Hasan Bakery is a bakery business located in Atlanta,Georgia. When the

owner, Hasan Abdul, purchased the business three years ago, it consisted of a

single site with baking facilities and a retail store and cafe. Based on market

research with the bakery's retail and cafe clientele, Hasan began to change and

expand the product offerings to increase the volume of sales and margins. He also

began a new line of business, wholesaling to local restaurants and high-end grocery

stores within a 20-kilometer radius of the bakery.

Based on the success over the past three years (see Exhibit 31.1), Hasan has made a

strategic decision to expand his wholesale business, with the goal of tripling profits

over the next three years (see Exhibit 31.2). He expects to accomplish this by: (1)

covering a larger territory (i.e., expanding to a 120 km radius) for wholesaling to

local restaurants and independent grocery stores across the entire Greater Atlanta

Area, and (2) introducing a new business line, white label products that he can

supply to major supermarket chains.

To realize this strategy, Hasan has leased and outfitted a separate baking facility

to be primarily dedicated to supplying the wholesale business. Hasan also hired a

full-time vice president of sales and marketing (see Exhibit 31.3 for a summary of

the Hasan Bakery management team) to take over from him on the wholesale

side. Finally, he purchased a second previously owned delivery truck and hired a

full-time distribution manager.

Growth in the first three years is attributable to enhancement of product offerings

and continual drive to find efficiencies in operations. In year 4, the new baking

facility will open. It is expected that it will take several years to add new wholesale

customers and wholesale products. Therefore, there will be unutilized capacity

in the new facility. It is anticipated that expanding the wholesale business will, at

least initially, require an increased level of product development, marketing, sales,

and distribution.

Exhibit 31.3 The Hasan Bakery's Team

- Hasan Abdul, President and CEO. After a successful legal career, Hasan

decided to pursue his dream of being an entrepreneur. He has a passion

for fine food and is committed to providing his customers with high quality,

wholesome, and artisanal products.

- Lana Cooper, Manager, Accounting. Lana is a Chartered Professional

Accountant who came to Hasan Bakery with five years' experience

in several finance roles at a furniture retailer. She joined Hasan Bakery

halfway through its third year of business. She is the company's first in-house accountant. Prior to her joining, the accounting was done

by an external bookkeeper on a contract basis. Lana has begun to introduce more systematic accounting processes. She is also working with

Hasan to develop more forward-looking reporting, including projections and forecasts of revenues and costs.

- Danis Silver, Vice President, Sales and Marketing. Danis was hired near

the end of year 3 when Hasan decided to expand the wholesale business.

Joe is a classic salesman; he's outgoing and optimistic. He has nearly

10 years' experience in the grocery business.

- James Cruz, Manager, Baking Operations. Hasan hired James as the head

baker for the retail bakery at the beginning of year 1. James is a true artisan

who successfully developed the new products that have been responsible

for the increases in sales in the cafe and retail bakery in its first three

years of business. He also runs a tight ship and has managed costs well,

despite shifting to products with higher-cost ingredients. With the opening

of the new commercial baking facility in year 4, Hasan has received

a promotion to Manager of Baking Operations for both the retail and

the commercial facilities. He will now spend less time working with

his hands and more time overseeing junior bakers while managing the

expenses at the commercial baking facility.

- Jonathan Ester, Manager, Distribution. Jonathan has been hired

by Hasan to manage distribution to the expanding roster of wholesale

customersboth restaurants and other retailers. He has worked in the

trucking field for 15 years. He will expand and supervise the existing

team of drivers who were hired in year 2 to distribute product to wholesale

customers. Hasan has also made it clear that he expects Jonathan

to find efficiencies and reduce shipping costs.

- Kate Mendel, Manager, Retail Operations. Kate has been with the

company since it started. In fact, she worked for the previous owners.

She is the only full-time retail sales employee. She is friendly and adored

by customers and the many part-time sales associates. However, she is

less interested in paperwork and is finding it challenging to learn the

new accounting procedures that Lana is implementing.

QUESTIONS

Answer the following questions to identify the key operational risks that Hasan and his team

need to address.

5. How large of an impact might those key risk factors have? Hint: Use scenario analysis to

explore the full range of potential outcomes.

Exhibit 31.1 Financials for Past Three Years (Actuals) (all figures in $000's) Year 3 Year 2 Year 1 Income Caf Retail Bakery WholesaleRestaurants Wholesale-Other Retailers Total Revenue Operating Expenses Cost of Inventories Sold Marketing, General, and Administrative Total Expenses Net Income 300 718 410 359 1,786 273 624 234 312 1,443 246 562 0 0 807 1,349 361 1,710 76 1,090 291 1,381 62 610 163 773 35 Exhibit 31.2 Projections for Next Three Years (Projections) (all figures in $000's) Year 6 Year 5 Year 4 Income Caf Retail Bakery Wholesale-Restaurants Wholesale-Other Retailers Total Revenue Operating Expenses Cost of Inventories Sold Marketing, General, and Administrative Total Expenses Net Income 348 831 960 4,306 6,444 331 791 768 2,153 4,043 315 753 614 1,076 2,759 4,926 1,301 6,227 3,105 816 3,921 121 2,175 557 2,732 27 217