Case ID: QA-0587
Solution ID: 39805

Liquid Gold Calambra Olive Oil A

Case Analysis

The Liquid Gold cases (see also the B case, UVA-QA-0588) are an adaptation of the earlier Calambra Olive Oil cases (UVA-QA-0440 and UVA-QA-0442). This version supports a modified classroom experience. The cases describe the start-up of Calambra, a company built to sell a premier brand of olive oil. Frank Lockfeld, the founder, has to determine how much olive oil to make for the second year's production. Unfortunately, he has to make this decision before learning the results of the first year's sales. Thus, there is enormous uncertainty around the decision. The A case tells the start-up story and presents enough information for students to do a sensitivity analysis to decide which of the many uncertainties are most important, which leads to a discussion of tornado diagrams. The B case provides information on those critical uncertainties, which leads to a discussion of spreadsheet modeling and simulation modeling, searching for an optimal order quantity, adjusting for risk, etc. It also affords a discussion of a key general business issue: the difference between make-to-order and make-to-inventory businesses and the fundamental flaw in most business plans that leads to gross overestimates of potential profitability. Student spreadsheet files are available.

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