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Operational Risk Management Case Study: Bon Boulangerie

DIANA DEL BEL BELLUZ

President, Risk Wise Inc.

Bon Boulangerie is a bakery business located in Oakville, Ontario. When the owner, Ray Pane, purchased the business three years ago, it consisted of a single site with baking facilities and a retail store and cafe. Based on market research with the bakery's retail and cafe clientele, Ray began to change and expand the product offerings to increase the volume of sales and margins. He also began a new line of business, wholesaling to local restaurants and high-end grocery stores within a 20-kilometer radius of the bakery.

Based on the success over the past three years (see Exhibit 31.1), Ray has made a strategic decision to expand his wholesale business, with the goal of tripling profits over the next three years (see Exhibit 31.2). He expects to accomplish this by: (1) covering a larger territory (i.e., expanding to a 120 km radius) for wholesaling to local restaurants and independent grocery stores across the entire Greater Toronto Area, and (2) introducing a new business line, white label products that he can supply to major supermarket chains.

To realize this strategy, Ray has leased and outfitted a separate baking facility to be primarily dedicated to supplying the wholesale business. Ray also hired a full-time vice president of sales and marketing (see Exhibit 31.3 for a summary of the Bon Boulangerie management team) to take over from him on the wholesale side. Finally, he purchased a second previously owned delivery truck and hired a full-time distribution manager.

Growth in the first three years is attributable to enhancement of product offerings and continual drive to find efficiencies in operations. In year 4, the new baking facility will open. It is expected that it will take several years to add new wholesale customers and wholesale products. Therefore, there will be unutilized capacity in the new facility. It is anticipated that expanding the wholesale business will, at least initially, require an increased level of product development, marketing, sales, and distribution.

Exhibit 31.1 Financials for Past Three Years

(Actuals)

(all figures in $000's)

Year 3

Year 2

Year 1

Income

Cafe

300

273

246

Retail Bakery

718

624

562

Wholesale – Restaurants

410

234

0

Wholesale – Other Retailers

359

312

0

Total Revenue

1,786

1,443

807

Operating Expenses

Cost of Inventories Sold

1,349

1,090

610

Marketing, General, and Administrative

361

291

163

Total Expenses

1,710

1,381

773

Net Income

76

62

35

Exhibit 31.2 Projections for Next Three Years

(Projections)

(all figures in $000's)

Year 6

Year 5

Year 4

Income

Cafe

348

331

315

Retail Bakery

831

791

753

Wholesale – Restaurants

960

768

614

Wholesale – Other Retailers

4,306

2,153

1,076

Total Revenue

6,444

4,043

2,759

Operating Expenses

Cost of Inventories Sold

4,926

3,105

2,175

Marketing, General, and Administrative

1,301

816

557

Total Expenses

6,227

3,921

2,732

Net Income

217

121

27

ABOUT THE CONTRIBUTOR

Diana Del Bel Belluz is the President and Founder of Risk Wise Inc., a risk management consulting firm that provides advice and support to executive leadership teams and boards who want to achieve more effective, proactive, and strategic management and oversight of risk. Her forte is helping leaders to solve the people issues associated with bringing enterprise risk management (ERM) to life in their organizations. Diana advances the practice of ERM through her thought leadership as an educator, conference organizer, speaker, and author of ERM resources, including numerous articles, book chapters, and the Risk Management Made Simple Advisory, a quarterly publication of ERM implementation tips and resources available at riskwise.ca. She also wrote Chapter 16, Operational Risk Management," of the book Enterprise Risk Management: Today's Leading Research and Best Practices for Tomorrow's Executives, edited by John Fraser and Betty J. Simkins (John Wiley & Sons, 2010). She holds bachelor's and master's degrees in systems design engineering from the University of Waterloo and is a professional engineer.

 
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