Forecasting And Procurement At Le Club Fran Ais Du Vin Finance Essay

Forecasting And Procurement At Le ball club Fran Ais Du Vin Finance EssayLe community Franais du Vin is founded in 1973 and had grown to a 10 million Euro per stratum business in 2004. The mission of Le monastic order is to offer vinos of good to truly good pure tone to its customers in France, Switzerland, and Germany, who receive interesting boozes delivered directly to their homes. Every member of Le Club receives an offer of wine-colored-colored every two months via a compose.Le Club Franais du Vin largely carries French wines. The heterogeneity of French wines makes prediction consumer pack for particular French wine extremely difficult. At Le Club Franais du Vin, a concourse of professional wine experts create a sales forecast for each wine in the forthcoming catalog taking into account both taste considerations and the chasten of the year in which the wine is offered in the catalog.Once the forecasting process is over, Le Club places an order with the wine grower , which happens months before publishing the catalog and at a point when little information beyond the wine experts personal opinions is available. The Club pays the wine grower 75 days after having received the shipment. If the wine forecast equals the factual demand or comes close to it these payment conditions atomic number 18 very favorable for Le Club. However, such desirable cash flows are not always the case. If Le Club has over forecasted sales for the catalog season, excess bottles are stored in the warehouse and are likely to be discounted in a future catalog (white wines are discounted by 40% of their retail price, and red wines by 30%). There is also an additional handling and transportation system cost for discounted bottles of 1.25 Euro per bottle, and 0.10 Euro warehouse operational costs per bottle.The main problem of the company is the mismatch between forecasts and actual customer demand, which results in either excess inventory or unsatisfied customers. For ex ample, the Club had ordered 10,000 bottles of the 2002 St Emilion wine for the companys January 2004 catalog, exclusively only sold 1,704 bottles. On the other side, the Club forecasted to sell 10,000 bottles of the Ctes du Rhne, but actually experienced a demand of over 11,000 bottles. The Club currently holds over 200,000 bottles of wine in its warehouse.The company has to pack between few options in order to decide how many bottles of each wine to order to maximize evaluate kale, to generate a original fill-rate or to achieve a certain in-stock fortune.If the manager chooses as an objective to maximize the expected turn a make headway, as seen in discover 1, the total expected profit is supposed to be 147,998 Euro. However, the profit-maximizing order quantity may generate some impossible fill rate and in-stock probability from the firms customer service prospective. The fill rate varies in the range of 50% to 100%, while the stockout probability varies in the range of 0% to 83%. This scenario ordain result in a lot of unsatisfied customers who might choose a different supplier in the future.The customers of the Club place their order by mail, phone, fax, or over the internet. If the customers place their order by phone or online they can be informed right away if a particular wine is out of stock. However, as a large portion of Le Clubs customers are in their 60s, orders by mail are most(prenominal) common, and these customers are unaware of the availability of the wine there are ordering. It is very rare for the company to be able to place additional orders for wines that have been under forecasted. As a result 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. That is the reason why the first scenario is not suitable for the company.Let us look at that the company chooses to guarantee a fill rate of 99%, which means that 99% of the demand pass on be satisfied. As seen in Exhibit 2, the total expected profit is 102,382 , which is about 45, 000 euro less than the profit it generates in the first scenario, however, the in -stock probability is 94.74%. This is a transgress scenario for the Club, because it is going to guarantee that most of the customers during the season can be satisfied, and there is also a great probability that the customers demand can be satisfied even at the end of the season. The fill rate is a good measure of reasonable customer service because it treats each customer as equally important. So, even though the company might experience some profit loss for certain types of wine, the total expected profit is 