Supply Chain Management of Cadburys Milk Chocolate - Assignment Example

?Supply Chain Management of Cadburys Milk Chocolate Contents Contents 2 Introduction 3 Logistics and Supply Chain 4 Logistics Support Operations 5 Impacts and Risks 6 Cocoa Supply Chain Risks 8 Reputational risks 9 Operational Risks 9 Identification of Best Practices 12 Supply Chain Policies and Management Systems 12 Conclusion 14 References 15 Supply Chain Management of Cadburys Milk Chocolate Introduction In today’s world, people live in a world in which the range and variety of products from across the world which we consume are taken for granted. Logistics and Supply Chain Management have played an input role in allowing us an almost unlimited amount of choice in the food and drinks we consume (Waters, 2009; pp. 45). Fresh fruit and vegetables from every continent are available in Supermarkets. Clothing, electronic equipment and gadgets from China, Japan, Korea etc are available at prices far lower in real terms than ever before. Behind every one of these products is a Supply Chain, sometimes highly complex with flow of materials across numerous continents and some relatively simple. Besides, the divine Chocolate was set up by cocoa farmers with the aim of improving their sustainability and equity in the chocolate supply chain. In the process of production, the company invests in farmers is miniature compared to big players. Nonetheless, all the investments are substantial as part of its chocolate sales. This paper undertakes to provide an analysis of the of the end to end supply chain of Cadbury milk chocolate. This is done through highlighting on numerous issues such as the role of logistics, supply chain management, among others. Slack (2009, pp. 57) asserts that it is important to note that in answering to public call; most chocolate firms have decided to work on developing their supply through joining initiatives that insists on addressing several social issues. Some of the issues that such companies must address are under development, poverty, among others. These are some of the issues that push for the perpetuation of child labor in the supply chain of cocoa (Booth, 2010, pp. 23). The companies have also decided to focus on developing a more suitable, sustainable and equitable cocoa supply chain. The best supply chain will ensure that all the issues both for small and big players are solved through integration of a multi-stakeholder stratagem to address both social and environmental issues. Ideally, a sustainable cocoa supply chain will ensure that the partakers are treated with utmost respect and remunerated with better income. The partakers include those taking part in cultivation, harvesting, and processing of cocoa in the companies. The reasons why they must be given something they will support their livelihood is because it will aid in avoiding cases of child labor in the supply chain management. Logistics and Supply Chain According to Murphy and Wood (2010, pp.56) every organization is always faced with the duty of moving materials. In the chain, there are manufacturers who their companies engage in the process of collection of raw materials. The raw materials come from the suppliers and delivered as finished goods to the consumers. Retails shops get the goods they sell from wholesalers. This can be compared to the television news service that collects reports from all over the globe and delivers them to their viewers. Most people stay in towns without knowing the process that food industries go through before they deliver a finished product to the consumers. It is important to note that at times, goods may go through a broader chain of supply before it reaches its destiny. This kind of movement is facilitated through logistics. In that regard, it is noteworthy that logistics facilitates all the aspects of movement and storage of materials on their journey from original supplier finally to the consumers (Christopher, 2010: 23). On an international scale, an enormous effort is required for logistics. For instance countries like China has become one of the largest supplier in world, and currently they export good estimated to cost roughly US$ 120 billion yearly. Despite all these, many still hardly notice logistics as it goes about its business. Logistics Support Operations It is true that all organizations deliver final products to their clients. Conventionally, such products are described as either goods or services. Manufacturers like the cocoa company make tangible goods, which in most cases are described as complex package products that contain both goods and services (Waters, 2009, pp. 77). The company producing chocolate also provides a combination of goods. Below diagram shows the percentage breakdown by global milling capacity of cocoa. Cocoa products usually move through a long and multifaceted supply chain consisting of collectors, exporters, traders, processors and manufacturers before they hit store shelves. The coca bean is grown naturally on small family farm that apply manual practices. It is approximated by the International Cocoa Organization (ICCO) that about 90% of the world’s cocoa is produced by 3,000,000 such smallholders. Production of cocoa hires about 