Integrated Business Solutions
Executive Summary 3
Analysis of the Company Activities 3
Marketing Department 6
Accounting and finance departments 7
Senior management 7
Minimizing Impacts and Restoring Company Reputation 8
The situation, in which Choc Deluxe LTD appeared, presents a plethora of complex operational, ethical and other oversights. Business history is replete with examples, when the companies, which inadvertently or intentionally cheated on their customers, went bankrupt. The Federal Drug Administration is always on alert to track down the wrongdoers and punish them by revoking licenses, starting legal cases against the management team, and paralyzing corporate operations otherwise.
In the case of Choc Deluxe LTD, the company production department somehow got confused with the proportion of ingredients (80% of forastero instead of 20%), not to mention that the customers were not notified about that change in ingredients in an appropriate manner. In other words, the company perpetrated two violations simultaneously – an ethical violation, when they did not publicly announce that the ingredients were changed ( a small inscription on the wrapper is definitely not sufficient), and an egregious violation of the good business practices, when the production units failed to notice in proper proportion, and quality control failed to make satisfactory checks.
The purpose of this paper is to analyze activities of the company divisions about this situation and to offer a course of remedies, which could be taken to avert affirmative actions from the governments and minimize financial and reputational impacts.
Analysis of the Company Activities
Among the main parties, which inflicted the imminent loss of reputation to Choc Deluxe LTD are company operations, accounting and financial, senior management and marketing departments. This part of the paper reviews their respective actions and analyzes the reasons of their inefficiency and ineffectiveness.
First and foremost, the operations department should have predicted the shortfall of cocoa and it had reasonable opportunity and resources to act accordingly.
Operations department was obliged to predict. The main responsibility of operations department of the company is to supervise daily transactions and keep negotiating with the customers and suppliers . It closely interacts with the financial department in terms of preparing future budgets, because the employees from operations of these are the first in touch with the new market prices and trends. Specially assigned analysts with the operations department monitor the market, request quotas from the suppliers and inform the financial and accounting team. If the operations unit managed to anticipate the upcoming shortfall and inform the financial branch of the company, the chances of allocation some extra resources for finding cocoa supplies would be high.
The department did have the possibility to predict. Operations department professionals are in continual touch with the major market players, they know the trends, and they constantly interact with the suppliers. It is reasonable to believe, that the market deficiency of cocoa bean could have been easily predicted, because it was evident that the global consumption of chocolate was rising, while the production of cocoa was not. A skilled and professional operations officer should have concluded, that the shortfall might occur. The company in question has not just an operations officer, but also an entire department of operations. Moreover, it is clear that the company is one of the dominant market players, occupying the niche in premium segment. Therefore, it is reasonable to assume that the company hired the most accomplished and experienced operations managers.
These professionals did have ample opportunities to anticipate the shortage of raw materials. Chief producers of the cocoa are well known, as well as their industrial capacities are. Moreover, the managers realize, that immediate increase of cocoa supplies is never possible, because the constantly interact with the suppliers. Therefore, in this case it is an egregious business oversight of them operations department. Somehow, the competitors managed to keep the same prices and meet the existing quality standards.
The department did nothing to mitigate damages. When it became clear, that the company runs out of sufficient amount of cocoa beans, the operations department could have tried to negotiate favorable terms of extra supply with the partners without significant price increases. They could have found extra raw materials on the developing markets, or they could have cooperate with the competitors, who were likely to have similar problems to consider a joint course of actions.
Finally, the quality control unit from operations department had reasonable opportunity to detect that the chocolate bars on the assembly line did not meet the quality criteria. Assumedly, someone made a mistake by confusing between Forastero and Corillo cocoa beans, but spot checks could have easily identified this error. Naturally, the entire batch should have been recalled, but it would help to remain loyal to the customers and to the retailers. Moreover, spot-checks are not made on discretion of the business executives, but it is an important requirement imposed by the Federal Drug Administration. Each batch should be carefully examined and approved by the internal quality assurance division before reaching the customers.
The department of marketing is less responsible than the operations unit is, but nevertheless it has the grain of contribution to this setback. In particular, when it became aware that the company decided to change the ingredients (to add 20% of Forastero) on the chocolate bars, explicit and non-ambivalent message should have been sent to the customers, informing them that the percentage of Corillo beans had been changed, and what the flavoring outcomes of this change were. The only thing, which the marketing department did, was a small, hardly illegible inscription. Under all standards of contemporary business practices this attitude is unethical. The recommendations issued by the American Society of business ethics clearly demonstrate that and changes in ingredients should be responded to the customers 'in a reasonable and understandable manner". Several research studies demonstrated that only 1.5% of the customers read the inscriptions on the wrappers. The percentage among the recurring customers is even smaller.
