Liquid Gold: Calambra Olive Oil (a)

Abstract

The Liquid Gold cases (see also the B case, UVA-QA-0588) are an adaptation of the earlier Calambra Olive Oil cases (UVA-QA-0440 and UVA-QA-0442). This version supports a modified classroom experience. The cases describe the start-up of Calambra, a company built to sell a premier brand of olive oil. Frank Lockfeld, the founder, has to determine how much olive oil to make for the second year's production. Unfortunately, he has to make this decision before learning the results of the first year's sales. Thus, there is enormous uncertainty around the decision. The A case tells the start-up story and presents enough information for students to do a sensitivity analysis to decide which of the many uncertainties are most important, which leads to a discussion of tornado diagrams. The B case provides information on those critical uncertainties, which leads to a discussion of spreadsheet modeling and simulation modeling, searching for an optimal order quantity, adjusting for risk, etc. It also affords a discussion of a key general business issue: the difference between make-to-order and make-to-inventory businesses and the fundamental flaw in most business plans that leads to gross overestimates of potential profitability. Student spreadsheet files are available.

Excerpt

UVA-QA-0587

Rev. May 23, 2010

LIQUID GOLD: CALAMBRA OLIVE OIL (A)

Frank Lockfeld pushed his chair back from the table and surveyed the remains of the meal he had spent the afternoon preparing. After an appetizer of roasted peppers with caramelized garlic accompanied by a crisp 1982 Roederer champagne, he and his guests sat down to a main course of his own devising, designed to take advantage of the light but intense flavor of Calambra olive oil. In Chicken Breasts Calambra, he used fresh lemons, thyme, garlic, shallots, cherry tomatoes, and parsley (all from his garden), 16 green and 16 black olives, and five tablespoons of Calambra olive oil. (A collection of Lockfeld's Calambra recipes is presented in Exhibit 1.) With the chicken, Lockfeld served fresh zucchini (also from his garden) and a shiitake mushroom risotto, complemented by a superb 1986 Chalone Chardonnay Reserve. This course was followed by an endive salad with his own special vinaigrette—balsamic vinegar, fresh lime juice (from the tree in his garden), freshly ground pepper, and the 1993 vintage Calambra olive oil. Lockfeld took another sip of the Chalone and gazed into its rich amber depths while strains of Mozart's Piano Concerto no. 20 in D Minor played in the background. Turning to his wife, B. J., and friends Marv and Linda White, he said,

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Keywords: decision analysis, spreadsheet modeling, monte carlo simulation, simulation