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

Forecasting And Procurement At Le Club Fran Ais Du Vin Finance establishLe Club Franais du Vin is founded in 1973 and had grown to a 10 million Euro per year business in 2004. The mission of Le Club is to offer vino-coloreds of strong to in truth good quality to its customers in France, Switzerland, and Germany, who receive interesting wines delivered directly to their homes. E very member of Le Club receives an offer of wine every devil months via a catalog.Le Club Franais du Vin too largely carries French wines. The heterogeneity of French wines makes forecasting consumer demand for particular French wine extremely difficult. At Le Club Franais du Vin, a group of professional wine experts create a sales forecast for each wine in the upcoming catalog fetching into account both taste considerations and the season of the year in which the wine is offered in the catalog.Once the forecasting process is over, Le Club places an put in with the wine grower, which happens months befo re 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 actual demand or comes close to it these payment conditions be 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 likewise an additional handling and shipping cost for discounted bottles of 1.25 Euro per bottle, and 0.10 Euro warehouse operational costs per bottle.The main problem of the confederation is the mismatch between forecasts and actual customer demand, which results in either excess inventory or unsatisfied customers. For example, the Club had ordered 10,000 bottles o f the 2002 St Emilion wine for the companys January 2004 catalog, but only sold 1,704 bottles. On the other side, the Club forecasted to shit 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 profit, to gene rove a certain fill-rate or to achieve a certain in-stock probability.If the manager chooses as an objective to maximize the expected profit, as seen in render 1, the total expected profit is mantic to be 147,998 Euro. However, the profit-maximizing order quantity may generate some unacceptable 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 will result in a pack of unsatisfied cu stomers 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 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 heights availability for its wines throughout the catalog season. That is the reason why the first scenario is not sufficient for the company.Let us assume that the company chooses to guarantee a fill rate of 99%, which means that 99% of the demand will be satisfied. As seen in Exhibit 2, t he 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 better scenario for the Club, because it is handout to guarantee that most of the customers during the season can be satisfied, and there is excessively a great probability that the customers demand can be satisfied nonetheless at the end of the season. The fill rate is a good measure of average customer service because it treats each customer as equally important. So, level(p) 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 assume 97.5% rate). As seen in Exhibit 3, in this case the total expected profit is only 88,138 E uro, which is almost 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 inherent in keeping 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 slow in a catalog season. Therefore the club needs to make tradeoff to give up some of its profit in order to start 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 sanguine and optimal for the company it will lose some of its profit, but on the other side will guarantee a greater customer satisfaction, which is very important for the Club th at capitalizes on a niche market.AppellationQ that maximizes expected profitexpect profitFill RateStockout probabilityFAUGERES120221623588.47%36.58% grave803184791.12%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% cartonful 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 VENTOUX1052103282.31%48.84%CARTON PANACHE3742778895.87%16.85%CORBIER ES (6)1155116982.94%47.71%GAILLAC2248234783.54%46.60%MINERVOIS3322284779.57%53.48%MADIRAN144452837294.95%19.75% impart 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 DANJOU493652699.57%SANCERRE2962539199.57%CHINON7404145099.57%ALOXE CORTON1 9741170399.57%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