About a month ago, John Trentacosta wrote about a subject that no one wants to talk about (mhmonline.com). Fact is, an otherwise phenomenal supply chain can be brought to its knees when one partner in the chain runs into financial trouble. A business relationship with a pauper is not sustainable.
Some early warning signals - the canaries in the coal mine - include: requests for price increases, early payments, accelerated terms, or even financing support; late deliveries or quality degradation; failures to appropriately invest in IT and/or other assets; maintaining spend during downturns; delinquent taxes, deteriorating receivables, and extended payables; and bad press, among others.
Due duiligence on the front end can help prevent problems on the back end, but sometimes bad things happen to good people. That's when an early response team reaction to early warnings can pay off. Sometimes, you've got to pull the plug. But, often you can mutually develop work-out plans to let the troubled partner survive long enough to prosper -and to keep your supply chain humming in an unrelentingly competitive marketplace.
Have we over-outsourced our supply chains? Michael L. Hetzel, a vice president at ProQC International, says that we in the US have, in a paper distributed to American Society for Quality (ASQ) members. I believe that we have done so in Europe, as well.
Hetzel maintains that extended and distant supply chain structures have isolated and siloed procurement, quality, design, and logistics functions, with each focused on its own objectives and measurements - to the detriment of the end-to-end supply chain.
The stunning realization in all this is that loosely-connected functions in the supply chain are more likely to fall apart under stress than a strong system of better-integrated links would be. There may be no stronger argument than this for the value of - the necessity for - carefully structured business relationships among supply chain partners.
Perhaps near-shoring, in-shoring, right-shoring and the like might mitigate the consequences somewhat. But, the risk of supply chain catastrophe in a world of bankruptcies, sudden and sometimes unforseeable communications and logistics breakdowns, economic turmoil, civil unrest, government actions, and Icelandic volcanic eruptions is simply too great to do otherwise.
The tragic and catastrophic Gulf oil spill has, regrettably, some vital lessons for the world of business relationships in supply chain management. At the risk of trespassing on Chuck Taylor's turf, let me 'splain.
BP Plc, the well's majority owner, gets most of the ink. They're on the hook for the entire cost of clean-up, plus $75 million in ither damages. Seems a paltry sum to compensate for the destruction of entire industries, ecosystems, and people's lives and livelihoods. Under pressure, pun intended, BP has quickly pointed the fickle finger of blame at Transocean Ltd, the well's driller and operator, blaming "their systems, their people."
Transocean - no fools, they - quickly downloaded responsibility to its subcontractors, specifically naming Halliburton (the #2 oilfield services company) and its cement casing work. They claimed that they had made no errors, but the issue might be moot because BP had indemnified Transocean in their contract. Halliburton counter-punched with an unequivocal statement that the cement work had been completed on time and had been tested, showing that the work had been "properly" done.
Meanwhile, the well's blowout preventer, which did not cause the spill, but failed to prevent the lethal blast, was found to be leaky and less-than-100% reliable. It's manufacturer, Cameron International Corporation has seen a 25% drop in its stock value. But, according to some, Transocean was responsible for the BOP's maintenance.
In a public move worthy of Pontius Pilate, Anadarko Petroleum, the well's 25% owner claims to have had nuthin' to do with nuthin' in that they merely approved a budget amount, relatively late in the process. Btw, the Federal government's Minerals Management Services seems to have at least a finger in this dog's breakfast, as well.
Are these the kinds of moves made by genuine partners in open, collaborative supply chains, integrated and synchronized to work together in delivering product, quality, and value to its ultimate customers? Or, are these the behaviors of companies that don't know how to create and maintain sustainable business relationships for the greater good of both themselves and their customers? It makes no diffference that the supply chain(s) involved are related to infrastructure build and maintenance, and not to the delivery of consumer goods.
I'm betting that what we are witnessing, in the midst of a disaster, is a chilling illustration of short-term, "git 'er done" transactional relationships that take the money now, and the devil take the hindmost. I'm also betting that the sinister dance will become more complex, with more intensity, and with more entities involved as more commas work their way into the total price tag.
What do you think?
McNeil, the respected Johnson & Johnson unit, has faced a product recall of stunning proportion over the past few weeks, with a wide range of liguid analgesics, notably Tylenol, involved. This raises supply chain issues at a couple of levels.
