of the best chocolates. However, since the demand grew rapidly and outstripped supply, Jim Harris, the chief operating officer, faced the challenge of meeting current demands for the chocolates using current production facilities while maintaining its quality.

3

Scharffen Berger Chocolate Company Web Tutorial – Case Study 1

2012

2 QUESTION 1 Explore the interaction of product quality with process quality It should be noted that with the business expanding, quality control has a vital role and becomes more complex in all organizational functions to ensure both process quality and product quality. Process quality is a reflection of the end product quality. If the process is capable and stable enough, the products shall definitely meet the required quality standards. Thus, a quality product comes from a quality process. Process quality is a tool to achieve a company's goal to make profits, make it competitive in the market and meet customers' requirements. In order to ensure that process quality is maintained in Scharffen Berger chocolate factory, other components like ingredients (beans), machines (roaster, winnower, conches etc.), management and/or machine operator interaction and others are required to be examined. As an initial production process, the selection of cacao beans

Figure 1 -Scharffen Berger involved in the selection of cacao beans from farms around the world

plays the important role that will be carried along the process. The founders of the company used to travel to remote areas in order to find farmers who grew best quality beans. Unlike other manufacturers, Scharffen Berger had a mixture of nine different kinds of beans (while others used maximum 2 varieties). For quality control purpose, the chocolate quality was tested at least twice in a month, the beans and chocolates were blind tasted at various stages of the production process. Furthermore, they had very precise timings for the removal of foreign objects from the beans, separately roast each kind of bean in of time and temperature which is varied by bean, and six different conching processes for six ratios of chocolate to meet different customers' needs of a various chocolate flavour which again implied a good sense of quality

4

Scharffen Berger Chocolate Company Web Tutorial – Case Study 1

2012

control. Machine operators usually judged the quality of the chocolate under process before and after most of the various processes involved. In the end, 35% packaging processes are maintained in their own factory to keep a watch on the quality. For Scharffen Berger, to be a part of the "" range of chocolates, product quality was one of the most important criteria for them to address. Most of the quality processes implemented such as selection of cacao beans, flavour tasting, texture testing and even packing are Figure 2 - Quality control is maintained throughout the entire production process including the packing process.

performed

by

the

owners

or

very

experienced operators or in other words

they rely merely on manual processes. The owners of the company are also reluctant to upgrade/change their existing machinery or production methods because it can detrimentally affect the quality of the final product, unless extensive test and tastings are performed to achieve the desired quality levels. However, due to the increasing demand, although they have been forced to think in the direction of increasing their supply, the process and hence product quality is still the most prioritised aspect for the company founders. It is impossible for them to improve process quality by reducing chocolate-making process time or chocolate production cycle while maintaining product quality as the finest dark chocolate in America without spending money. Quality is closely related to the customer satisfaction. If a company is incapable to meet high customer demand, customer satisfaction may be degraded even though it provides high quality products. Bottlenecks in the production process devastate this issue. Faster production process while maintain product quality gives value addition to the product as it increases customer satisfaction for product availability. Although, they had contemplated some possible processes that can minimize the overall producing time, this was not a valid option for the company founders since optimum process time already had been established to produce high quality product. They had set up

5

Scharffen Berger Chocolate Company Web Tutorial – Case Study 1

2012

the time for each machine to complete its own process after experienced the satisfactory result for each process. Even though they know the required time for each process, they still look to double check them by operators testing to finalize each process. Therefore, the decision to deploy a ball mill machine is essential for the company as it can reduce the total conche time 40-60 hours to about 10 hours and by doing so, they can increase the capacity of more than 75 %. The ball mill shall particularly be very helpful in mixtures where higher sugar content is maintained. It would be capable of grinding it down to even finer particles in much lesser time. Also, it shall help reduce the degradation in flavour that might happen when any mixture is over-processed. Even though they might not be a mass producer of chocolates they could still survive because of their chocolate quality in of taste, packaging, quality of beans used etc. In Scharffen Berger, the production process is more an artisan process than an industrial process and its market is basically directed to those with much selected palate who can afford to pay a price for a chocolate bar. Besides, chocolates are a highly growing market in chocolate industry. Furthermore, in order to improve its serviceability, it has diverse sale channels, including retail and online, making it convenient for customers to purchase. Besides, Scharffen Berger has its nutrition information of each product on their website. It also has its particular recipe and also their website contains information about satisfaction guarantee and return policy.