15,000,000 people all over the world with Western Africa alone hiring 10.6 million people. The world supply of cocoa is dominated by four countries from Western Africa including Cameroon, Nigeria, Cote d’Ivoire and Ghana by producing about 70% of the world’s cocoa beans. The two largest world producers are Ghana and Cote d’Ivoire accounting for 56% of all traded coffee (Lysons, & Farrington, 2005, pp. 129). It was reported by the tropical Commodity Coalition reports that 3.7 million tons of cocoa beans were produced internationally in 2007/08, and it has been approximated that yearly cocoa production was supposed to be raised by 20% to 4.4 million tons by the year 2012 in order to meet the growing demand. Seven large-cap players, all tracked in Sustainalytics’ Global Platform are stated in figure 1 even though a large number of companies are engaged in the supply chain. Consumers Distributor-Retailers- Caterers-Specialized Markets Grinders (processing cocoa into cocoa powder), cocoa butter and industrial chocolate): -Archer Daniels Midland chocolate companies (manufacturing chocolate for consumers) -Cadbury -Kraft -Nestle -Hershey -Lindt & Sprungli Local traders and grinders Cocoa bean producers Impacts and Risks Coca, a significant world commodity, is essential to the living of millions of rural farmers across the world. Nevertheless, the cocoa supply chain is fraught with social challenges and risks. Child Labor and the Perpetuation of Poverty In Western Africa, thousands of children are trafficked and forced to work on coca plantations. It is stated by the International Labor Rights Forum that farmers are send to search cheap labor by low commodity prices, and consequently, they use child laborers. The Payson Center for International Development and Technology Transfer at Tulane University calculated that 819,921 children were working on cocoa-related activities in Cote d’Ivoire during a 12-month period in 2007 and 2008, and 997,357 were doing the same in Ghana despite the fact that there are signs that the number of children hired in cocoa farming is reducing (Peck, 2003; pp. 65). In addition, it was approximated by the U.S. Congressional Research Service that more than 284,000 children in Cote d’Ivoire, Nigeria, Ghana and Cameroon were working under dangerous conditions, the huge majority of them (approximately 201,000) hired in Cote d’Ivoire. It was reported that over 60% of children working in cocoa farms are below 14 years of age, some less than five years of age (Carrall, 2010, pp. 145). Child laborers are normally forced to work for long hours using hazardous gear, uncovered to pesticides and exposed to physical abuse. The U.S. House of Representatives started a legislative procedure that led to the Harkin-Engel Protocol, a voluntary initiative popular referred to as the Cocoa Protocol in response to the increasing concerns surrounding child labor in the cocoa supply chain. The major objective of the Protocol was to create voluntary, industry-wide principles of certification by 2005. The protocol was signed by a number of leading cocoa companies such as Hershey, Archer Daniels Midland, Mars and Nestle. By doing this, they committed to eradicating the worst form of child labor on cocoa farms by the year 2005 and confirm that the cocoa which they bought was free of child labor (Carrall, 2010, 156). The protocol was hailed originally as a serious initiative to address issues of child labor, it was soon criticized as not serving as a certification program for failing to involve binding commitments or remediation plans, and hence, failing to make sure those chocolate producers took enough procedure to eliminate child labor in their supply chains. The 2005 target was not attained, and a subsequent target called for half of all cocoa farms to be confirmed as free from child labor by July 2008. This objective was also not attained. The concept of child labor and coca production goes on to obtain media and public policy notice. The U.S. Department of Labor released a document entitled Lists of Goods Produced by Child Labor for Forced Labor particularly in Cameroon, Nigeria, Ghana and Cote d’Ivoire and forced labor especially in Cote d’Ivoire and Nigeria. The release of this list was aimed at increasing public awareness of the incidence of child labor , and how it is connected to many common consumer goods in addition to facilitating initiatives to eradicate forced and child labor. Production of cocoa is also associated with the perpetuation of poverty. It is approximated by the Commodity Coalition that a typical cocoa farming household of six or seven earns approximately $2000 to $3000 yearly, equivalent to approximately $300 to $500 per capita. This kind of low income makes producers and their workers highly susceptible to fluctuation of prices in the global market. The income of many producers particularly those with lower acreages and lower yields, usually fall below poverty thresholds during periods when cocoa prices are low. Likewise, cocoa farmers are susceptible to weather events that interfere with production, as demonstrated by a severe drought that hit Ghana and Cote d’Ivoire in 2007. The price of cocoa beans increased significantly in 2009 when weather changes