CASE 2
PineaPPle Canners PtY. Ltd'
D,N, Foster, Shell Company of Australia Limited
SummarY
,-Tfe case conccrns thc planning ol.thc product mix fbr canned pincapplc'oroiu.,r. Pincapplc prJautt' are diffcrlntiatcd by diffcrcn,t ways of cut'
ir"?r"in.'i;;;;'A ;qJ"t source o{'complcxity is that production ol most
ll,ia"5,.'."i;tl; ;;'prlclu.tion ol o[r-cuis, and thc rcmainins produc:ts irr
ih. ,"ng. are dcsigned to utilisc thesc off-cuts'
Marketing ,,ru,.gy is dominatecl by a quota sys.tcm -l1|'-tl--.']-"t 'nt'
quantity of pincapplc availablc to thc manulacturcr l()r proccsslllg'
within this generalLu-.*ort inlormation is providcd on thc availabil-
l,y oi-fin"uppie, yields lf p'e-iu.rn product and ol off-cuts lor cach prc-;;;;"J,lJt' naaittonally, dctails arc providcd fbr all products ol uppcr
limits on salcs' contcnts pcr can' costst rcvctlucs and contribtrtions'
The company', "u;"ttit" it t" -u-lrnisc proht lrom
thc fixcd- quota ol'
pineapple, However management rs '.prepaicd to rclax somc markctinq
.constraints and/or to drop some cat'erlng packs tiom thc rangc ilcithcr
ol'
these changes leads to any increase ln pront'
Introductlbn
Pineapple Canners, a subsidiary ol a large lood processing com-
oanv. has its production f-aciliiies in a purposc-built lactory inKrJJr.i"ra.-b;;t"^ ubou, pineapple pioduction. therefore have
;;;;ll;i.r".,ir" *ith clccisio's,i5,,ut'otlrcr'r.ducts, which arc
produced in Victoria
Pineapples fo. prl.."ing in Queensland are effectivcly allocated
to processors by a semi-gouernment. co-ope rative ^board opera-tinl
under a quota system' Thus the maximum intake lor a proccssor ts
limited,'and the pro..,*''' objective.becomes a matter of maximis-
il';;';;nt outuin.a from this fixed quantity of pineapples'
Pineapple Cunn.rt nut utttd ot't oi their'younger. executives if
""v""iIini op.ruilon, i.r.ur.h
stuff' he learned at business
school can help to achieve this objective. I-le has undertaken the
assignment with enthusiasm and has collected the following in-
formation.
General background
Pineapple products'u..' diff...ntiated essenrially by diflerenr waysof cutting up th'e fruit. Moreover there is no way in which the
whole pineapple can be converted into premium products because
production of each of these products entails producing a cerrain
quantity of ofl-iuts which must, of course, be utilised,
Marketing information
The canned pineapple market in Australia is dominated by another
company, which concentrates on what might be termed traditional
products: 'rinss' and 'pieces'. Pineapple Canners has therefore de-
veloped a marketins strategy based on product differentiation, withan emphasis on novel products (new ways of cutting up a pine-
apple) such as 'sp.ears', 'wafers'1 'chunky pieces' and ,Jhunky pi...,with passion-fruit'. The produ'ct range is completed with produ'ct.
designed to utilise the ofr-cuts, which are sold either on their own
as 'crushed' or in fruit salad products. These products are sold in
catering packs as well as retail packs. The marketing department's
assessment of the maximum demand is presented in Table 2.1.
Table 2. / Maximum demand for products
Product
Maximum demand
(Dozens of cans)
Chunky pieces
Chunky pieces with passion-fruit
Spears
Wafers
Rings
Crushed (450 g)
Fruit salad (450 g)
Crushed (Al0)
Fruit"salad (At0)
1 00 000
1 50 000
1 50 000
1 00 000
100 000
s0 000
300 000
7500
12 500
Notos:
1 The first seven producls listed above are all marketed in retail packs (450 g), while the
frnal lwo are marketed in catering packs (Al0).