102,382 Euro, and along with that the Club can also achieve high levels of fill rate and in-stock probability.The third option for the club is to choose to set as its primary goal to achieve a high in-stock probability (let us attain 97.5% rate). As seen in Exhibit 3, in this case the total expected profit is only 88,138 Euro, which is near half of the expected profit in the first scenario. The fill rate is 99.57%. We see that achieving a very high in-stock probability can be quite expensive and sets the company at a much lower profit level. This scenario is also unacceptable for the company.The company has to constantly try to balance the cash constraints natural in holding large inventory positions with the goal of sustaining healthy margins (the club typically enjoys around 50%) while ensuring availability of a broad selection of wines even late in a catalog season. Therefore the club needs to make tradeoff to give up some of its profit in order to obtain higher fill rate and in-stock probability in order to ensure better customer service and to keep its positions in the market. The second scenario seems the most optimistic and optimal for the company it will lose some of its profit, but on the other side will guarantee a grea ter customer satisfaction, which is very important for the Club that capitalizes on a niche market.AppellationQ that maximizes expected profitExpected profitFill RateStockout probabilityFAUGERES120221623588.47%36.58%GRAVES803184791.12%30.32%GRAVES1149207693.58%23.77%PESSAC LEOGNAN324111721100.00%0.00% cartonful PANACHE 6+2+450931288099.38%3.40%BORDEAUX CLAIRET3461328681.65%50.00%CTES DE BOURG1352198590.00%33.05%ENTRE DEUX MERS112994074.41%61.14%BORDEAUX4535306374.63%60.84%CARTON PANACHE5493599384.41%44.98%Bordeaux2127133273.05%62.96%VDP des Cteaux de LArdche165134450.59%83.87%VDP des Cteaux de LArdche141231852.08%82.91%VDP du Comt Tolosan104122748.72%85.02%CARTON PANACHEE169254759.22%77.54%CABERNET DANJOU2630258182.31%48.84%SANCERRE2092606893.93%22.76%CHINON4071431583.84%46.05%ALOXE CORTON299213549100.00%0.00%BOURGOGNE ALIGOTE1013150584.68%44.44%GIVRY1734402899.95%0.38%COTEAUX DU LYONNAIS2543229380.61%51.78%CDR Vill RASTEAU1075208494.73%20.40%GIGONDAS24935225100.00%0.00%CTES DU VENT OUX1052103282.31%48.84%CARTON PANACHE3742778895.87%16.85%CORBIERES (6)1155116982.94%47.71%GAILLAC2248234783.54%46.60%MINERVOIS3322284779.57%53.48%MADIRAN144452837294.95%19.75%Total Expected Profit147,998Exhibit 1AppellationQ that guarantees fill rate of 99%Expected salesExpected leftover inventory2Expected profit (fill rate = 99%)In-stock probabilityFAUGERES181211028078411237994.74%GRAVES1133642490158894.74%GRAVES1510857653192694.74%PESSAC LEOGNAN196311148491013494.74%CARTON PANACHE 6+2+44832274120911287194.74%BORDEAUX CLAIRET604034272614121994.74%CTES DE BOURG19631114849163294.74%ENTRE DEUX MERS22651285980-34194.74%BORDEAUX906051403920-102294.74%CARTON PANACHE906051403920333894.74%Bordeaux437924841895-73794.74%VDP des Cteaux de LArdche528529982287-333594.74%VDP des Cteaux de LArdche437924841895-268294.74%VDP du Comt Tolosan347319701503-262394.74%CARTON PANACHEE453025701960-228994.74%CABERNET DANJOU453025701960108294.74%SANCERRE271815421176567894.74%CHINON679538552940225294.74%ALOXE CORTON181210287841136794.74%BOURGOGNE ALIGOTE166194271986394.74%GIVRY1359771588399794.74%COTEAUX DU LYONNAIS45302570196066394.74%CDR Vill RASTEAU1359771588198594.74%GIGONDAS1510857653500194.74%CTES DU VENTOUX1812102878443394.74%CARTON PANACHE453025701960757294.74%CORBIERES (6)1963111484954294.74%GAILLAC377521421634118194.74%MINERVOIS60403427261457194.74%MADIRAN181211028078412713694.74%Total Expected Profit102,382Exhibit 2AppellationQ that guarantees In-stock probability = 97.5%Expected profit(in-stock probability = 97.5)Expected fill rateFAUGERES197451056599.57%GRAVES1234144499.57%GRAVES1645182099.57%PESSAC LEOGNAN21391038799.57%CARTON PANACHE 6+2+452651287699.57%BORDEAUX CLAIRET658246699.57%CTES DE BOURG2139145099.57%ENTRE DEUX MERS2468-73999.57%BORDEAUX9872-229799.57%CARTON PANACHE9872228699.57%Bordeaux4772-136699.57%VDP des Cteaux de LArdche5759-421999.57%VDP des Cteaux de LArdche4772-341099.57%VDP du Comt Tolosan3784-330099.57%CARTON PANACHEE4936-301799.57%CABERNET DANJOU493652 699.57%SANCERRE2962539199.57%CHINON7404145099.57%ALOXE CORTON19741170399.57%BOURGOGNE ALIGOTE181060699.57%GIVRY1481401899.57%COTEAUX DU LYONNAIS49368599.57%CDR Vill RASTEAU1481190399.57%GIGONDAS1645505299.57%CTES DU VENTOUX197421099.57%CARTON PANACHE4936734799.57%CORBIERES (6)213930499.57%GAILLAC411373299.57%MINERVOIS6582-21599.57%MADIRAN197452607699.57%Total Expected Profit88,138Exhibit 3