Daniel Fowler, senior vintner at Napa Winery, had been put incharge of developing an optimal blending plan for the upcomingseason. This assignment was the result of a recent Napa Wineryboard meeting where the CEO had presented her ideas regarding theuse of analytics for enhancing profits while at the same time notaffecting quality. Industry reports indicated that a growing numberof the major wineries were using analytics to assist in thewine-blending process. The board meeting had concluded with the CEOtasking Fowler to develop an analysis and report his findings tothe board at next month’s meeting.
The United State has become the largest wine market in theworld, with sales approaching $40 billion annually. Typically, twotypes of wines are produced: varietals and blends. Wine blending isthe process of combining several grape varieties to achieve acharacteristic that is lacking in the original grapes. There areseveral reasons why a vintner might want to blend wines, including:(1) enhancing aroma; (2) improving the color; (3) raising orlowering the acidity level; (4) raising or lowering alcohol levels.The process of wine blending contains both objective and subjectivecomponents. Alcohol level is an example of an objectivestandard.
Napa Winery was one of the premium wine producers in the stateand had recently begun to sell its products on a global basis. Thewinery produced and distributed a wide range of premium wine,including its flagship – CS Wine. The firm’s management wasconsidering employing prescriptive analytics as a means ofimproving the wine-blending process. Typically, wines were producedfrom a blend of several types of grapes. In producing these blendedwines, the vintner had to take into consideration both grapecharacteristics and government regulations. Each of the candidateblends was then subject to a series of taste tests. In those caseswhere the candidate wines were found to be unacceptable by thetasters, a set of new products was often produced. The vintnerplanned to use prescriptive analytics to help develop an optimalblending strategy and assumed that all bottles produced could besold. More specifically, the vintner was going to undertake acomparative assessment of Napa Winery’ premier CS Wine productsector. The three specific production wines from this sectorwere:
Vintage CS Wine, which wholesaled for $9 per bottle
Non-vintage CS Wine, which wholesaled for $5.50 per bottle
Non-vintage M Wine, which wholesaled for $2.95 per bottle
Listed below are the winery objectives and governmentregulations.
Winery objectives and specifications
Maximize net profit.
The acidity level of CS Wine cannot exceed 0.7 grams per 100milliliters.
The vintage CS Wine must not contain more than 0.2 per centsugar.
The non-vintage CS Wine must not contain more than 0.3 per centsugar.
The acidity level of M Wine cannot exceed 0.3 grams per 100milliliters.
Government regulations
All wines labeled varietal (e.g. CS Wine) must contain at least75% of the named grape type.
All wines must contain at least 10% and no more than 15% alcohollevel by volume.
All vintage-dated wines must contain 95% blending grapes fromthe year on the bottle label.
All vintage-dated wines must also report the viticulture area onthe label and must contain at least 85% blending grapes from thisarea.
Presented in Exhibit 1 are the characteristics of the fourblending grades along with available quantities and associatedcosts.
Exhibit 1. Grape type characteristics,quantities and costs
Grape Type | Viticulture | Vintage | Acidity (gm/100 ml) | Sugar (%) | Alcohol (%) | Quantity (bottles) | Cost ($/bottle) |
CS grapes | Zone 1 | 2011 | 0.35 | 0.12 | 13.5 | 50,000 | 2.35 |
CS grapes | Zone 2 | 2010 | 0.75 | 0.25 | 15.3 | 60,000 | 2.60 |
CS grapes | Zone 2 | 2011 | 0.55 | 0.30 | 11.5 | 30,000 | 2.10 |
M grapes | Zone 1 | 2010 | 0.25 | 0.08 | 15.7 | 200,000 | 1.55 |
Questions:
What is the optimal blending plan that will help Napa Wineryachieve simultaneously its own objectives and specifications, andmeet the government regulations?
Are the government regulations adding more pressure on thecompany? What will be the optimal blending plan if thoseregulations will not exist? Are certain regulations morerestrictive than others? Conduct a comparative analysis to identifywhich government regulations will be the most beneficial tocompany’s business.
What other aspects should Daniel Fowler take into considerationin his modeling approach before presenting the results to the CEOduring the board meeting? (Hint: New optimization modelsmight be required to sustain your recommendations)
