Eurofood Case Analysis

EuroFood Case Analysis History EuroFood was created by cut restaurateur, Mr Vigneau which specializes in the importing and distri barelying of food products from Europe to Hong Kong. EuroFood has faced a task with take stock costs. The Olivier Company decided to buy EuroFood on the condition that store take aims has to be subdued from its on-going level of 11 million Hong Kong Dollars to at least 4 million Hong Kong Dollars (assumption). In outrank to achieve the line of descent reduction a plan of action has to proposed which details the solution to the current high levels of bloodline.All the products brought to Hong Kong are shipped either by plane or through cargo boats (channels of distribution). The exclusively perishable products shipped through airplanes have no memorandum records to be kept. The only inventory of Euro Foods is the products shipped via boats. The products shipped through boats are separate mainly into two types 1. Complete Container Contains produ cts shipped from the same supplier. Complete container takes roughly 20 days to ship from Europe to Hong Kong and costs 0. Hong Kong Dollars per kilogram 2. Consolidated container Contains products shipped from a group of suppliers using the same container as a rented facility. This shipping takes about 30 days to reach the customer and costs about 3 Hong Kong Dollars per kilogram. Main Problem * The current level of inventory of Euro Foods is worth $11 million. This is too much compared to the Olivier Company which has the same volume of business as Euro Foods with a corresponding inventory level of only $4 million. The order quantity is high due to wrong forecasting which leads to high inventory costs * Some products have higher inventory costs than its one-year sales agreements( Eg The product Carton Peach has an inventory cost of $437,113 and an annual sale of $ 253,248 which led to internets of only $68,377) * Due to higher inventory levels of the products the annual prof it from the respective products are significantly lower compared to products which has lower inventory level. There are too many product categories (around 200 assorted products) which has higher inventory levels and lower annual sales(Eg The product Crozes Hermitage 1984 has $158 annual sales but the inventory level is $2045 and total profit is only $47) Solutions * come out down the products which has low profit and low annual sales but high inventory costs(EgCrozes Hermitage 1984 * Concentrate on top sale products akin for example UHT Whipping cream 1 Liter, Portion Butter unsalted etc. hose annual sales are high compared to inventory costs * Make the forecasting of all products more accurate by using better forecasting techniques which can reduce the inventory level and ordering quantity more accurate * Top sale products kindred Whipping cream and Butter has to ordered more frequently found on the accurate forecast (using combined container) rather than storing it because t hese products can go bad easily. Combine the products from the same supplier to reduce the ordering quantity(Eg Products from provider Besnier can be combined into the same container) * Negotiate with current suppliers to reduce the ordering cost * Seek third party distributors to get a lower shipping cost if negotiation with current suppliers does not contribute out. Assumption * The holding costs and inventory costs affect the profit of the products * Time Frame in which the inventory reduction has to be achieved is irrelevant(Assumption)