One of the main objectives of Scharffen Berger is to increase its production capacity to meet the rise in demand without sacrificing the quality of its high end chocolate products. The company can ill afford to allow its hard earned reputation for quality to be damaged, all the more so that it is engaged in an expansion programme.
The most immediate problem likely to crop up is the need to tap new sources of finance to implement its expansion program. Up to now, management has relied heavily on a moreintensive use of its factors of production to solve its production capacity problems. But at the same time, it is obvious that with the substantial increase in demand and an important number of new clients waiting on the wings to sell the company’s chocolate products, this can only be a temporary solution and in the medium term, the company will have to meet its production capacity problems through the purchase of new and additional equipment. However, given that the profitability of Scharffen Berger is on the high side as its focus is on the premium market, the company will have no difficulty to convince its shareholders to constitute more capital or its bankers to provide additional loans and/or overdraft facilities.
The expansion of the company also brings to the fore the central question in industrial organization namely the optimum size of the firm.
In micro-economic theory, it is widely believed that there is a limit to the size of firms. If this concept did not exist, then many industries would be natural monopolies. The main problems that crop up in the course of the expansion of a company’s activities are diseconomies of scale to management. As a business grows, communication between different departments and along the supply chain becomes more complicated and managers find it hard to exercise control over their subordinates. This often breeds mistrust and misunderstanding and affects not only the team-work but also impacts negatively on output, morale and productivity. There is a need to delegate more responsibility to junior members of the staff while providing more motivation for the employees.
Another important area where management will need to focus its attention is the training of qualified personnel and human resources. To maintain its high and stringent standards of quality, the company will have to spend a lot of time and resources recruiting new expertise or training personnel in area where there might be an acute shortage such as professional tasters to cope with the increase in demand.
Like mentionned in question 3,from the finance and internal organization standpoint, the increased production may also represent a burden. To start off, since SBC operates in the premium market too, market conditions also influence its trend of consumption. Also, SBC should try to be more flexible to avoid inventory build up which in turn represents an additional cost. Last but not least, in my opinion, the founder of the company together with specialists were the most appropriate people to decide upon the flavor of chocolates and could not be replaced by ”machines”. Nonetheless, for the sake of continuity, when these appropriate people are absent, mechanical ways of testifying the quality of chocolates could be used…