Figure 3 - online shop at http://shop.scharffenberger.com

6

Scharffen Berger Chocolate Company Web Tutorial – Case Study 1

2012

3 QUESTION 2 Identify the capacity bottlenecks throughout the process A bottleneck is a stage in a process that causes the entire process to slow down or stop. This in turn, reduces the capacity of the whole chain. In order to maintain optimum production levels in sync with the increasing demand of any product, the identification of bottlenecks and/or potential bottlenecks is quite useful. The figure below shows how bottlenecks affect the downstream processes/flow.

Figure 4 - Bottleneck definition

In this question we are required to identify and analyse the bottlenecks in the entire production process at Scharffen Berger. For this purpose, we first calculated the output of each stage (kg/week) and then compared it with the preceding and succeeding stages to check if the stage is a potential bottleneck. Also as per the rule of thumb, changing anything else before addressing the bottleneck shall not improve the performance. With the increasing demand and the precedence given to quality control at Scharffen Berger, they need to identify the possible bottlenecks in order to increase their production whilst maintaining the same quality. Once the bottlenecks are identified they could come up

7

Scharffen Berger Chocolate Company Web Tutorial – Case Study 1

2012

with solutions in of increasing the capacity of the particular stage by upgrading the equipment, increasing the number of shifts etc. The entire production process at Scharffen Berger is divided into seven stages as shown in the flowchart below:

Cleaning

Roasting

Winnowing

Tempering

Conche

Melangeur

Molding

Packaging

Figure 5 - Production process at Scharffen Berger

Bean Cleaning: Scharffen Berger uses beans of the highest quality and blends (up to nine kinds of beans) contrary to other companies that use no more than two types of beans. Roasting: The Company roasts the different kinds of beans separately in order to enhance the flavour of the cocoa beans. The roasting process requires accurate temperature control to avoid changes in the quality of the final product. Winnower: Its function is to crack each cacao bean to separate the chocolate nib from the centre of the shell. Melangeur: This stage guarantees a smooth cocoa paste and defines the texture of the finished product.

8

Scharffen Berger Chocolate Company Web Tutorial – Case Study 1

2012

Conching: Involves further refinement and grinding of the chocolate mass while introduces air into the mixture for a better taste, which has great influence in the quality of the product. Also in the conching process other ingredients such as sugar, vanilla and lecithin are added. Tempering and molding: Turns the liquid chocolate mixture into solid state by introducing changes in temperature while make sure that the gloss is well maintained. Packaging: The final process is packing the finished chocolate bars. 35% is done inside the company with the aim of maintaining the high quality levels. Each of these seven steps has a specific capacity and by analysing this value of each stage the various bottlenecks can be identified. The table below shows the current total output of each stage.

PROCESS

INPUT

OUTPUT

SHIFTS

TOTAL OUTPUT

Bean Cleaner

200kg/15min

192kg/min

8hr/day,7days/week

43008kg/week

Roaster

250kg/1.25hrs

8hr/day,7days/week

11200kg/week

Winnower

450kg/hr

8hr/day,7days/week

18648kg/week

Melangeur

115kg/1.25hr

2*8hr/day,7days/week

10304kg/week

Conche

2*1400kg/60hrs

24hr/day, 7days/week

7840kg/week

Tempering

140kg/hr

2*8hr/day,7days/week

15680kg/week

Molding

140kg/hr

2*8hr/day,7days/week

15680kg/week

185kg from 250kg

Table 1 - Current summary of production process

To give a clearer idea we have the following bar graph plotted:

9

Scharffen Berger Chocolate Company Web Tutorial – Case Study 1

2012

Total Output (kg/week)

