33 Pages Posted: 30 Jul 2007
Date Written: July 27, 2007
This case describes business issues at an organic farm. The people and places are real, and the quantitative data is based on actual observations, although some detail has been omitted for pedagogical purposes. This case was developed for use in an integrated course in the first year of an MBA program. Two academic disciplines are covered in the case: management accounting and quantitative methods. Once the technical aspects of the case analysis have been covered, class sessions have produced rich managerial discussions.
Brett Grohsgal, a former chef from Washington, DC, started an organic farm in southern Maryland after creating a network of contacts in restaurants and observing the restaurant demand for organic vegetables grow over the years. He soon added a pair of local farmers' markets and a co-op subscription service as additional sales channels. These channels were added opportunistically, without any formal analysis.
At the time of the case, the vegetables for the year have already been planted. Furthermore, Brett has come to realize that potential demand across his three sales channels outstrips his expected current season supply. However, he has no idea as to the relative profitability of the three distribution channels and, therefore, does not know the how he should plan his sales effort. The price of each type of produce is different in each of the different channels, as are the spoilage rates. In addition, entering each channel is associated with an entry cost, as well as with variable selling and distribution costs that scale with the amounts sold through each channel. Brett's immediate need is to figure out which channels to use, and how much of each produce to sell in each channel. Beyond the current season, Brett also needs to adjust his planting next year, not only to increase supply, but to find the best "production mix" of vegetables.
The primary teaching objectives for this case are to explore distribution channel profitability and to introduce the concept of integer programming. The case requires students to set up a differential analysis across the three different distribution channels. This highlights the "off/on" nature of certain costs in each channel. In addition, students have to cope with harvest yields (anticipated production output), channel demand limits, and within-channel spoilage rates. Nonetheless, the setting is a simple one which all students can readily visualize.
Keywords: differential analysis, integer programming, sensitivity analysis, channel profitability
JEL Classification: A23, C61, C88, M49, Q12
Suggested Citation: Suggested Citation
Nanni, Alfred J. and Pachamanova, Dessislava and Shanks, Julia, Even' Star Organic Farm (July 27, 2007). AAA 2008 MAS Meeting Paper. Available at SSRN: https://ssrn.com/abstract=1003386 or http://dx.doi.org/10.2139/ssrn.1003386