led to poor harvests in Cote d’Ivoire. Subsequently, the shortage of cocoa beans resulted to an increase in the price of chocolate products. Most small scale farmers lack access to credit or monetary services hence making it hard for them to withstand economic and environmental risks. These kind of economic conditions create the incentive of employ cheap child labor in addition to perpetuating poverty in general. Cocoa Supply Chain Risks Significant risks for manufacturers of chocolate products and investors in those companies are generated by the concept and effects explained above. Reputational risks There have been the identification of companies that are associated directly or in directly with issues like human trafficking, and forced and child labor by the international media civil society campaigns. The reputational risks encountered by companies associated with such practices grow as global concern over this issue grows (Carrall, 2010, 156). Civil society organizations are trying to enable the public to see this menace. Currently, both ADM and Nestle are engaged in a pending court case in regard to child trafficking and forced labor that was launched by two human rights organizations, Global Exchange and The International Labor Rights Fund, in 2005. The suit filed on behalf of four Malian citizens accuses the two companies for of being the beneficiary of child slave labor at cocoa bean plantations in Cote d’Ivoire. "Global Exchange filed a shareholder resolution with Hershey in 2006" based on this campaign demanding that it reveals whether it had bought cocoa from ADM or Nestle (Martin, 2006, pp. 32). Operational Risks Operational risks associated with both social and environmental issues surrounding cocoa production are being experienced by large players in the cocoa production industry. Some of the main cocoa-producing nations have been overwhelmed by social and political unsteadiness that has jeopardized cocoa production at times. The instability has consisted of ethnic violence and civil war as it was the case in the year 2000 in Cote d’Ivoire in addition to the displacement of people because of conflict in the neighboring counties. Furthermore, a significant migration of young people out of the countryside has been caused by poor working conditions and low wages in the cocoa industry. This brain drain among producers of cocoa has led to the loss of ancient farming methods as the older generation dies. Additional operational risks emerge from challenges in dealing with social issues like epidemics like the ones that took place in 1995, 2001, and 2002 in Cote d’Ivoire which can also impact production of cocoa (Harrison, & Van Hoek, 2010, pp. 126). However, there is usually an opportunity wherever there is a risk. Leading companies have a chance of not only to assist in developing a sustainable supply chain, but also to meet the increasing consumer demands for chocolate products that are confirmed as fair-trade and organic as outline in the above section. There has been a growing impetus towards creating a highly equitable and sustainable cocoa supply chains in the recent years (Lai, Kee-hung and Cheng, 2009, pp. 138). The need for an integrated, multi-stakeholder approach that addresses both environmental and social issues has been recognized by both large and small players in the cocoa industry than ever before. Steps by Principle Confectionery Companies towards Improvement of Supply Chains Cadbury: Just like many other company that is interested in improving their supply chains, Cadburys switched its Dairy Milk brand to ensure that they trade fairly in United Kingdom and other nations around the globe. This is what Cadbury did in 2009 and later in 2010 ensured that they incorporate their brands that were not any different in New Zealand and Australia (Slack, 2009, pp. 156). Ferrero: The information regarding a chocolate supply chain that is used by numerous companies to respond to numerous issues of ethics and consumer information that will help in improve on their brand. Kraft Foods: According to the diagram below indicates that Kraft Foods is working with Rainforest Alliance. Under this scheme, cocoa certified under this scheme is also employed in some chocolate, biscuit and hot beverage products. Nonetheless, the proportion remains unclear. The company has entered into a five year partnership with Bill & Melinda Gates Foundation with the aim of supporting the livelihood of cocoa farmers. This is a way of improving their participation and livelihood so that farmers in West Africa may gain positively for their services. Working with CARE in Brazil and Ghana, Kraft Foods focuses on increasing their productivity and thereby making sure that the livelihoods of farmers are improved (Barney, 2007, pp. 124). Mars: Mars is a company that has plans of ensuring that they certify all of its chocolate as sustainably produced through the Rainforest Alliance by 2020. From 2010, it is evident that Galaxy is likely to carry the Rainforest Alliance Certified Seal in the UK and Ireland. Nestle: In 2009, Nestle initiated the opening of a Research and Development centre in Abidjan and Cote d’Ivoire. This process is focusing on ensuring that traditional ingredients, agriculture