One is how to handle products in the hands of consumers. These, it should be obvious, can't be physically returned in a reverse logistics application at any reasonable level of cost or effort. Accordingly, refunds are being issued, with instructions to get rid of any unused product, whether unopened or partially used. Another is getting earlier shipments out of retail customers' stores and warehouses, where larger quantities might require physical movement. I'm confident that J&J's supply chain partners value the speed and candor with which the situation has been handled, and would have expected nothing less.
There may be another level of interest, though, and I'm not quite sure how to approach it. In supply chain education, we are fond of - in examining the linked components of integrated supply chains - distinguishing between the "old days" of a logistics perspective and a 21st-century view of supply chain management. In the former, we were focused on what happened between the boxes in the diagram - physical movement and handling. In the latter, we say we are vitally interested in what happens inside the boxes - how we plan and execute procurement or conversion (manufacturing), for example.
But, are we really? Do we - can we - have visibility and oversight when the preceding link in the supply chain is J&J? Should we? If the source were not a provider of the same scope and scale, would we insist on having that visibility?
Should we rely on the processes, controls, and track record of any manufacturer to detect and correct problems, and keep the entire supply chain out of trouble? Or, do we not challenge behemoths, and hope for the best?
What are the ramifications of these questions on the quality of our business relationships? Are the risks real? Are they offset by longer-term benefits?
What do you think?
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http://www.feedstuffs.com/ME2/dirmod.asp?sid=F4D1A9DFCD974EAD8CD5205E15C1CB42&nm=Breaking+News&type=news&mod=News&mid=A3D60400B4204079A76C4B1B129CB433&tier=3&nid=820CC37E7FA94C2387B4E483F38D04F7
This article focuses on the business relationship between a large supplier, Monsanto, and the every-day American farmer. Farmers can create margin on their product by using new innovations, such as the biotech seeds Monsanto produces, which increase the quality and yield of a product. Monsanto understands that their competitors cannot duplicate the value of their innovations, so as a differentiated supplier they raise the price of their seed. The seed provided by Monsanto can exponentially increase the growth of a farmer. However, because Monsanto is the only supplier with this quality seed, they increased price hinders the farmer’s growth. Recently, competitors of Monsanto have been decreasing their seed prices in order to gain customers by taking advantage of the large price gap between their seed and Monsanto’s.
This is relevant to the topic of business relationships because Monsanto has noticed their customer base decreasing, assed the situation, and have put time and effort into solving the business-to-business problem. Monsanto has understood that the needs of their customers are not congruent with their expectations. In order to clarify the farmer’s situation and goals for the future, Monsanto took twelve months to personally visit with over 1,200 customers. At these visits, Monsanto discovered how the farmers view their product and company. The supplier concluded that they have an “unmatched toolkit” compared to their competitors.
After thinking about Monsanto’s, the competitor’s, and farmer’s situation, I asked my self a few questions. Can the competitor’s create a bundle so that price sensitivity is not the only reason why customers choose their product? Will farmers have no choice but to purchase Monsanto’s seed because of the quality? As a supplier with an “unmatchable toolkit”, will Monsanto continue to make an effort to personally visit with their customers?
Contract farming is agricultural production in accordance with an agreement between buyer and farmer. The farmer agrees to provide a specific quantity, quality standard, and delivery schedule. The buyer agrees to purchase the product at a pre-determined price and often supports production.
In Indonesia, contract farming has proven to be very useful for small farms for a number of reasons. For example, it is often very difficult for smallholders to access crucial market information. By contracting with a large agribusiness firm, they put themselves in the mix of market characteristics. Also, large firms have more access to new technology and are eager to share the knowledge to achieve a more efficient process. In rural areas of Indonesia, gaining market access independently is very much a struggle.
In this scenario, a contractual agreement is mutually beneficial. It is a way to spread production and marketing risks between agribusiness and smallholders. In this way, producers can focus on effectively producing the product and the larger firms will take care of the marketing and exports. By connecting rural economies to the international market, contract farming leads to substantial improvements to the broader economy.
http://aciar.gov.au/sites/aciar/files/node/533/tr54.pdf
Over the next year, Kraft foods is planning on acquiring Cadbury. The change will happen and is projected to increase the name brand of Cadbury and is meant to raise Kraft stocks over the next few years. The acquisition has many investors worried, because the amount of money being spent on the acquisition is projected to take a few years before investors see any type of payoff. Kraft foods also recently sold their frozen pizza branch to have the funds to acquire Cadbury, which was a major deal.
