Unifine Richardson Case
Introduction Unifine Richardson is a food manufacturer with 110 employees. The company’s sole supplier of honey announced that effective immediately it was no longer able to supply Chinese honey. The Canadian Food Inspection Agency had rejected the importation of Chinese honey due to recently found traces of an antibiotic chemical. China had provided 20% of the world’s honey supply. Faced with escalating prices, issues with customer preferences, and possible product recalls Issues
The problem facing Unifine Richardson is that Harrington Honey, its main honey supplier will be out of Chinese honey inventory by May 17, 2002 because of CFIA inspection issues. For now, Unifine will have to look for alternative sources for honey until the Chinese suppliers figure out a way to detect and reject contaminated honey. Its current cost for 50-50 blend of Chinese and Canadian honey is $1. 08 Canadian dollars per pound. Harrington Honey has proposed three main options: a) 100% pure Canadian honey, which costs $1. 75/lb; b) 100% U. S. oney at $1. 10/lb in U. S. dollar ($1. 79 Canadian dollar); or c) 50-50 Canadian-Argentinean honey for $1. 42/lb. As a result of the supply shortage, prices for non-Chinese honey have gone up significantly. There are also concerns of product availability regardless of price. Analysis Unifine purchases one million pounds of honey a year. The average price for honey during the past year is $. 91 per pound. With the current price, it will cost them $1. 08 millions annually. However, if they were to buy the 100% Canadian honey, it’s going to cost them $1. 5 millions. Likewise, it will cost them $1. 79 millions for 100% U. S. Honey. On the other hand, using a 50-50 Canadian-Argentinean honey will only cost them $1. 42 millions. These prices are a significant increase from what Unifine used to pay for its honey. The main advantages and disadvantages of each honey choice are as follows: Continue with Chinese-Canadian honey |Cost – $1. 08 per pound. Relatively large product availability (world’s largest producer) Probable product recall, Liable for poor quality product, Customer dissatisfaction, ossible loss of customer, possible fines. Purchase Canadian-Argentine blend |Cost – $1. 42 per pound. Canadian supplier base already existed, possible product recall due to potential use of veterinary drugs, Limited product availability (world’s 3rd largest producer). Purchase pure U. S. honey. Good taste, Safe, Low probability of recall |Expensive – $1. 79 per pound (in Canadian dollars), Limited product availability (world’s 2nd largest producer, but capacity far smaller than China). Purchase pure Canadian honey |Same as pure U. S. oney, plus: Local sources, Supply base used for Chinese-Canadian blend already existed, Expensive – $1. 75 per pound, Most limited product availability (world’s 10th largest producer) . Recommendation Given the advantages and disadvantages of each honey choice, honey selection must be such that the major honey customer—a large franchise retail operator, representing 80% of Unifine’s honey sales—will accept it. Since its main customer used this product as a “give-away” dipping sauce for its fried chicken pieces, the main focus for the customer is to manage cost.
Based on the given facts, it would be wise for Unified to go with the 100% Canadian honey for now. The reason being–it’s a little bit cheaper than the 100% U. S. , and also because using a 50-50 Canadian-Argentinean would risky, for it might be recalled by CFIA if found to be noncompliant. In addition, the Canadian-Argentinean blend does not taste as good as the pure Canadian, and their largest customer would not like it. If they chose to use the pure Canadian honey, their customer would have to pay an additional $. 67 cents per pound–this is a 62% increase in price.