Production and Operations ManagementFinal Presentation Paper

Nissley WineryGroup 3

2012

Isabella PoeblElizabeth OhKaren PinhelMark Hamel

Ada Lam

1, 2 and 3). What are the major challenges in manufacturing the product? What is the nature of the challenges? Are they operational issues, technological issues, or

something else? How did they overcome their challenges? Inherent to the production of natural, perishable, and agricultural products such as

wines, are issues pertaining to the unpredictability of weather conditions and the

preservation of taste for lengths of time. A particularly pertinent challenge to Nissley

Winery and other wineries alike is preventing the aeration of wines, which could impair

the quality of the product. Since exposure to oxygen for a prolonged period of time could

spoil the wine, Nissley had to develop a way to bottle and store its products for a lengthy

amount of time without harming their quality. Nissley Winery overcomes this technical

challenge by utilizing special equipment called the ‘Sparger’ that blows inert argon to

separate oxygen from the wine in between the processes of bottling the wine and corking

the bottle.

The most essential raw material to Nissley Winery’s operations is the grapes.

These must be fermented and processed to produce bottled wines. The wine industry has

been experiencing grape shortages, threatening profit margins, as well as raising the

concern of securing supplier relationships as well as planning the planting of new

vineyards. Nissley Winery has been coping comparably well with this resource

availability challenge by practicing its own grape-growing operations. Although the

additional process increases the complexity of Nissley’s operations, it has allowed the

vineyard to overcome the industry-wide challenge of coping with grape shortages.

Nissley Winery also faced and continues to face financial and marketing

challenges that stem from legal constraints within the wine industry. As a ‘limited’

winery in Pennsylvania, Nissley Winery is restricted to producing less than 200,000

gallons of wine annually, which is only a fraction of what is typically produced by its

unlabelled counterparts. The largest Pennsylvania winery is known to produce less than

70,000 gallons of wine. This restriction placed on limited wineries creates the challenge

of maximizing capacity utilization while making greater profits to cover non-operating

expenses such as marketing. In addition, at least 75% of the grapes and fruits used by a

limited winery such as Nissley must be grown in Pennsylvania, further impeding on its

ability to mange its supplying practices in order to lower costs of production. Nissley

Winery overcomes these challenges by utilizing the position it holds from being an

influential producer of wine for over 30 years in its area. Judith Nissley, the co-owner

and the President of the Nissley Vineyards represented the Pennsylvania Winery

Association in 2009 to make a request to the Senate Agriculture & Rural Affairs

Committee for subsidies to finance their marketing expenses. Through such efforts, the

Nissley Winery has been able to raise funds for marketing activities such as summer

concerts and on-site tours and tastings.

Another significant challenge faced by the Nissley Vineyards is the unpredictability

that comes with the natural process of fermentation. A wine takes a certain amount of

time to ferment until it is ready to be filled into bottles and sold to the customers.

According to the documentary, the fermentation process takes varying amounts of time,

potentially leading to difficulties in production scheduling and a reduced level of

controllability of output to service consumer demands. In other manufacturing industries,

unpredictable processes may be remedied through an increase in inventory. However, the

degradable nature of the grapes used to produce wines eliminates the feasibility of this

option. It is our inference that Nissley Winery overcame (or at least minimized) this

challenge through the cumulated experience in the 30 years of its experience in producing

wines. By progressing through the learning curve, the winery probably developed a

flexible production schedule that accommodates the lengths of the fermentation process

that vary according to the season or other external variables. Another challenge similar in

nature is the inventory management challenge that Nissley faces. An essential process of

producing wines is the aging of the product to fully develop the taste. Since the bottled

and boxed wines need to be stored for lengths for the aging process, raising the inventory

holding cost.

Another big challenge for wineries is the quality management process. At the end

of the production process, the wine is a liquid alcoholic beverage. Since the innate nature

of the product does not allow for discrete measures of quality control such as counting

product defects, the process requires highly skilled labor to judge the quality of the final

product. It is also a very time-consuming process since very particular measures of

product quality such as a certain level of sugar density must be achieved. The winery

likely overcomes this need for highly skilled and experienced workers for quality

management rather easily since it is a family-run business with over thirty years of

history. Because of this long-term experience, Nissley has a labor force that is recognized

in being knowledgeable of their products.

4). What are the recommendable features in their production floor? Why would you recommend this practice in another factory floor?

