Sde Kager (SK) is a manufacturer of typical local pastries situated in the vicinity of Copenhagen. These handmade products are sold on a daily basis

Søde Kager (SK) is a manufacturer of typical local pastries situated in the vicinity of Copenhagen. These hand‐made products are sold on a daily basis and delivered directly to coffee shops, restaurants, food stalls and supermarket with a mark‐up of 200% on all used ingredients (i.e. purchase price plus 7% general overhead). Annual turnover of SK is about 2.0 Mio. €. For the production of the local pastries, SK needs ingredients as listed in Table Q1.1. All these ingredients are usually purchased DDP. In order to save costs, SK receives perishable ingredients for their pastries like eggs, milk and curd on a weekly basis (or 52 times a year) whereas others are ordered irregularly on monthly or even yearly basis. Given a constant consumption of all ingredients over the year, their average inventory value on a landed cost basis is estimated to a maximum of 50,000 €. When it comes on production costs, SK estimatesthem to be 100% of the value of all ingredients used to make the pastries with the restspend on distribution, general overhead and profit margin. All purchases of SK must be paid two weeks after delivery, and SK usually receives payments four weeks after delivery of pastries to their customers.

Ingredient        Volume per year (t)      Purchase price/t (€)

Butter                       16.0                         3,300

Cardamom                 0.6                         6,400

Chocolate                   2.7                         6,500

Cinnamon                  0.5                         9,900

Curd                          3.0                         2,080

Dried fruits                 6.0                         7,150

Eggs                        33.0                         5,200

Flour                      287.0                         745

Jams & Jellies         21.0                         2,500

Milk                         19.0                         650

Nutmeg                    0.5                         7,900

Nuts                         1.4                         6,250

Raisins                    1.3                         5,000

Salt                          0.4                         2,900

Sugar                    22.0                         1,500

Vanilla                     0.6                         8,500

Table Q1.1. List of all ingredients SK uses for producing pastries

Now the owner of SK mourns that today, producing these hand‐made local pastries is not such a profitable business any longer to due heavily increased competition. Knowing, that you are a CBS student, he asks you to give him some advice how to improve his financial situation.

a) Apply a useful method to sort out most used ingredients SK uses for their pastries. Do the necessary calculations, name and define the classes!

b) What may be an efficient delivery frequency for the ingredients SK uses?

c) What can you tell SK about the inventory turnover of the ingredients and pastries?

d) Please make suggestions how SK could further improve their financial situation!