Output of each stage 45000 40000 35000 30000 25000 20000 15000 10000 5000 0

43008

18648 11200

15680

10304

15680

7840

Figure 6 - Process output in kilograms per week

From the graph above we observe that the Conche and Roaster are initially the major bottlenecks. But it is observed from the calculations and also from the case study that once the Conche capacity is increased the Melangeur becomes a potential bottleneck. The detailed explanation of the identification of bottlenecks is as follows: The bean cleaner can process 200kg/15min and after cleaning the beans we obtain about 192kg/15min (43008 kg/week). Now these beans are sent to the roaster but the roaster has a capacity of 250kg/1.25hr i.e. 11200kg/week, which is about 1/4th of the bean cleaner output. Also the succeeding stage: winnowing has an input capacity of 450kg/hr. i.e. 25200kg/week. Thus, these calculations show that there is a serious need of increasing the roaster capacity/yield as it is restricting the output of the next stage. Similarly, we observe a major dip in the output from the “Conche”. It has a weekly output of about 7840kg/week which when compared to all the previous stages is very less. Therefore we can say that in the resent scenario i.e. without any changes to the production system, the ‘Roaster’ and the ‘Conche’ are the major bottlenecks (shown in red in the bar

10

Scharffen Berger Chocolate Company Web Tutorial – Case Study 1

2012

graph above) for Scharffen Berger. Any other potential bottlenecks arising from any modifications shall be discussed in the next section.

3.1 MODIFICATIONS SUGGESTED: As discussed in the previous section, the roaster and the conche need to increase their outputs as they are the major bottlenecks. The following modifications are suggested in order to address the various bottlenecks. All the suggestions are made assuming that the machine downtime is zero and trained personnel are available throughout to attend to the machines. 1. Roaster: The amount of roasted beans we get could be increased by increasing the number of shifts from one 8 hour shift to 2*8 hours shift and add up one more roasting machine. (Calculations shown below) 2. Conche: The conching machine could be installed along with the new 'ball mill', which shall reduce the total conching time to about 10 hours and the ball mill shall need to operate for about 5 hours.

PROPOSED SOLUTIONS (changes marked in RED) PROCESS

INPUT

OUTPUT

SHIFTS

TOTAL OUTPUT

Bean Cleaner

200kg/15mins

192kg/15mins

8hr/day, 7 days/week

43008kg/week

Roaster

2* 250kg/1.25hrs

2*8hr/day, 7 days/week

44800kg/week

Winnower

450kg/hr

8hr/day,7days/week

18648kg/week

Melangeur

115kg/1.25hr

185kg from 250kg

2*8hr/day,7days/week

10304kg/week

Conche+Ball mill Tempering

2*1400kg/10hrs + 1400kg/5hrs 140kg/hr

24hr/day, 7 days/week

47040kg/week

2*8hr/day,7days/week

15680kg/week

Molding

140kg/hr

2*8hr/day,7days/week

15680kg/week

Table 2 – Proposed production modification 1

Although with these changes we observe a major increase in the output of the roaster and conche but at the same time we see that with the same capacity of the Winnower, Melangeur & Tempering and Molding the final output of the entire production system

11

Scharffen Berger Chocolate Company Web Tutorial – Case Study 1

2012

remains the same, which doesn’t really help in the scenario of rapidly increasing demand. Therefore there is a need to increase the output of these as well. 1. Winnower: we could increase the shifts of the winnower to 2*8 hour/day. 2. Melangeur: The number of Melangeur machines if increased to 2, and also operated 24hrs/day in 3 shifts we observe an appreciable increase in its total output. 3. Tempering & Molding: In order to keep up with the increased production of previous stages, the number of tempering and molding machines might have to be increased to 2.