The Nissley Winery located in Brainbridge, Pennsylvania, uses several

recommendable manufacturing features in its production of wine from vineyard grapes.

These features help the raw grape fruit on its journey from humble plant part to adored

beverage. Through every factory has its own ways of producing the goods they

specialize in, the Nissley Winery is a very small facility creating a local product, a fact

evidenced by small batch production techniques and manufacturing features that are

sometimes unique to Nissley and not common among other, larger, wine producers.

One recommendable feature is the first step analyzed in the video: Using a "finger

pronged machine" to separate the grapes from the other material collected accidentally

during harvesting. This feature is recommendable because it makes wine production

faster and cheaper. This is because the company doesn't have to pay workers to manually

remove leaves and stems from the grapes picked from their fields at harvest time. After a

quick run through this separator (which is specifically designed to sort out grapes), the

grapes are crushed by this same machine to break the skin and start the process of wine

making.

A second feature worth mentioning is the use of pumps throughout the facility.

Because grape juice is a liquid, the factory can employ pumps and tubing throughout the

facility to quickly transport the wine from one stage of production to the next. Plastic

piping is recommendable as a feature of this plant because it is cheap and easy to install,

saves workers time and energy in transporting the wine to different areas of the factory

floor, and also has the added bonus of being a very clean way to move the liquid product

because spills are much less likely.

A third recommendable feature is the use of a crane system. The factory is a

small, local producer, so it is in the awkward position of creating more product than can

be manually moved efficiently, and yet is not large enough to warrant extra investment in

infrastructure. As a compromise, a crane was internally installed in the ceiling of the

Nissley Winery to move large metal wine-bearing tanks from one process to another.

This ingenious idea helps employees by taking a huge physical load off of their

responsibilities, and also allows the facility to make more wine because the crane can lift

more weight than a person ever could. However, if Nissley is ever to expand its

production capacity, it will need to invest in a system other than the crane, due to safety

and efficiency concerns.

The final recommendable feature is utilized during the bottling process. The

winery uses a nitrogen gas spray to clean out each bottle before filling it with wine.

Afterwards, the bottle is immediately sent to the "Sparger," a machine that pumps inert

argon into the bottle. These two processes help clean the bottle and also prevent oxygen

from destroying the wine after bottling. This technique is important for wine producers

like Nissley because a dirty bottle can tarnish the product and its maker's image in the

eyes of customers.

5). Is there anything they should improve in production or in daily operations? How would you advise their company to improve their operations?

There are several ways to improve the quality and efficiency of Nissley Winery

wine production and daily operations. Because Nissley Winery is a small, family-owned

operation, it faces several challenges due to its size and output potential. Because it is

small, Nissley will have a hard time paying the fixed costs required in more automated

production, but through expansion can reap huge benefits. Our suggestions for Nissley

therefore include the themes of increased size, increased automation, increased safety

practices, and changes in supplier relationships.

Nissley Needs to become more automated. Consistently creating a high quality

product is an important factor in determining the winery’s future success and brand

building ability. "The public wants consistency, they get used to a particular label and

expect it to taste the same. But every year, the acid level is different, the sugar content is

different, as are the aroma and color of the berries. It’s a seasonal thing!” said Peter

Graue, an Australian wine producer and Yalumba Services Manager. In order to maintain

consistently high quality, process automation can be a solution.

In the video on how wine is produced at the facility, it is noticeable that many of

the techniques used in the daily operations involve human hands. For example, the

massive tanks of crushed grapes are lifted into the air, and then tilted, to be emptied by a

person into another piece of equipment. This part of production can be eliminated, by

simply pumping the crushed grapes from one container to another. Though the company

uses tubes and gravity to move grape juice in several parts of production, it would be

wise to invest in a pump that could replace the use of human hands. This will make

production more efficient because the pump would quickly move the material from the

holding take to the processing machine, instead of waiting for the crane to position the

holding tank, tilt it, and have an employee empty it manually. Additionally, investment

in a pump will mean that the crane equipment will become obsolete, reducing overhead

by lowering maintenance costs as well as eliminating the need for the expensive crane

replacement costs in the future. However, automation will not ensure perfection. Errors

and accidents will still happen. As a result, Nissley should implement some safety

systems to shut down the machines in case of accidents such as bottle and capsule jams.

Employees who are replaced by the automatic machinery can then focus on monitoring

and improving the process to reduce internal failure costs. However, employees need to

know they are responsible for improving the process. In order to let employees

understand their responsibility, Nissley should encourage employee involvement and

team works.

