Reference no: EM132292645

On April 11, 2002, Rob Pincombe, purchasing manager at Unifine Richardson in St. Mary’s, Ontario, received a telephone call from Joanna Killian at Harrington Honey, his main honey supplier. Killian was calling to inform him that the Canadian Food Inspection Agency (CFIA) had recently found traces of chloramphenicol in Chinese honey. Not only that, but until China developed a reliable measure to test for the banned substance, its honey exports would be rejected in Canada and Europe. As Pincombe hung up the phone, he was particularly concerned about meeting his customers’ demands. His company relied heavily on honey imported from China, and his supplier’s Chinese honey inventory would be fully depleted by May 17, 2002.

Unifine Richardson

Unifine Richardson manufactured salad dressings, ice cream toppings, sauces and syrups on a three-shift operation with 110 employees. The company was a subsidiary of Cosun, a co-operative of sugar beet farmers based in the Netherlands with facilities throughout Europe and North America. The firm sold its products to the food service market (restaurants and caterers), retailers (chain stores and artisan producers) and industrial customers (food manufacturers). Unifine Richardson purchased approximately one million pounds of honey annually, representing three per cent to five per cent of the firm’s total expenditures. Almost all of its honey purchases were for a 50-50 blend of Chinese and Canadian honey that cost $1.08 per pound Harrington Honey purchased unpasteurized honey from a variety of farmers and international brokers. After the honey was pasteurized, it was sold in bulk to manufacturers and distributors, such as Unifine Richardson. Unifine Richardson transformed the bulk honey into smaller packages, each customized to customer specifications. Eighty per cent of the firm’s recent honey sales had been to one large franchise retail operator for use as dipping sauce for its fried chicken pieces on a “cost plus” basis, such as cost plus 15 per cent. The remainder was sold to other franchise operators or used in smaller quantities, such as with Unifine Richardson’s honey-mustard sauce. Pincombe knew that these customers demanded product consistency.

The Honey Industry

China, the United States and Argentina dominated world honey production from 1997 through 2001. Each was a major exporter to Canada, which itself was a major honey producer; in 2001, Canada was the 10th largest honey producer in the world. As a commodity, honey pricing was delineated based on its classification by color (water white through dark amber), flavor (e.g., canola, clover, mixed flowers), aroma and purity. CFIA monitored food, animal and plant health to ensure that producers and importers met federal regulations for quality and safety. On March 8, 2002, the CFIA modified the importation regulations for pre-packaged and bulk honey from Greece, China and Argentina. According to this report, the European Union had imposed a ban on all animal products from China, including honey, because of concerns with China’s lack of controls over veterinary drugs. Recent CFIA sampling of both Greek and Chinese products had revealed adulteration of the honey with veterinary drugs. In addition, the United States had imposed an anti-dumping tariff on honey from both China and Argentina and needed to ensure that honey would not be diverted from these two countries to Canada for re-export to the United States.1 The CFIA report noted that, in Canada, all Greek and Chinese honey would be inventoried and detained pending receipt of laboratory results, to take no more than 20 days. The Argentinean honey would be tested but could be released prior to the lab results. If samples were found to be non-compliant, CFIA would determine the most appropriate action, which could include fines, marketplace removal and return of the contaminated honey to the country of origin, all at the manufacturer’s expense. Upon reading the regulation notice in early March, Pincombe called Harrington Honey, its single-source supplier of the Chinese-Canadian blend, to obtain that company’s reaction. He was assured that the supply would be neither affected nor disrupted. According to the CFIA report and Harrington Honey, the CFIA did not even have a means to analyse evidence of some drugs, such as chloramphenicol.

Chloramphenicol

Chloramphenicol was an antibiotic that had been approved for human use in Canada only as a last-resort drug treatment in life-threatening bacterial infections. It had been banned for use in food-producing animals in many countries because it was found to be associated with aplastic anemia in a small percentage of cases. Aplastic anemia is a serious blood disorder that is usually fatal in severe cases.2 Pincombe believed that because honeybees were typically resistant to antibiotics, the Chinese had used this strong antibiotic to remedy a contagion in the Chinese honeybee population. Pincombe believed that the Chinese government had not considered the repercussions associated with the antibiotic. Pincombe heard estimates that it would take about 15 months to eliminate the chloramphenicol traces from the beehives. In early April, the Canadian government developed a way to measure chloramphenicol. Almost immediately, a honey shipment from China destined to a competitor of Harrington Honey was found with a residue greater than the legal limit of 0.001 parts per million (ppm).

The Phone Call

On April 11, 2002, Killian called to announce that Harrington Honey had decided to discontinue importing Chinese honey until China had developed a means to test for chloramphenicol and could thereby detect and reject contaminated honey. Killian expected that Harrington’s inventory of Chinese honey would be fully depleted by May 17, 2002. However, because of possible consumer product recalls, the supplier recommended that its customers immediately switch to an alternative source and proposed three main options: a 100 per cent pure Canadian honey, a 100 per cent pure U.S.A. honey, or a 50-50 blend of Canadian-Argentinean honey. Killian was quick to note that because the available supply of honey on the world market had decreased by approximately 20 per cent, the prices for the non-Chinese honey had gone up significantly. In addition, there were concerns about product availability regardless of price. And finally, Killian suggested that Pincombe consider a long-term contract to lock down on a specific price. Killian provided the following prices: The 100 per cent Canadian honey was available at $1.75 per pound; the 100 per cent U.S. honey was available at $1.10 per pound in U.S. dollars;3 the 50-50 Canadian- Argentinean honey was available for $1.42 per pound. As Rob Pincombe hung up the phone, he wondered what he should recommend. His largest honey customer was known for having tough standards and purchased many Unifine products besides honey. In addition, he believed that the Canadian-Argentinean blend did not taste as good as the pure Canadian or pure U.S. honey and that his customers would probably agree with him. Pincombe figured he had about one day to make his decision and act on it.

1. Based on your examination of the case above identify the following:-

a) Find objectives and targets, based on your analyses, devise and describe the best strategies and solutions/actions that will enable the company to effectively and sustainably resolve the issues, realize the opportunities, and achieve the objectives and targets?

b) Demonstrate the value added to the company’s supply chain and overall business performance by implementing your above recommended strategies and solutions. To the extent possible, provide a simple Cost-Benefit Analysis of their quantitative (financial, etc.) costs and benefits/value, as well as qualitative pros and cons.