S&P Pies Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

S&P Pies Case Solution

Labelling Machine Option

The second option for the company is the purchasing of labeling machine, which would save the labor cost per month along with the savings of throughput cost per month. By using the analysis presented in table 2.2; it is observed that the labeling machine with five years of estimated useful life, will help in increasing the company’s profits by around 1000 thousand dollars in the next five years, with the return on investment of 40 percent. If this machine extends its useful life to the further next year then it will accumulate increased profits for the company, i.e. by 1200 thousand dollars in the next six years with the return on investment of 40 percent. In conclusion, it has been found that the acquisition of labelling machine would increase the overall profits for the company, along with the return on investment even if the machine only operates for five years.

Table 2.2

	5 Years	6 Years
Savings per month	$ 14,500	$ 14,500
Additional throughput per month	$ 13,000	$ 13,000
Investment	$ 500,000	$ 500,000
Markup in %	20%	20%
Time frame in months	60	72
Incremental Savings	$ 870,000	$ 1,044,000
Incremental Revenues	$ 780,000	$ 936,000
Incremental Costs	$ 650,000	$ 780,000
Incremental Profit	$ 1,000,000	$ 1,200,000
Incremental Profit per year	$ 200,000	$ 200,000
ROI (per year)	40%	40%
Payback period in years	2.50	2.50

Profitability and Return on Investment

Both the options are cost-effective for the S&L pie, and both can increase the return on investment. Ideally, it would be great to have both options for S&L pies at the same time. If S&L Pies can only realize one option at the moment, the labeling machine can offer 40 percent return, while the return on a 3-year-national fast-food chain contract is not more than 33.33 percent. However, if the contract exceeds the lifespan of the labeling machine; it might be more profitable in the long run.

Strategic and Risk Factors

There are several strategic and risk factors, which S&L Pies needs to consider before going to accept any of the options. These factors are:

Strategic Factors

Is national fast-food chain reliable in terms of the contract?
Will the prices change in 3 years?
Can we talk to the national fast-food management?
Does the supply of national fast food affect the relationship with other customers?
Are price reductions expected?
Which option would help or hinder our long-term strategic plan?
Do National fast-food options provide opportunities for other fast-food chains?
Will labeling machine option bring new product opportunities?
Does the labeling machine option affect the target customer's perception regarding the S&P Pies?
Can using a national fast-food restaurant maintain high quality?
Can labeling machine option maintain high quality?

Risk Factors

What is the probability of expanding the fast-food restaurant?
Will the store's fast-food chain succeed?
If the number of customers in fast food chains decreases, could S&P Pies be jeopardized?
Can labeling machine be used for five years?
The payback period of a labeling machine (2.5 years) is shorter than the payback time of a national fast-food restaurant (3.03 years).
How confident are we that the labeling machine will save approximately 14,500 dollars in labor costs per month and increase the revenue by 13,000 dollars per month?

Recommendation

Both of the options are providing an increase in the overall profits for the company, along with the return on investment-even if the options are acquired for shorter period, such as: the option 1 for three years and the option two for five years, but the option two provides higher total profits and return on investment as compared to the option one, so the option two is recommended to the company.

Part 3 Strategic and Risk Factors

There are several strategic and risk factors that S&L Pies needs to consider before going to accept any of the options. These factors are:

Strategic Factors

Do they trust the Phoenix’s business,for the near future?
Can we negotiate with Phoenix management?
Does Phoenix vegetarian cafe business affect our relationships with our other customers?
Which option will help or hinder our long-term strategic plan?
Would choosing Phoenix offer lead it towards other options for the Phoenix network?
Can we manage a cafe chain?
Our specialty is the sale of food.
Does the target customers of the new factory think differently about the company?
Can we maintain high quality by choosing Phoenix?
Can high quality be maintained with Quechee factory options?

Risk Factors

What is the average price per meal at the new Phoenix Vegetarian Cafe?
Will there be a strong demand for the Phoenix vegetarian cafe in the next 10 years?
If the number of Phoenix customers decreases, will S&P Pies be jeopardized?
Is the Quechee plant planned to grow? How long?

Recommendation

Both the options involve significant risks. The company can select either path. Phoenix’s vegetarian cafe option will be more profitable in the near future, but can S&P Pies successfully operate a cafe chain? Or maybe the company needs Phoenix’s leadership team to run the network for S&P Pies in the Phoenix’s vegetarian cafe. Quechee Factory options has lower profits in the short run, but it may get double current activity in the long run. We already know this and are successful in this field.

Table 3.1

	2013 Actual	Price / Spending	Flex. Budget	Budget (2012 Actual)	Per unit
Customer volume	1,066,000		1,066,000	1,105,000
Net sales	10,523,440	385,809	10,137,631	10,508,520	9.51
Variable costs:
Food	6,340,206	202,002	6,138,204	6,362,772	5.76
Labor	696,612	20,994	675,618	700,336	0.63
Other Op Exp	1,362,399	75,770	1,286,629	1,333,701	1.21
Total Var. Costs	8,399,217	298,766	8,100,451	8,396,809	7.60
Contribution Margin	2,124,223	87,043	2,037,180	2,111,711	1.91
Fixed Costs:
Labor	298,548	(1,596)	300,144	300,144
Other Op Exp	908,266	19,132	889,134	889,134
Total Fixed Costs	1,206,814	17,536	1,189,278	1,189,278
Operating Profit	917,409	69,507	847,902	922,433
Average price per meal	9.87		9.51	9.51

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S&P Pies Harvard Case Solution & Analysis