By replacing the crane with a cheap pump and pipe system, not only will the

facility be more efficient, but it will also be a safer work environment. Nissley is a small

company with a small workforce and subsequently small profits. Any potential

workplace accident and corresponding lawsuit could be extremely painful for the small

producer of wine. Because the crane lifts the huge bins of grape juice and tilts them

towards the manual labourer, the employee risks injury if the crane malfunctions and

drops the metal tank on a person, or crushes them between the tank and another machine.

By eliminating this crane system, safety will be improved as well as efficiency.

Another way to increase safety is concerned with the bottling process. During the

wine bottling process, Oxygen and microorganisms must be kept out to prevent

contamination. Although Nissley uses Nitrogen and Argon gases during the bottling

process to prevent contamination, the bottles are not rinsed beforehand. Bottles are taken

out from the box by the employees first. The bottles are then pumped with Nitrogen and

Argon gases, and the wine is filled into the bottles. The danger of using this technique is

that the bottles usually are covered with mold and dust due to the fact that they may be

stocked up at the winery supplies area for a while. Therefore, in order to assure the

bottles are clean, bottle washer or rinsing machine should be installed. The washer should

include an SO2 rinse and a draining function. Also, it should be made out of stainless

steel so the washer itself can be cleaned easily with steam.

There are also ways in which Nissley should change its bottling process to

become more efficient. As shown in the video, Nissley is using a semi-automatic process

for the sealing stage of bottling: After the wine is filled into the bottle, a cork is dropped

into the bottle through a machine and an employee will put the capsule on top of the

bottle. Afterward, the capsule will be tightened as it runs through the automatic line.

Since this process is very repetitive, an automatic capsule distributor can be installed to

allow flexible workforce. However, it might be better for Nissley to renew the whole

bottling, filling, and sealing system since it is easier to find a 3 in 1 full automatic bottle

washing filling capping machine on alibaba.com, a B2B website, then to find a bottle

washer and a capsule distributor machine alone. The price for a 3 in 1 full automatic

bottle washing, filling, and capping machine is approximately $150,000 per set and

capacity is about 1,000 to 4,000 0.1- 2 liter bottles per hour. Even though the initial cost

will be large, high quality of the wine can be ensured.

Another way for Nissley Winery to capitalize on its equipment capacity,

notwithstanding the legal constraints that are imposed on its production output, is by

tapping into other markets such as the fresh juice market. Due to an overwhelming trend

of increased consumer demand for health-conscious products such as fresh fruit juices

that contain beneficial antioxidants, the fresh juice market has seen a boom in the U.S.

Some specialized equipment such as the grape-crushing machine used by Nissley can be

adapted into a grape juice production process to avoid underutilization of capital. Since

Nissley grows its own grapes, it can advertise itself as a producer of fresh, homemade

fruit juices and supply its products to local markets, including the 5 gift shop kiosks it

currently has relationships with.

In order to pay for the machinery necessary for a more automated facility, Nissley

Winery needs to expand. The fact that the largest PA winery produces only 70,000

gallons when the limit enforced by the statute is 200,000 gallons is an indication that

these wineries have opportunities of growth. By increasing size, the winery will benefit

from economies of scale and also will be able to bring its homemade product to more

customers because production will increase. The winery should focus more on new

markets in large, nearby American cities. Currently, Nissley only has 5 physical locations

where customers can buy its products. Among those locations are the winery itself, and 4

branch kiosks. However, all of these locations are within the state of Pennsylvania. By

selling products beyond these limited borders, there is tremendous growth potential in

nearby cities such as New York City, Washington D.C., and Boston, all just a few hours

away by truck (3, 2, and 8 hours). By reaching out to these untapped resources, Nissley

can bring its wine to the masses and earn a grater profit.

Nissley should increase customer awareness of its products, something the

company can achieve while expanding into new markets. Currently, Nissley offers wine

tastings in 5 wine shops in Pennsylvania. As a part of regional expansion and marketing,

Nissley should have open tasting events in New York City, Washington D.C., and Boston

to help launch the product. Today's consumer is likely to enjoy Nissley products because

it supports American small business, which is something many Americans feel strongly

about. Additionally, wine is a heavily demanded product in these east coast cities

because they are wealthy areas that have a preference for consuming wine (see Figure 1).

