CaseNet - Chalice Wines

Chalice Wines

Craig Scarborough and John K. Shank
Dartmouth College © 1996
ISBN 0-538-88963-2

Case Teaching Package
A case teaching package is available for this case. It includes strategies for case presentation, key concepts, solutions to the assignment questions in the case, and suggestions for the most effective ways to work this case into your course.

Length
This case is 16 pages in length and its case teaching package is 10 pages.

Abstract

This case is set in 1993 in California's Sonoma Valley, home of many wine-making millionaires. Here is where they spend their millions, not where they make them.

This case provides a "fun" industry setting—premium California wines—for a cost analysis problem. The case deals explicitly with activity-based costing and value chain analysis. First, the value chain is developed using conventional industry norms for allocating product costs. Then the ABC approach is applied, which is challenging because of the complexity of the production process.

Linkages to Textbooks or Journal Articles/Fit Within a Course

I use this case near the end of the elective course on SCM. In class, I start with the value chain calculations. I use the case as more basic drill on the specific mechanics of constructing and interpreting a value chain. I then ask whether "ABC" can change the insights. I do the ABC and outsourcing calculations to show that no way of internally rearranging costs can change the poor results for Cimarron. I then do the Lyford value chain and discuss whether this is a viable strategy for CWG. Obviously it doesn't fit the first paragraph in the case. I also discuss how Chalice might add competence in distribution, if it wanted to hire lawyers in the seven or eight big population states and try for some merger activity that avoids the prohibitions of "3-tier" laws.

I close by showing Exhibit A and discussing for a while the key role value chain analysis can play in the overall management process.

EXHIBIT A

Understanding the Business Issues for Profit Improvement

Understand the Value Chain
- Where is the money spent? Where are the assets invested?
- Where are the returns earned?
For Key Steps in the Chain
- Benchmark competitive success
- Identify core competencies for success in "best practices" companies
- Identify key cost drivers
What is Our Strategy?
- Convert to key programs (multi-year)
- Convert programs to key projects & tactics (1 year)
- Identify the relevant Strategic Performance Measures (SPMs)
- Milestone reporting of SPMs—manage the right drivers well and financial results take care of themselves!

The case is "fun" for students because the industry is "exotic" and there are lots of counter-intuitive insights as the analysis unfolds. This is an excellent case to use late in the term to allow students to blend cost analysis and business analysis.

Study Questions

First fill in all the relevant calculations discussed in the case but left blank.
Then pull together an overall value chain for the project using the format shown in Exhibit 14 of the case.
What business issues are raised by the case?
What inferences for CWG do you draw from the Lyford wines value chain?
What advice to you have for Sam Davis and Bill Evanson regarding the 1991 Cimarron Meritage White? For the CWG business as a whole?

The downloadable file for this case is in Microsoft® Word 7.0 for Windows®.

If you do not have Microsoft Word, you can download the free Microsoft® Word Viewer 97 right here: For Windows 3.x For Windows 95