2 The company is aware that catering packs are less profitable than retail packs, but be-
lieves they musl be marketed in order to dispose of all the otf-cuts. lf they ar€ markeled
thon minimum quantitios ol 1000 dozen cans musl be supplied.of each Al0 pack.3 The marketing constraints ate not absolute, and could be changed by a redeploymenl ol
promotional etfort.
Production information
Pineapple Canners' quota for the year has been set at 7000 tonnes of
f.esh pineapple, of this total 40 per cent is waste (skin, stalks, etc.),
and the ouf.i pu.t of the pine apple flesh (which cannot be effectively
separated from the skin) has to be used for juice extraction (J5 a per
cept), leaving 34.6 per cent of the total as pineapple flesh availabie for
cannlng. I
For i.chl of the premium products the yield of premium product
and the corr.rponding yield of off-cuts is indicated in Table 2.2.
Table 2.2 Froduct Yields
off
Product
Yield
(%)
cuts
(%) Noles
Chunky pieces
Chunky pieces with PassionJruit
85
85
55
65
80
15
15
15
35
20
Spears
Wafers
Rings
Also 30% chunkY pieces
Ofl-cuts to Al0 only
,
Notes:
1
-Chunky
pleces (including those produced as otf-cuts lrom spears) arei ldentical whether
canned alone, or with passion-fruit.
2 The otf-cuts from walers contain core, and can thereforo only be used in the catering- oact S. However any otf-cuts lrom chunky pieces, spears or rings which cannot be util-
iseO tn retait packs bt fruil salad or crushed pineapple can be used ln calering packs.g Wnote pineaiple can also be used to produce both retail and catering packs ol truit salad
and crushed.
Details of the weight of pineapple flesh per can for each product are
given in Table 2.3.
Table 2,3 Weight of flesh Per can
4Product Weight (kg)
Chunky pieces
Chunky piebes with'passion-fruit
.255
.255
.2625
.3258
.31 167
.28333
.1525
2.02
1.0858
Spears
Wafers
Rings
Crushed (450 g)
Fruit salad (450 g)
Crushed (Al0)
Fruit salad (Al0)
Note'.in" U"t"n6 of the weight of each can is made up with juice (which s eflectively in over-
suoplv) and sugar (of whlch supplies are unlimitedi, and, in the case of 'chunky pieces with
;;:5i#-i;;]t;;iJ tte rruit s"raij'products, smallquantities of other fruits (supplies of which
present no problem).
Financial data
As a normal accounting practice the company calculates contribu-
tion per unit (in this case per can). These figures are shown in'I'able
2.4.
Table 2.4 Product contributions
Product
Cosl per
can (S:7
Selling price
per can ($)
Contribution
per can (6)
Chunky pieces
Chunky pieces with passion-fruit
Spears
Walers
Bings
Crushed (450 g)
Fruit salad (450 g)
Crushed (Al0)
Fruit salad (Al0)
0.1 57
0.1 8502
0 16259
0,1 6796
0.1 651 I
0,1 6484
0.19418 -
1.00286
1.21756
0.225
0.225
0,225
0.225
0.225
0.225
0.24167
1 1 4583
1,2375
0 068
0.03998
0.06241
0,05704
0.05982
0.06016
0.04748
0.1 376
0.020
Notel
Contribution is calculated as selling price minus variable cost. The cost includes the cost ol
the pineapple flesh, valued at a constant pricq. pier unit weight for all products (including
crushed), variable processing cost, and canningj cost,
Management's requirements
Management would like advice on the most profitable product mix
obtainable from their fixed quota of pineapple. They are willing to
consider reallocating their promotional eflort if it is shown to be de-
sirable to relax some of the marketing constraints. 'fhey would also
be happy to get out of the catering market if all of the crushed could
be sold on the retail market, although this does 'not seem feasible
with the manually planned product mix.
rs