Pete’s Peanut Snacks is a large processor of peanuts based in Albany, Georgia. Pete’s major products are roasted (plain and salted) peanuts distributed in 6-ounce bags and 18-ounce cans. Pete’s dominant market position is a result of its emphasis on product freshness and availability at stores. Pete’s product development department recently created a new product that is spicy flavored. It was also able to reduce the amount of cholesterol and salt in its peanuts, thus making the peanuts a more healthful snack. However, the new flavor also shortened the shelf life of the products.
Pete’s marketing department decided to launch the new peanut product a month before the NCAA basketball playoffs. Advertisements were scheduled on television, on billboards, on Facebook, and in newspaper circulars three weeks before the Final Four weekend. A sweepstakes contest was also proposed that would award the contest winner a free trip for two to next year’s Final Four. Each can of the cinnamon peanuts contained an insert with a serial number that could be matched with the winning number on Pete’s Web site.
To meet the estimated initial demand for the new product, manufacturing started making product two months before the introduction. Demand for the week preceding the Final Four games was estimated to be 3 million 18-ounce cans. Demand following the Final Four games was estimated to be 1 million cans per week. Manufacturing capacity for the new product is 1 million cans per week.
Pete’s price per can to its retail customers would be $2.50, which would allow for a gross margin of $1.25 per can. Pete’s cost to produce each can is $0.85. Inventory carrying costs per can are $0.10. Pete’s finance department was concerned that the heavy promotion and high build-up of inventories would eliminate almost all of the profit Pete’s would make on each can. Their directive to the product manager was that the product had to maintain its profit, or it would be pulled from the market.
1. What interactions need to take place among the marketing, manufacturing, logistics, and finance departments? Explain the logistics department’s role in the introduction of the new product.
2. Why is it necessary for the logistics department to be cognizant of all the details (quantity, timing) of the new product introduction? Discuss the issues that might arise (e.g., the drop in demand after the Final Four) and what responsibilities the logistics department would have as a result of these changes.