and raw materials that will help in improving the brand worldwide. There are few quandaries in regards to supply chain management. Source: UNCTAD secretariat based on Barry Callebaut supply estimations. The above diagram shows how market has become increasingly concentrated over time. It is clear that cocoa grinding has augmented at an alarming rate. Both the scope and economies of scale help in enforcing the competitive edge of large processing companies in several ways. Most importantly, the processing of cocoa is capital intensive and the equipments are also extremely expensive and calls for tonnage throughput that must operate on a continuous basis. Furthermore, the processing of cocoa has become sophisticated and demands for increasingly stringent quality requirements. Delivery of customized products and delivery requirements based on supply on a just-in-time (JIT) is the one that companies selling chocolate uses (Chopra, & Meindl, 2007, pp. 32). The developmental process of products of most companies that process chocolate required numerous steps taken through significant confectionary companies in the process of improving supply chain. In that regard, Cadbury in the unique first move, Cadbury switched its Dairy Milk brand to fairly trade certified in the UK and Ireland in 2009. In 2010, both Australia and New Zealand also followed suit and improved their brands to ensure that a similar brand is sold throughout the world. Identification of Best Practices International concern is growing at an alarming rate. In response to these growing concerns of stakeholders some of which are players in the industries steps towards improving the performances of companies to tackle the issue of child and forced labor. These efforts will be aimed at ensuring that supply chain policies and management systems that will help in implementation of best practices (Compton, & Jessop, 2003, pp.245). Supply Chain Policies and Management Systems Firms need to have policies that prohibit suppliers from using forced labor. This is done through the international labor conventions, and systems are aimed at ensuring that are implemented with the aim of monitoring compliance with the set guiding principles. One crucial step in tackling the cocoa supply chain issues is towards developing policies that do not allow the suppliers to engage in human trafficking, physical punishment, forced labor and child labor. This is because it is a violation of basic human rights. This is only achievable through putting in place monitoring systems throughout the company’s sphere of influence. What creates notable differences is the quality management systems that different companies or firms employ, some of which are never in compliance with the set policies (Doyle, 2008, pp. 79). Cadbury, which is a leader in this area, has an extremely well built or properly developed policies and practices. One of the notable instances took place in 1905 when the company decided to dispatch a member of the Anti-Slavery Society to investigate cocoa plantations with the aim of addressing all the controversial labor issues (Crocker, et al 2011, pp. 241). Consequently, Cadbury Company spearheaded the implementation of human rights monitoring systems that include external audits and self-assessment that were applied to its suppliers. The company’s suppliers are required to acknowledge the company’s Human Rights and Ethical trading. This was achieved through online self assessment that provided Cadbury with information on the suppliers’ human rights practices and policies. For instance, the acquisition of Cadbury by Kraft Foods in January 2010 was viewed as a move that was likely to put the security of Cadbury at risk (Doyle, 2008, pp. 77). Nonetheless, Kraft is one such company that also addresses child and forced labor issues and suppliers are proactively aiming at eliminating child labor. Conclusion Logistics and Supply Chain Management have played an integral role in giving consumers almost unlimited amount of choice in the food and drinks. Nevertheless, management systems and management policies must be put in place to guide how goods are supplied from the producer to consumers. A supply chain that is recommended by everyone is appropriate in the entire process. Cadbury, which is a leader in this area, has an extremely well built or properly developed policies and practices. Generally, cocoa, a significant world commodity is essential to the living of millions of rural farmers across the world. References Barney, J., 2007, Gaining and Sustaining Competitive Advantage, 3 ed., Harlow: Pearson. Booth, C., 2010, Strategic procurement: organising suppliers and supply chains for competitive advantage, Stamford: CIPS Publications. Carrall, S., 2010, Cadbury takeover raises doubts over Kraft’s business ethics. Guardian Unlimited. Retrieved 10 Dec. 2012 from http://www.guardian.co.uk/business/2010/jan/20/cadbury?krafttakeover?fair?trade. Chopra, S., & Meindl, P., 2007, Supply Chain Management: strategy, planning and operation. Upper Saddle River, New Jersey: Pearson Prentice Hall. Christopher, M., 2010, Logistics and Supply Chain Management, 4 ed., London: Pearson Education. 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