The final outputs of each stage are as follows: (changes are marked in red)

PROCESS

INPUT

OUTPUT

SHIFTS

TOTAL OUTPUT

Bean Cleaner

200kg/15mins

192kg/15mins

8hr/day, 7 days/week

43008kg/week

Roaster

2* 250kg/1.25hrs

2*8hr/day, 7 days/week

44800kg/week

Winnower

450kg/hr

2*8hr/day, 7 days/week

37296kg/week

Melangeur

2* 115kg/1.25hr

3*8hr/day, 7 days/week

30912kg/week

Conche+Ball mill Tempering

2*1400kg/10hrs + 1400kg/5hrs 2*140kg/hr

24hr/day, 7 days/week

47040kg/week

2*8hr/day, 7 days/week

31360kg/week

Molding

2*140kg/hr

2*8hr/day, 7 days/week

31360kg/week

185kg from 250kg

Table 3 – Proposed production modification 2

So, we see that doing the above up gradations our final production is increased from 15680kg/week to about 31360kg/week. So the new production process flow chart is as shown below:

12

Scharffen Berger Chocolate Company Web Tutorial – Case Study 1

2012

Bean Cleaner 8 hours/day, 7 days/week 43008kg/week Roaster (*2) 2*8 hours/day, 7 days/week 44800kg/week Winnower 2*8 hours/day, 7 days/week

37296kg/week

Melangeur (*2) 3*8 hours/day, 7 days/week 30912kg/week Conche (2) + Ball Mill 24 hours/day, 7 days/week 47040kg/week Tempering (*2) 2*8 hours/day, 7 days/week 31360kg/week Molding (*2) 2*8 hours/day, 7 days/week 31360kg/week Figure 7 - Summary of recommended changes

Also, we know from the case study that a portion (35%) of the packaging is done by employees at Scharffen Berger to control quality. Since this is obviously a much slower process as compared to a mechanised one, another suggestion could be to either increase the number of employees doing this task or by employing a trained third party to do the same. Thus, we can conclude that in all the cases either by increasing the number of hours the equipments run or by adding similar machines or by increasing the number of employees, Scharffen Berger to keep pace with the growing demand and at the same time have a strong control over the process quality.

13

Scharffen Berger Chocolate Company Web Tutorial – Case Study 1

2012

4 QUESTION 3 Assess the attractiveness of a high quality process development for a quality product

The chocolate industry was segmented into two categories: mass market and . Although Scharffen Berger's chocolate industry competed in only $1.2 billion market segment compared to $14 billion of those of mass market chocolate industry, it has a promised projected annual growth of sales of about 15-20% between 2000 to 2010 and this is far above mass market industry. This is not only due to the increasing consumer knowledge of dark chocolate health benefits, appreciation of richer chocolate flavour and availability of chocolate retailers or some other reasons; but also result from the faith which the company insist on producing chocolate of the highest quality possible from the finest cacao beans available, specially focus on the taste by using the high quality process. Then the high quality process make its chocolates were sold through over 4000 retail outlets in the US, in more urban and upscale areas. And they hold the view and obey it: Quality is the biggest concern for the company. At the same time, its brand position and price segment for a high quality process in chocolate product makes Scharffen Berger has less competition and build up a good reputation in segment, especially in the US. Thus, it becomes very attractive for this company to play in this segment of chocolate industry as it gives more flexibility in varying products with greater trust or loyalty from consumers. quality product need to fulfil several elements including performance, cost, feature, aesthetic, conformance, reputation. What Scharffen Berger has done and need to be improved can be assessed as follow:

14

Scharffen Berger Chocolate Company Web Tutorial – Case Study 1 1.

Aesthetic:

good

2012

appearance

is

essential to give customers good feeling, the

company

needs to

improve

its

configuration to attract and seize the customers.

So

they

can

do

more

management work associated with the customer relationship. Figure 8 - Chocolate bars carefully packed at the factory

2.

Cost: every company wants to

reduce the cost of product and increase the profit. In this case, they arrange their machine to work according to the working load. It is a good way to save energy and cost. On the contrast, maybe they can improve the processing line and therefore reduce the need of labour to decrease the cost. So they can arrange their machine to work in different time according to the working load in order to save energy, reduce the cost and increase the profit. 3.