This acquisition is so significant, due to nature of the two companies. kraft is one of the top food producers in the entire world, and Cadbury is a major name, especially in Western Europe. Kraft has plans to improve organic production by 5% in the long term, and will own about 15% of the worlds confectionary market. Kraft shows promise in improving name brand quality and has great strategy to promote strong name brands, with the help from Cadbury, over the next few years.
http://www.forbes.com/2010/02/16/kraft-earnings-profit-markets-equities-cadbury-update.html
Getting Passengers to want to buy airlines food
Found in Seattle Post Intelligencer on April 14, 2010
The article that I chose to read was about the lack of food sales for airlines. It mentions that airlines are trying to make a stronger effort to make more desired meal choices for individuals on airplanes. With the lack of purchasing of airline foods, many companies are losing an entire market. Individuals know the reputation of airline food and have been purchasing food from chains before getting on board. The article described the consumption of airline food as cause and effect. Once airlines started to charge for in flight meals, passengers then resorted to purchasing meals from chain companies within airports. In addition, airports are able to raise prices for their food because people are given limited options. The commonality of such a purchasing habit has reached the airline companies. Some companies have been attempting to make drastic efforts. The article mentioned that Virgin Airline's has even added an Absinthe and Sprite cocktail to their drink cart. People appreciate the most minor of things when it comes to air travel, like if they can receive a seat assignment in advance, and if there are an array of drinks offered. People with children would most likely choose an airline that offers quality food at an affordable price opposed to running around the airport before the flight in a hurry. American Airlines recently has been collaborating with Boston Market in attempts to provide airline passengers with a more desirable in flight meal.
The future of food on airplanes seems to be brighter than its dark past. In the future, it appears that more options will be offered to passengers. The airline companies have begun to realize that they are missing out on a large market. Their revenues would greatly increase with the evolution of edible and desirable foods on planes. If it means collaborating with bigger American food companies such as Boston Market to obtain a share in the airplane food market, then it should be done. Passengers will feel more comfortable eating the foods on airplanes from known American companies opposed to a boxed good, with no food label, and some airline company logo.
http://blog.seattlepi.com/aerospace/archives/201833.asp?from=blog_last3
The biggest conflict currently escalating amongst the seed industry is between farmers and the big corporate giant, Monsanto. Over the past decade, these two entities have been fighting over legal issues concerning Monsanto’s patented genetically modified crops. Since farmers reuse their crop as seed for the next planting season, Monsanto has been suing hundreds of them each year for patent infringement. Most farmers give in, and settle out of court, because of the high legal fees. Monsanto knows these farmers will continue to purchase their seed, because of its high quality and yield producing traits. Is it fair for Monsanto, who makes billions of dollars in profits each year, to form lawsuits against famers, who may make less than $50,000 each year? How can a consulting company help mitigate the problem between Monsanto and the farmers, and ultimately resolve this issue? It will be interesting to see how this problem pans out in the future between David and Goliath. What are your thoughts on this issue?
http://www.keepmainefree.org/suesuesue.html
Kellogg’s prides itself on quality cereal and other food products. The quality exemplified by Kellogg’s is due to the ability to specialize its team in producing food products, not logistical tasks. For this reason, Kellogg’s recruits other businesses to handle these responsibilities; activity essential to supply chain management and a successful product or service. Stock, transportation and marketing of Kellogg’s products allows the different links of their supply chain to act cohesively. Kellogg’s employs TDG, a storage company, to handle stocking and pallet responsibilities of their product. Kellogg’s also holds a relationship with Kimberly Clark, an industrial supply manufacturer, with whom Kellogg’s shares transportation methods. Lastly, Kellogg’s relationship with Tesco, a food retailer, exemplifies Kellogg’s specialty marketing through creation of an advertising unit for use in retail stores. By Kellogg’s dividing product responsibility, it allows the company to save time and money while increasing competitiveness in product and maintaining brand integrity. Kellogg’s reduced costs by: not having to employ more workers to complete said tasks, decreasing the number of empty transportation vehicles and not having to expand production space for storage purposes. Without Kellogg’s business relationships, they may not be able to hold high standards to their products because they would need to concentrate on other aspects of business than food product creation alone. The information provided can be found on the Times 100 website.
