Carl Fredrickson started a sandwich shop immediately upon graduation from colleg
ID: 430080 • Letter: C
Question
Carl Fredrickson started a sandwich shop immediately upon graduation from college. The shop serves wraps with a twist: Carl’s lets customers choose from one of 7 main ingredients (either meat or vegetarian offerings); any of 10 different toppings; one of 5 wrap types; and then the piece de resistance, 30 different types of sauce ranging from sweet to semi- hot to melt-your-tongue-off hot. The total number of sandwich combinations is over 10,000 end sandwiches.
The shop did well from the first day it was open because customers loved Carl’s sauces—many customers came in just for his special pepper chocolate sauce, which was spicy with just a hint of sweetness. The shop was primarily run by Carl and one of his best friends in the first year of operation. Sales for the first year were $150,000; sales for the second year were $280,000. Carl has been planning an expansion for the coming year. Table 10.18 shows the projected sales for this year (year 0) and the following seven years. He has two expansion options. He can lease a new facility in which to locate the shop, a 2,000- square-foot space that could be expanded by 2,000 square feet in steps of 1,000. Alternatively, he can lease a 2,000-square-foot space with no option to expand, but then open another restaurant location in another part of town.
Carl has been quoted a price of $350,000 to open a 2,000-square-foot facility. Each expansion of that facility to add a 1,000-square-foot addition will cost an additional $100,000. The alternative approach, opening a single 2,000-square-foot facility and then opening new facilities as needed, requires an invest- ment of $300,000 for each 2,000-square-foot facility. Carl’s operating costs for labor, utilities, equipment, and other expenses are 40 percent of his sales. The maximum capacity of a single 2,000-square-foot facility is $400,000 per year, so Carl must open a new facility or expand the existing facility when sales hit this number. Any new restaurant or expansion has a lead time of one year from the time Carl approves the idea to the time when the facility is up and running.
Year
Projected Sales
Year 0
280000
Year 1
350000
Year 2
420000
Year 3
490000
Year 4
550000
Year 5
600000
Year 6
645000
Year 7
695000
2. Should Carl go with the option for one facility that can be expanded as needed, or should he plan to open one fixed-size restaurant and add new restaurants incrementally as needed? With either approach, when should Carl make expansion decisions?
3. What are the risks of your recommended capacity expansion strategy? How can Carl mitigate and minimize his risks?
Year
Projected Sales
Year 0
280000
Year 1
350000
Year 2
420000
Year 3
490000
Year 4
550000
Year 5
600000
Year 6
645000
Year 7
695000
Explanation / Answer
Given Information :
Carl Fredrickson
Organization : sandwich shop(After graduation from college)
The shop serves wraps with a twist:
Carl’s lets customers choose from one of 7 main ingredients (either meat or vegetarian offerings);
Any of 10 different toppings; one of 5 wrap types; and then the piece de resistance
30 different types of sauce ranging from sweet to semi- hot to melt-your-tongue-off hot.
The total number of sandwich combinations is over 10,000 end sandwiches.
First day : Excellent
( it was open because customers loved Carl’s sauces—Special pepper chocolate sauce, which was spicy with just a hint of sweetness)
The shop was primarily run by
Carl and one of his best friends
Sales
for the first year were $150,000;
sales for the second year were $280,000.
Carl has been planning an expansion for the coming year.
Year
Projected Sales
Year 0
280000
Year 1
350000
Year 2
420000
Year 3
490000
Year 4
550000
Year 5
600000
Year 6
645000
Year 7
695000
Two expansion options
1)Lease an new facility with 1000 sq.feet step
2) Lease an new facility with 2000 sq.feet
For First case :
Carl has been quoted a price of $350,000 to open a 2,000-square-foot facility.
Each expansion of that facility to add a 1,000-square-foot addition will cost an additional $100,000.
For Second case :
The alternative approach, opening a single 2,000-square-foot facility and then opening new facilities as needed, requires an investment of $300,000 for each 2,000-square-foot facility.
Carl’s operating costs
For labor, utilities, equipment, and other expenses are 40 percent of his sales.
Maximum capacity of a single 2,000-square-foot facility is $400,000 per year
Analysis :
Here as per the given information in case this case be analzed by two ways which has given in problem.
Case 1
Lease of 2000 sq.feet with expansion in step of 1000 sq.feet
Case 2
Lease of 2000 sq.feet with expansion at a time
Now if we see the profits in above both the cases , we can conclude that case 2 is having more profits.
--------------------------------------------------------------------------------------------------------------------------------------------------------------------
3 )
Risks associated with selected strategy : (Case 2 )
a ) Needs to understand the market as directly investing in 2000 sq.feet
b ) As 2000 sq,feet are starting at a time so facilities needs to be arranged in proper capacity calculation.
c) Qualities need to be maintained for this 2 nd case .
How to cope with this situation :
1) Design proper standards
2) Implement measure system
3)Strong planning etc
Year
Projected Sales
Year 0
280000
Year 1
350000
Year 2
420000
Year 3
490000
Year 4
550000
Year 5
600000
Year 6
645000
Year 7
695000