Demand: it can be seen that high quality process development in Scharffen Berger

has a great attractiveness for meeting consumer expectations of high quality chocolate products. With the ongoing drastic increase in demand, the artisan process of chocolate production needs to be upgraded but still keeping quality as the core competence. At the same time, the company need do some surveys to acknowledge the customers' needs. 4.

Feature: in this case, Scharffen

Berger added a higher grade of flavour and a higher quantity of cocoa in their product and paid more attention to each process to make sure the beans are carefully treated. In addition, they also do a lot of work to train their workers. Figure 9 - selected cacao beans

15

Scharffen Berger Chocolate Company Web Tutorial – Case Study 1 5.

2012

Conformance: what Scharffen Berger did is carried out the 'blinding taste testing' to

identify the chocolate taste within quality control process. Although this method is considered to be one of their strengths, it still has a potential risk because the tasting work depends on different people's perception, sometimes may have some deviations. Furthermore, if their experienced staff retires or moves to another company, the new employee responsible for this job may have different perception. 6.

Reputation: Scharffen Berger offers an open area to show the manufacture process

to customers during which they can get adequate positive information about the chocolate quality directly, therefore they can optimize their quality process in order to build up better reputation and get better product quality. Furthermore, they also built up various sales channels and differentiated their product by altering the ingredients to approach customers in different ways. By implementing above methods, their reputation has been built up well. Scharffen Berger has concentrated on their supply chain to get qualified raw materials. But maybe

they

can

develop

new

approaches to optimize their product with these raw materials to compete in the market. For example, they can pay more attention to the nutrition of chocolate by inventing new producing procedure without dampening the original good taste. But it will need capital investment, so it is the top managers' duty to balance them.

16

Figure 10 - Scharffen Berger allow factory visits so their customers can enjoy the chocolate making experience

Scharffen Berger Chocolate Company Web Tutorial – Case Study 1

2012

5 CONCLUSIONS For Scharffen Berger the quality of their product is fully determined by each step of the chocolate making process; from selecting the best cocoa beans to final packing and wrapping of the chocolate bars using the highest quality levels. This strategy has made their products so successful and profitable in the market and has put them in the lead. As part of the increase in demand of products in the near future, Scharffen Berger will need to carefully assess the introduction and development of new technologies used to transform the raw materials into final products. As studied in the case, slight variations of process time, temperature and even the geometry of the machinery can affect the desired quality. Although it is unlikely that Scharffen Berger become a mass production factory, the nature of their artisanal production process and therefore their chocolate, is highly affected by internal factors such as rare machinery and highly-qualified operators who lately will retire, in addition to external factors such as customer taste and market conditions. In that case, having the existing process might not become profitable neither attractive and the company will have to adapt a new marketing strategy in order to survive. Although they are facing rapid increase in demand, they have decided to improve on their technology in order to fulfil their demands but still keeping in mind the quality levels they assure their customers of. In order to achieve high quality, the company should clearly understand what modifications could be made and when they supposed to be carried out.

17

Scharffen Berger Chocolate Company Web Tutorial – Case Study 1

2012

6 BIBLIOGRAPHY AND REFERENCES Snow, D.C., Wheelwright, S.C., Wagonfeld, A.B., 2007, “Scharffen Berger chocolate maker”, Harvard Business School, viewed 03 August 2012, . Foster, S. T., (2010). “Managing Quality Integrating the Supply Chain”, Fourth Edition. Ed. Pearson.

Figure 1 - http://www.examiner.com/article/scharffen-berger-chocolate-s-ray-major-a-manwith-a-chocolate-career Figure 2 - http://theceliachusband.blogspot.com.au/2009/03/scharffen-berger-chocolatetasting.html Figure 3 - http://www.scharffenberger.com/ Figure 8 - http://www.seriouseats.com/20110103-scharffen-berger-bars.jpg Figure 9 - https://secure.flickr.com/photos/timferriss/2258335525/ Figure 10 - http://www.chubbychinesegirleats.com/wpcontent/s/media/2011/10/6286669607_25a67a842a.jpg

18