Kellogg’s prides itself on quality cereal and other food products. The quality exemplified by Kellogg’s is due to the ability to specialize its team in producing food products, not logistical tasks. For this reason, Kellogg’s recruits other businesses to handle these responsibilities; activity essential to supply chain management and a successful product or service.
Stock, transportation and marketing of Kellogg’s products allows the different links of their supply chain to act cohesively. Kellogg’s employs TDG, a storage company, to handle stocking and pallet responsibilities of their product. Kellogg’s also holds a relationship with Kimberly Clark, an industrial supply manufacturer, with whom Kellogg’s shares transportation methods. Lastly, Kellogg’s relationship with Tesco, a food retailer, exemplifies Kellogg’s specialty marketing through creation of an advertising unit for use in retail stores.
By Kellogg’s dividing product responsibility, it allows the company to save time and money while increasing competitiveness in product and maintaining brand integrity. Kellogg’s reduced costs by: not having to employ more workers to complete said tasks, decreasing the number of empty transportation vehicles and not having to expand production space for storage purposes. Without Kellogg’s business relationships, they may not be able to hold high standards to their products because they would need to concentrate on other aspects of business than food product creation alone.
The information provided can be found on the Times 100 website.
Its so secret that in the past year, McDonalds has beefed up their menu. Certified Angus Beer burgers have invaded the iconic McDonalds menu, and customers seem to love them. The third-pound lineup includes: the deluxe, mushroom & swiss, and the savory bacon and cheese. The burgers are made with USDA-inspected Angus beef and are intended to be more "gourmet" than the average McDonald’s offering. For instance they come on "bakery-style" rolls in order to appeal to those who would normally opt for a different burger chain over the golden arches.
With $3.99 a pop, McDonald’s is able to sustain a more competitive advantage against restaurants with a higher quality alternative to fast food. Not only does this relationship work for McDonald’s, the Angus Beef brand is further instating themselves as the affinity in beef. Boasting that less than 8% of all beef makes the cut, Angus Beef is continuing to find their product in American’s hands, or for that matter American’s stomachs with this business-to business relationship with McDonald’s.
http://www1.mcdonalds.com/angus/
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A major food service provider, ConAgra, builds relationships by finding qualified businesses who can conduct business on the same terms, conditions, and quality standards as other business suppliers. ConAgra looks for corporate partners who can provide a consistent product enabling ConAgra to pass on the consistency in the food they provide.
ConAgra also focuses on a culturally diverse employee base. ConAgra works with six Employee Resource Networks to ensure this diversity. The current six Employee Resource Networks include: ConAgra Black Employee Network, Women's Leadership Council, ConAgra Asian Network, ConAgra Latino Network, ConAgra Young Professional Network, and Illuminations. Each of these networks plays a large internal and external role for the company. Externally these networks provide volunteer support for community events and organizations.
http://company.conagrafoods.com/phoenix.zhtml?c=202310&p=comm_diversity
I found a brief article describing business to business relationships in the agriculture/food industry. Effective communication through businesses can help reduce environmental uncertainty, improve access to crucial resources, and increase business productivity and effectiveness. Agribusiness relationships are disected into four different types: Spot markets, Repeated market transactions, Formal contracts, and Financial participation. Then, the elements of a good agri-food supply chain relationship are discussed. All information is detailed with two specific examples. The first business to business relationship example deals with the cattle-to-beef process, while the second example details the barley-to-beer/whiskey process. Both examples are perfect for describing great relationships where extreme trust is necessary, especially with quality and safety. Finally, research identifies several success factors for sustainable supply chain relationships and communication. Visit the website at
http://www.sac.ac.uk/mainrep/pdfs/relationshipsinagrifood.pdf
Jason Koss
April 14, 2010
ACE 430
http://cgb.com/browse.asp?page=380
Consolidated Grain and Barge is a leading grain origination company that deals primarily with Japanese customers buying non-gmo corn and soybeans. In an effort to ensure quality grains are being grown CGB has “Incorporated ISO 9001:2008 into their management systems.” This information is important for the end consumer to know that the grain he is purchasing has been through rigorous testing and met a multitude of quality control measures.
