Clearfield Cheese Company Case: A Sequel Background The Clearfield Cheese Company was established by

Clearfield Cheese Company Case: A Sequel

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Background

The Clearfield Cheese Company was established by two
brothers, Terry and Ted Edwards, in 1931, in Clearfield, Pennsylvania. This
section of Central Pennsylvania’s economy was based largely upon coal and
agriculture at this point in time. The U.S. economy was in the throes of what
is usually referred to as the Great Depression, and coal production and
agriculture were both experiencing the effects of the slumping economy. The
farms in the area were mostly small- to medium-size dairy operations. The
farmers were under financial duress because they could not sell their milk in
the local area for a price to cover their cost of production. There were better
market opportunities in Pittsburgh and Harrisburg, Pennsylvania, but their
transportation costs put their “landed cost” at a disadvantage with dairy
farmers in Erie, Pennsylvania, and Eastern Ohio. The Edwards brothers were not
farmers but rather entrepreneurs and owned several tanker trucks, which could
be used for hauling milk. They decided that instead of using their equipment to
haul milk to potential markets for very meager profits they would start a
cheese processing operation in Clearfield. They had some savings and were able
to borrow money from The First National Bank of Clearfield, which was still
solvent. Their grandfather who had emigrated from Switzerland was knowledgeable
about cheese production and processing and helped them get started. They
purchased milk from local farmers with lenient payment terms and started a
successful venture. World War II presented some challenges in terms of labor
supply and fuel rationing, but they survived and prospered by hiring more women
and utilizing more rail service.

The next major hurdle was the government-subsidized cheese
producers in Canada selling into the Pennsylvania market in the 1980s. Tom
Powers, CEO of the Clearfield Cheese Company, with the assistance of two of his
key executives, Andy Reisinger (CIO) and Sandy Knight (CSCO), developed a plan,
which included improving their supply chain operation efficiency by lowering
inventory levels with better forecasting and procurement practices. They
expanded their product offerings by adding cottage cheese, sour cream, and
yogurt. They also purchased a Canadian company in 1995 because their Canadian
sales were growing. This lowered their costs to serve the growing Canadian
market and made them much more competitive in Canada. This was an important
step to make them a global company.

Current Situation

Their board of directors in 2017 was delighted with their
cash flow and profits. However, they were concerned about future growth because
of changing diets of many consumers who had become more concerned about
consuming milk-based products. The company had already added low-fat versions
of the major products, but the board members were concerned that this would not
be sufficient to sustain their growth and profits. Some possibilities that were
suggested for consideration included (1) setting up a new company to produce
non dairy-based products such as almond milk and other alternatives to cow
milk. All the new products would have a healthy “spin” such as the White Wave
company; (2) market expansion of their existing product lines into Mexico and
Central America; (3) expanding their current product offerings by adding ice cream,
high-end cheeses made from goat and sheep milk, and high-end milk-based candy;
and (4) a combination of one or more of these alternatives.

1. Evaluate all three alternatives offering pros and cons of
each.

2. What would you recommend? Why?

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