Monforte Dairy Harvard Case Solution & Analysis

Definition of success &Critical Issues:
• The success of Monforte Dairy depends on the profitability of company.
• Success can also be assessed from the better financial situation of farmers.
• It can be said that there are many critical issues that exist in the business model of Monforte Dairy which can have very negative implications on the profitability of company.
• Another critical issue is that Monforte is unable to compete with the competitors effectively.
Situational Analysis:
The financial performance of Monforte appears to be moderate, the company showed good performance in the year 2005-07.However, in the year 2008 the financial performance was very poor. In 2009, the profitability position was far better than the performance in 2008. The sales were increased by more than 100% and by a good ratio gross and net profit margin were also increased. However, the liquidity position appears to be the worst, both current and asset test ratios have decreased drastically. This depicts the inability of management to settle the current liabilities by its current assets. The efficiency ratios are also unfavorable for Monforte; the receivable’s age is increasing which can ultimately lead to high bad debt risk. The time periodof inventory is also increasing which can lead to higher holding cost and chances of damage to inventory.
Monforte Dairy Harvard Case Solution & Analysis

Vertical and horizontal analysis:
The vertical analysis of the income statement seems to be unfavorable, the material cost is not increasing along with increase in sales.The production wages cost is increasing each year which is affecting the level of gross profit.Furthermore, information is needed regarding the industry averages in order to assess the performance more critically. On the other hand, there is a hugeincrement in the administrative wages in all the years which is mainly due to better operational policies of the senior and middle management.
External Analysis:
The external environment is also unfavorable for Monforte, the government has increased health and safety regulations resulting in higher compliance costs. The quota system is also being introduced by the government which limits the ability of Monforte to expand its operations. Moreover, competition in the industry is also increasing, thus making the external environment unfavorable for Monforte.
Decision Criteria:
• Monforte would require 3000 square feet for the affinage.
• Monforte would have to expand the production plant to include charcuterie.
• Monforte would have to build an auberge.
• Monforte would have to establish Ontario’s first cheese-making school.
Option analysis:
The first option that is available to the company is to adopt the affinage plant, affinage is the most critical step in developing high quality cheese. It will allow Monforte to charge a premium to its customers as the taste and quality of the products of Monforte will be improved. On the other hand, the management of Monforte is quite unsure regarding the actual benefits that the company will generate due to this affinage process.Due to the unavailability of financial benefits the profit cannot be computed, the Affinage project will require $1,140,000 in cash. (See exhibit one).............

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