The ISO certification program offers a benefit for the consumer in knowing that what he bought is to the exact specifications he has requested. This results in the consumer paying a premium for the grain which in turn allows the grower to receive a premium above the market price, as well. CGB plays a key role in managing this crucial relationship between the grower and the end consumer. Providing ISO quality certifications will ensure a consistent quality product for many years to come.
Cargill, the world's largest trader of agricultural commodities, is threatening to halt business with one of its suppliers based on information that points toward the company's deforestation activites. Sinar Mas, a major Indonesian palm oil supplier, has been accused of illegal land-clearing activities to create plantation ground for its palm oil production. Sinar Mas assures that once further investigation is completed, its business with Cargill will remain. However, other buyers, like Nestle who is switching suppliers and Unilever who scrapped a $33 million contract with Sinar Mas, are way past threatening. Their business relationship with Sinar Mas is no more, because these multinationals didn't want to harm their companies' global perception because of their supplier's actions.
Companies stop business relationships all the time; so, why is this particular situation significant from a food marketer's standpoint? None of these buyers had any real issues with what they were buying. The issues that terminated the supplier/buyer relationship had nothing to do with the quality or physical ascpect of the product that was being transacted.
Here, we see the extension of a generic commodity to what Theodore Levitt would call a product bundle + intangibles. In business relationships, there are intangibles that are added into a product bundle with the commodity/product that are remarkably influential. It was an "intangible" part of the "product bundle" that Sinar Mas created that was unwanted by its buyer. Nestle, Unilever and now Cargill can't do business anymore with Sinar Mas. But did this have anything to do with the product? Nothing. The problem was entirely in the risk of tarnishing the perception of the buyer, and how that was affected by WHO they bought palm oil from, and HOW it was being produced, but not WHAT it was.
Many factors, be it technology, globalization, or media influence, make any business relationship extremely fragile nowadays, in that absolutely EVERYTHING that is offered to the other company matters. Every aspect of what you sell/buy and how you go about it in a business relationship can be influential, even if it is "intangible."
The intangibles that are included in the product bundle are significant. So significant, in fact, that it cost Sinar Mas a relationship with some of the most recognizable food companies in the world.
http://www.ft.com/cms/s/0/79510d4c-37af-11df-88c6-00144feabdc0.html
Theodore Levitt: http://cte.jhu.edu/courses/pii/marketing%20success%20through%20differentiation.pdf
http://www.nestle.com/MediaCenter/PressReleases/AllPressReleases/Kraft+pizzas.htm
http://www.marketwatch.com/story/kraft-trading-pizza-for-chocolate-2010-01-05
Nestlé USA has always had a good reputation for providing quality prepared dishes, such as Lean Cuisine. So on January 5, 2010, it made perfect sense for them to acquire Kraft Foods’ frozen pizza business. Prior to this, Nestlé had only a minimal presence in the frozen pizza industry. They believe it is a good strategic fit because it goes along with the research and development that they have already done with other frozen food, such as direct-store-delivery, convenience, and quality. They are using this acquisition as a way to become major players in the frozen pizza industry, which was about $4.4 billion last year.
Kraft Foods sold their pizza business for $3.7 billion so that they could afford to buy Cadbury chocolate maker for $16 billion dollars. Shareholders are unsure if the deal will go through. However, if it does, chocolate will prove to have a larger profit margin than pizza.
Why is this acquisition significant? Kraft Foods is taking a risk. They are willing to lose a successful aspect of their business for a potentially larger one. They are losing the trust of their shareholders, while Nestlé is gaining popularity in the frozen food business and also letting around 4,000 previous employees of Kraft keep their jobs. If the acquisition of Cadbury goes through, we will see the same thing happen. This appears to be an endless cycle between businesses.