When it became clear that the company was no longer capable of producing the chocolate bars of 100% Corillo chocolate beans, the customers should have received adequate notification about the change in policies. It is the responsibility of the marketing department, because one of its fundamental missions is to safeguard the customers’ loyalty and to promote brand of the company. In this case, inertia of the marketers inflicted huge stigma on the company reputation, and significantly sapped the loyalty of company clients.
Accounting and finance departments
Among other responsibilities, these units are responsible for ensuring that the firm is capable of withstanding financial storms. Although there is no direct involvement of the accounting and financial branches to this situation, the professionals are consequentially responsible for the occurrence of this failure. Firstly, provided that extra financial resources were available, the company could have 'beat' the price offered by the competitors and covered the lack of beans, even if the prices were significantly higher. Under all circumstances long-lasting loyalty of the customers is more important than short-term profitability. Furthermore, the overwhelming majority of contemporary business scholars suggest that under our highly volatile market conditions the company should be always prepared to have extra financial and human resources for unforeseen emergencies. This case clearly qualifies under the standard of 'emergency', and the accounting department failed this mission.
Senior management has two primary responsibilities. Firstly, they develop strategic course of the company . Secondly, they have to monitor that the performance of subordinate departments goes smoothly. In this case, the senior managers failed to anticipate an important strategic challenge - lack of critical raw material. Chief executives constantly interact with the operations department, and they should have indicated that the reports of the latter one say nothing about the increasing bargaining power of suppliers. Under any circumstances, experienced and skillful executives should have predicted that some problems with cocoa beans might happen.
Overall, it is clear that synergetic inertia and unprofessionalism of the entire management team resulted in catastrophic outcomes for the firm. Although the primary responsibility lies on the operation segment, market and, accounting and senior management did nothing to prevent the shortfall of Corillo beans, and to mitigate damages.
Minimizing Impacts and Restoring Company Reputation
Although devastating impact has been inflicted to the company image and reputation in the eyes of ultimate customers and suppliers, still the company has multiple opportunities to recover. In particular, the company should make a public announcement, offer bonuses and improve its strategic and tactical operations to minimize the risks of such relapses in the future.
Firstly, company chief executive, senior management team and other responsible parties should deliver a formal apology to the customers and the suppliers. Practically, they should make a statement on the company website and give several interviews to the far-reaching media and social networks.
Their message should reach as many recipients as possible. They should admit responsibility in full in this message, telling the clients that no one, but the company caused their discomfort. Secondly, they should inform their customers about the corrective actions taken, and about the people who have been punished. Thirdly, this letter of apology should be sincere and emotional, highlighting that the company sincerely repents its past actions and will never make them in future. As far as the retailers are concerned, a letter of formal apology is definitely not sufficient. Large supermarkets should be explicitly informed that this situation would never occur in the future. The company executives should clearly outline what course of corrective actions will be followed to neutralize the chances of such performance in the future. Moreover, reasonable compensations should be offered to mitigate damages incurred by the retailers.
Secondly, both the ultimate customers and the retailers should be offered reasonable compensations for their purchases. For instance, a customer should be offered a free chocolate bar for each wrapper (from the defaulted batch) he brings. Although this initiative is associated with high financial costs, it will be effective in terms of demonstrating that the company takes the matter seriously and responsibly. In order to retain retailers and other partners, the company should offer significant discounts for future shipments in order to demonstrate that the cooperation is really important for it..
Finally, Choc Deluxe limited should fundamentally improve its business operations and quality control system. The most reasonable strategy in this regard is integrating total quality control system. Nowadays, multiple enterprise resource planning software solutions are available to ensure total quality control practices and identification of the smallest imperfections in the products.
At each step of the production cycle, the company should 'diagnose’ the smallest deviations from the acceptable quality standards and remove them immediately. Following the principles of Six Sigma approach is highly recommended in similar situations.
However, although the situation seems to be serious enough to result in a breakdown, the company executives can still save it. If they sent proper messages to the affected stakeholders compensate them and start improving operations immediately, not only Choc Deluxe may recover its market position, but also it will prove its reputation as a faithful partner and reputable product maker.
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