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Jelly Belly Case Study

In: Business and Management

Submitted By Jilarraza
Words 1147
Pages 5
Jelly Belly, Case Study

Jorge Nolasco and Jason Ilarraza

Operations and Supply Chain Management

Naval Postgraduate School

February 28, 2013

This Case study is based on Jelly Belly and the actions taken by the founder, to grow the Company, and loose the company to Goelitz Inc. The focus of the case study will address Jelly Belly's strategy and sustainability, strategy and capacity management, and sales and operational planning.

At 18 David Klein was in business selling popcorn with his uncle while attending UCLA. He worked his way through law school by selling popcorn. David decided not take the bar exam but pursue a career he was captivated by, making and selling candy. David Kline a quirky and creative candy maker has invented over 450 types of candy. His most famous candy was Jelly Belly.

David first opened and operated a wholesale nut and raisin business and attained experience and a reputation in the Los Angelos Area with local distributors of nuts, raisins, and candies. While operating and maintaining the wholesale nut and raisin business, David developed a gourmet jelly bean, he coined Jelly Belly. Jelly Belly’s competitive dimension was quality. David’s vision was to create a high-end jelly bean, with a premium quality, flavor, and a unique shape. David created the original 8 flavors in 1975.

David approached Herman Goelitz, president of the Goelitz Candy Inc., a generational candy business, founded in 1869, primarily known for fine candy corn, with a business proposal for production of the Jelly Belly. Mr. Goelitz began business with David and began the production of the 8 flavors David had created in 1976. The first flavors were Very Cherry, Tangerine, Lemon, Green Apple, Grape Jelly, Licorice, Root Beer, and Cream Soda.

David was familiar with the successful main stream marketing strategies of McDonalds and Burger King. He created the Jelly Belly logo, in bright yellow and red. Soon after, David acquired a space in a store front operation. He wanted a place to sell, where publicity could be generated, that was bright and cheerful. He attained a space in the ice cream parlor with $800. He placed a stand in the corner of the parlor.

The product was appealing yet it did not sell; the price for the jelly beans was outrageous. The candy industry was late in getting price increases, the candy industry was locked into low end prices. Afraid to make better candy because distributors would not purchase on the basis that customers did not want to pay more for a quality candy but expected to pay a low price for candy. Total sales for the first seven-day period was $44.

David called the associated press and invited the press to his store front in the parlor, and created a set up to demonstrate to the press that he was doing well with the Jelly Belly business and to expose the press to the taste and quality of the Jelly Belly. The press report declared Jelly Belly to be the new candy craze.

David continued with the momentum he had received from the press conference. David appeared on TV shows, radio shows and phone orders were directed to the ice cream parlor. Pres. Ronald Reagan, sampled Jelly Belly’s and loved them. He ordered 60 cases monthly. Local distributors began to sell and make a profit from Jelly Belly. $5 would ship 2lbs anywhere in the US. Soon after he established push carts in Holly Wood, Beverly Hills and Century City. The carts were visited by celebrities and this attracted more publicity.

The demand for Jelly Belly grew at a very rapid rate after David worked diligently on attaining publicity for Jelly Belly. Goelitz Candy Inc. did not have the resources to support the demand for Jelly Belly. The back log for Jelly Belly grew rapidly reaching a climax of over a one year waiting list for delivery. David did not take needed action to plan for and mitigate the risk of having one supplier and logistics failures.

David lacked the ability to deal with supply chain coordination risks; Jelly Belly was lacking safety stocks, safety lead times, multiple suppliers or alternate suppliers. Goelitz Candy Inc. was Jelly Belly's, sole manufacturer. David was unable to determine the overall capacity level of capital intensive resources that best supported the Co.'s long term competitive strategy.

Jelly Bellies were produced in the Goelitz Plant, the PWP concept was utilized. Goelitz lacked capacity flexibility. Goelitz was unable to increase production of the Jelly Belly, they were unable to shift production capacity quickly enough from other products to the Jelly Belly products. Operational Effectiveness at the candy plant and for Jelly Belly were poor; either stakeholder did not have control initiatives or planning and control systems that could mitigate meeting the high demand.

The leadership of Goelitz

The high quality of the Jelly Belly was a trade off to low Inc.st. The order winning criterion for Jelly Belly was quality; the order qualifier was the 25 distinct flavors and colors.

Herman Goelitz Inc. convinced David Klein that 200 hundred employees relied on his decision to sell JB to the Goelitz Candy Inc.

David lacked legal representation at the meeting.

David sold Jelly Belly trademark for 4.8 million to Goelitz Candy Inc.. The 4.8 million was paid over 20 years, 20,000 monthly.

Had David not accepted the deal by Goelitz Candy Inc.., Goelitz had immediate plans to stop producing Jelly Belly for David and anticipated David running out of money attempting to fight Goelitz in court.

If the David would have negotiated to keep his existing royalty agreement the deal would have been worth several hundred million since 1980.

LL

▪ Supply Chain Risks were not identified or mitigated by David Kline; Jelly Belly had one sole producer, Goelitz Candy Inc.

▪ David lacked the ability to deal with supply chain coordination risks ; Jelly Belly was lacking safety stocks, safety lead times, multiple suppliers or alternate suppliers.

▪ David lacked legal representation during negotiations with Goelitz Candy Inc.



▪ Goelitz was unable to increase production of Jelly Bellies, they were unable to shift production capacity quickly enough from other products to the Jelly Belly products.

▪ Subcontracting and outsourcing could have been a part of the Production Planning Strategies on the part of David and the Goelitz Candy Inc.

▪ Jelly Belly continues to grow and introduce new flavors. Currently there are 102 flavors.

▪ Its competitive dimension still focuses on quality/ order qualifier is the variety of flavors.

▪ Production / 100,000 pounds per day, or 1,250,000 beans an hour.

▪ Employee loyalty is the most important influence behind Goelitz's Inc. record-setting production.

▪ Jelly Belly has become more automated, and has also expanded. Increased sales have allowed Goelitz Inc. to buy new equipment and keep all employees busy.

▪ Jelly Belly accounts for 70% of the Goelitz Candy Inc. sales, over $200 million in 2008.

▪…...

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