Less than a year after the controversial and frankly nauseating documentary, Food Inc, which focused a large portion of its camera-time on the poultry growing industry, Tyson Foods is again under scrutiny. Recently, ten Oklahoma chicken growers won a $7.3 million lawsuit filed against Tyson. The lawsuit claimed that Tyson “defrauded a group of 10 McCurtain County chicken growers through a series of deceptive and coercive business practices”. In the lawsuit, chicken growers claimed that Tyson used its “tremendous economic clout” to force them into growing chickens at less than break-even costs. They also claimed that Tyson used ”verbal and financial pressure” to persuade growers to construct more modern chicken houses that would eventually force growers to follow any Tyson demands no matter how unreasonable because of their large debt load. They went on to say that Tyson consequently punished growers who refused to upgrade by providing them with inferior quality feed and chicks, as well as paying them less for their mature birds.
This was just the first of many similar trials that are slated to take place over the same claims. More than 50 chicken growers initially filed a lawsuit in May 2008 against Tyson Foods.
We cannot cite many instances to add a lot of value up the supply chain in most agriculture sectors and see margins bigger at the retail level than at the farmer end, but this is just an issue of company mistreatment of its supply chain. While Tyson’s company is at fault for attempting to defraud farmers, I’d like to point my attention towards the farmer. This is clearly a case of an unhealthy business relationship with the upstream supplier side gets the short end of the stick due to financial power. My questions are (1) do you believe that these suits will change the way Tyson treats its suppliers, (2) Tyson mentioned leaving the area since it could be legally risky, how can Tyson generate other farmers’ confidence in their tarnished reputation if they leave or is it negligible due to relatively few jobs in southern rural areas, and (3) personally, as a consumer, do stories like this deter you from buying a company’s product?
In my opinion, Tyson will realize that this could be potentially disastrous for its company. If anyone has any ethics in upper management, I believe they will remove the people responsible for this issue before it is too late (wishful thinking?). Being one of the United States’ top chicken manufactures, there is too much at stake to risk going under. I think that if Tyson goes through with its threat it will be very difficult to convince farmers to grow especially if they don’t have any capital in place already. I see them possibly expanding production at already contracted chicken houses with big incentives given to the farmers or in the future vertically integrating themselves to grow the chickens themselves to hedge from legal risk. Personally, however, this will not affect my shopping, which I predict is the same for most people. I see consumer health and price prevailing over the mistreatment of chicken farmers in this situation.
Check the article out for yourselves and let me know what you think on the subject: http://www.gainesville.com/article/20100403/articles/100409805?p=all&tc=pgall&tc=ar
Unless you've spent time in Holmes County, Ohio or Lancaster County, Pennsylvania, your impression of Amish life has probably been limited to Witness and Harrison Ford (or Birch Interval and Rip Torn). For the record, Rip takes more alcohol than the norm for the Amish population. This behavior by what the Amish call "the English" would not surprise breakaway leader Jacob Amman, or Menno Simons, who originally founded the sect from which the Old Order split.
The current issue (April 19) of Time magazine devotes a page to the success of Amish businesses, and the Amish styles of working and management. They, for example, have a start-up failure rate only 20% of that experienced by all US small businesses. The telling phrase? "Amish businesses value relationships over onetime deals." There's also reference to working "higher up the value chain." Maybe plain folk aren't as simple as we thought they might be.
That's no surprise in this corner, but it's always encouraging to see unsolicited independent support for our core contention that the quality of business relationships is a compelling difference-maker in sustainable enterprise success, for, in Time's words, ". . . those more dedicated to the Golden Rule than the golden calf."
http://www.smartcompany.com.au/food-and-beverages/20100409-winemaker-convicted-of-passing-off-cheap-wine-as-chardonnay.html
River Wines an Australian based winery has been convicted of falsifying records and fraud for passing off grape juice as their branded chardonnay. Grape growers supplied sultana grapes to River Wines in good faith with no knowledge of the deceptive practices. The conviction and painstaking litigation stems from 2003 reports of grape/wine purchasers questioning the validity of Rivers’ bulk grape juice. This is one of the most significant deceptions ever in Australia’s wine industry history leaving many French, Australian, and U.S. wineries to question the ethics and business practices of their partners or wine suppliers. Chief executive of the Australian Wine and Brandy Corporation (AWBC) noted that the cooperation and vigilance of grape growers that supplied River Wines were important in ensuring a successful prosecution. The recent convictions of River Wines will most likely lead to increased quality and assurance standards for Australian based wineries to prevent collusion and fraud
Brandon Murawski