Morris Valley Estate Winery – Case 2 Analysis
Based on the interviews with Cathy Tharlson, the winemaker at Morris Valley Estate Winery, and review of the documentation from the last few years provided by her, we identified a few problem areas in the wine making processes. One of these areas is concerned with the quality of the corks used in the bottling process.
Currently Cathy buys corks from local distributors and generally she believes that the quality of the corks is very poor given their price. One of the major issues related to cork is that there is no uniform reliable standard for quality. All natural cork comes from either Spain or Portugal, and each factory or supplier grades their corks according to their own internal systems which are apparently completely subjective and therefore unreliable in predicting the actual quality of the product. There are several possible attributes for the low quality of corks, including cracks and chips that may cause leaks, pieces of bad wood, excessive hardness that may render corks incompressible, and finally, cosmetic factors like holes and lines in the top.
In absence of the uniform quality standards Cathy was forced to develop her own quality classification of corks with categories A, B, and C. A is a perfect cork, B is with some imperfections, but still acceptable, and C is unusable. Also, unpredictable cork quality necessitates mandatory quality inspections of every lot to be conducted by Cathy at the distributors’ warehouses.
Cathy had developed her own quality inspection plan which is described here. When Cathy visits distributors’ warehouses she pulls randomly 50 to 60 pieces from each potential bail of 10,000 corks for visual inspection. If the percentage of C corks is less than about 15% she would mark the bail as a possible acceptance. She then takes a few of the good corks back to the winery for further testing. If the cork soaked in wine overnight does not taint the wine with undesirable taste or odor, Cathy has the bail ordered and delivered to the winery.
The described quality issues and quality control procedures are obviously contributing factors to increased costs due both to the waste caused by defective products and the time spent for multiple visits to the warehouses in search of acceptable quality product.
In our analysis of the situation we have identified a few possible solutions and enhancements to the process of purchasing and quality controls.
First, we recommend to investigate the possibility of selecting cork vendors who are known for supplying higher quality corks. According to Cathy there are other vendors who offer this kind of products, but Cathy is not willing to pay higher prices for higher quality. We believe that this approach could backfire in more than just one way.
On one hand, the winery assumes the cost of about 15% of wasted corks. It is reasonable to assume that vendors of higher quality corks have lower percentage of defective corks in any given lot. The difference in percentage of rejects will undoubtedly offset some, if not all, of the higher original purchasing price of the quality corks. By Cathy’s own admission, when she had to replace a whole shipment of low quality corks due to their poor appearance, it cost her only a little more money to buy higher grade corks available at the time.
On the other hand, and this might be even more compelling reason, Morris Valley Estate Winery is positioning itself as a producer of premium wines, and therefore the actual and perceived quality of their wines are critical factors in attracting and retaining rather demanding and discriminating customer base. By compromising the perceived quality of their product the winery may have difficulty in maintaining their position in the premium niche. And if the customers perceive the drop in quality due to subpar quality corks, the Morris Valley Winery may even alienate some of their present customers. Even if the lower percentage of rejects in higher quality corks would not offset the price difference, the winery might consider assuming the higher cost of the corks and try transfer some, if not all, of the cost to the customers. Given the characteristics of their current customer demographics, they might be less sensitive to the slight price increase, than to perceived quality decrease. However, if the price elasticity of demand is larger than we predict, we recommend to continue using higher quality corks and for the winery to assume the increased cost.
One of the solutions to the low quality cork suggested by Cathy Tharlson was to consider alternate materials, which are cheaper, more reliable, and better performing, to replace the cork. We would recommend to investigate this option with extreme caution and only proceed in this direction if it will not adversely affect the quality perception issues cited before.
Cork Quality Assurance
In the light of our recommendation to switch to higher grade cork some of the burden of the quality control efforts could be significantly reduced. We do not recommend to eliminate the quality assurance process altogether though. However, there are some recommendations to increase the efficiency of the process.
Currently, Cathy is inspecting 50 or 60 corks from each bail of 10,000. This approach is known as single sampling plan for attributes. According to the rules of statistical methods for quality control, the sampling size for attribute measurements (reject or accept the lot) must be large enough to allow counting of the attribute. In our case, with the target of no more than 15%, and preferably about 10%, the sample size should be large enough to expect to count the C corks twice in each sample. This means that a sample size of 15 to 20 corks will render the same statistically reliable result as a current sample of 50 to 60 pieces. The decreased number of samples per bail would allow either spend less time overall on quality inspections or have 3-4 times more bails inspected during one visit to the warehouse. This will increase efficiency of the quality control process. Eventually, with the switch to higher grade corks, the total number of inspections required could be reduced which will increase the total productivity of the winemaker and allow her to concentrate on other more essential aspects of the wine quality process.