According to the 7th annual study of wine consumption in the U.S. conducted by the

Wine Council and Nielsen Marketing, "The American consumer base is expanding, as

wine drinkers in the U.S. consumed 291 million cases of wine in 2011 (up from 278

million in 2010). Additionally, the study found that "60% of older millennials found fun

and contemporary looking wine labels of great importance when choosing wines to drink

at home."

Another suggestion is that Nissley should create new relationships with suppliers

it currently does not do business with. Being a small producer, Nissley is currently

relying on 5 gift shop type kiosks to sell wine. However, Nissley should also look to

regional grocery stores such as Stop and Shop (northeast corridor market) and Giant (mid

Atlantic market). By expanding beyond the 5 small stores, Nissley will also need to

invest in a way to manage its inventory on shelves in retail outlets. This inventory

management system is important whether or not Nissley decides to expand because

currently the 5 small retail kiosks are being run as a family business without the proper

automated oversight needed in a more efficient and streamlined production process.

Alternatively, Nissley should also consider the prospects of supplying its grapes to other

wineries in the area. The industry-wide challenge of grape supply shortages, combined

with the limited Pennsylvania wineries’ obligations to use grapes grown in Pennsylvania,

creates the perfect opportunity for additional profits to Nissley. Through expansion of its

already implemented grape cultivation process, Nissley could service the grape market

and earn a greater profit.

To calculate the amount of wine it will need to produce and send to retail outlets,

Nissley will need a better assessment of customer demand. Based on the San Antonio

Wine demand forecasting video posted on Youtube, (link below), wine forecast demand

is based on two factors: Natural growing conditions, and Wine Laws and state policies.

Moreover, wine demand has a seasonal pattern. For example, San Antonio Wine

Company expects to sell more of its high quality wine in June due to Christmas. As a

result, to get a better forecast result, Nissley should take seasonal patterns into account by

using the multiplicative seasonal method. By using the multiplicative seasonal method,

Nissley can calculate a seasonal index and multiply the estimated average demand by the

seasonal factors to arrive at a more accurate forecast.

We also recommend that Nissley utilize a forecasting system that is similar to Wal-

Mart’s CPFR. It will allow the company to work with its distribution channels on

forecasts by using online services. Nissley can focus the forecast based on increased

consumer desire for wine as documented by the American wine association's 7th annual

study as well as past experience selling wine in the Pennsylvania region to local

customers. By working on the forecast using data from its 5 current physical stores in

addition to future retail outlets and online wine sales, Nissley can use this forecast to

better predict consumer demand and thus find ways to incorporate that into wine

production processes.

Figure 1:Wine Consumption by State:

The American states with the highest consumption rates are California, Massachusetts, Connecticut, Rhode island, New Hampshire, Vermont, Nevada, New Jersey, Delaware, and Oregon. Pennsylvania is not among the states with a high consumption rate, so by expanding into nearby markets with more demand, Nissley Winery can make larger profits from a larger consumer base.

Sources:

http://www.youtube.com/watch?feature=player_embedded&v=0hAEfrHwZc8#!

http://www.google.com/imgres?q=wine+consumption+by+state&um=1&hl=en&safe=off&sa=N&biw=1441&bih=679&tbm=isch&tbnid=e3XR-Dfri-QXgM:&imgrefurl=http://www.oddgeo.com/2012/05/20/alcohol/&docid=AAka8LxxpXkC8M&imgurl=http://www.oddgeo.com/wp-content/uploads/2012/05/6315-450x224.png&w=450&h=224&ei=ALLAUI22HdGYiAeVlYHYBg&zoom=1&iact=hc&vpx=657&vpy=130&dur=96&hovh=158&hovw=318&tx=148&ty=86&sig=116337121411163638381&page=2&tbnh=142&tbnw=286&start=22&ndsp=26&ved=1t:429,r:34,s:0,i:178

http://arkansasagnews.uark.edu/408.htm

http://www.rockwellautomation.com/

http://www.alibaba.com/productgs/680267983/beer_packaging_machine_about_washing_filling.html

http://www.winemag.com/Wine-Enthusiast-Magazine/Web-2012/Wines-2011-Report-Card/

http://www.pasenategop.com/committees/agriculture/2009/033109/nissley.pdf

http://lancasteronline.com/article/local/220247_Making--Naughty--gets-Nissley-noticed.html

http://www.just-drinks.com/news/wine-industry-survey-highlights-biggest-challenges-for-us-report_id108415.aspx