Business Policy
Case Study: Beach Nut Nutrition Corporation
PMBA-III Section A
Submitted by Naveed Akbar Shamim M. Qasim Nasir Butt M. Ammar Saeed
Submitted to Prof. F.A Fareedy
Lahore School of Economics
Introduction: The case talks about a company Beech Nut which operates in the baby food segment however due to financial constraints and outdated equipment resulted it being taken over by a giant food company called Nestle. Despite the resources shared the company has been alleged of selling “adulterated apple juice”. The case starts with Mr. Anderson entering the reception area only to
find Mr. Shore who informs him that a private detective had announced that the truckload of apple juice concentrate delivered to Beech-Nut by a supplier was in reality a truckload of flavored sugar water and proposed Beech-Nut to join him in a lawsuit against Universal for providing fake concentrate. After this a number of laboratory tests were conducted. Mr. Anderson did not want to deal with this matter alone so help of a law firm was taken. The firm told him not to buy any product from universal until this incident is cleared.
Challenges/Problems:
Allegation of selling adulterated product that is the apple juice.
Despite being taken over by Nestle company could not thrive or be profitable.
Beech-Nut had huge competition with Heinz and Gerber and when Beech-Nut won new accounts increased shelf space, Heinz would offer attractive cash trade offers.
Cash flow difficulties made it difficult to upgrade the outdated equ ipment.
There were cash flow difficulties at the Canajoharie plant.
It was difficult to find alternative suppliers as per the requirements of Beech Nut.
No check and balance on product arriving from the broker – no tests to ensure full satisfaction
Communication gaps between Storer and Anderson – wanted to run operations without interference
“Universal” provided lowest concentrate in the market and was 20% to 25% cheaper than
those offered by competitors thus due to budget constraints it was not feasible to move to other suppliers.
Company was under pressure to make profits due to loss of $1 million dollars in 1981.
Hartog bitter about losing contract with Beech Nut - wanted to destroy it
Storer’s taking Universal’s side continuously over the matter.
Issues: The case starts from the point where Beech Nut’s CEO, Anderson, is informed that they are being defrauded by their suppliers, Universal Juice Company which was involved in the adulteration of concentrate for apple juice. This was a huge concern for the company since it survived on its claim of “100 natural” and the concept of nutrition which was also evident in its name. Core Problem: Barriers to flow of information and communication:
The problem lied with the attitude and personality of T Storer, Vice President of Operations for Beech Nut. Storer was responsible for the management of two plants, one in Canajoharie and the other in San Jose. Storer’s personality fit the “ONE MAN SHOW ” concept whereby he did not like any interference from anyone regarding the plant matters. He was not open for suggestions or opinions which lead to the problem of adulteration in the company. Storer had been informed about the adulteration of concentrate by Universal Juice Company on two occasions. The first report was prepared by SIRA, while the second was prepared by Nestle which clearly stated that “apple juice is false, cannot see any apple”. This was also confirmed by the private detective who mentioned that he could not find any invoice of apples in the trash bin of the Universal Juice Company. However, Storer negated both the reports since he did not agree with any of them. Even though the Quality Assurance Department was responsible for making that decision, Storer took the lead in doing so. Despite, Mcintosh’s, Director Quality Assurance, concerns regarding their supplier, Storer did not take any firm action. He did send a note to Universal in order to clarify their position but Universal never sent any response and S torer did not pursue the matter. Interlinked Problem: The financial problems faced by the company:
One of the major problems leading Storer to behave in such a way was the financial problems faced by the company. H is emphasis on f in anci al obj ecti ves and design ated goals obscur ed . Storer im portant ethical and l egal consideration s whi ch were importan t in a food indu str y knew that the company had huge cash flow problems and if it continued on the same line it would be a matter of days when Nestle would sell Beech Nut to some other investor. He believed that it was solely his responsibility to turn the situation around. He was also aware of the fact that Universal Juice Company was the cheapest suppliers that Beech Nut could get and they had been serving the company for a long time therefore they were aware of the requirements of Beech Nut. Given the financial profile of Beech Nut, Storer believed that Universal was the right supplier for the company. For this very reason, he kept on ignoring the claims of SIRA, Nestle and Mcintosh against Universal. However, Storer forgot that the y were cheaper for a reason.
Minor Problems: Competition from Heinz:
Beech- Nut’s most severe competition was from Heinz. When Beech-Nut won new accounts or managed to increase its shelf space, Heinz would respond with very attractive cash trade offers. Defending against Heinz was costing the company too much. Alternative 1: Take Universal Juice Company to court and stop the supply immediately
Call of the agreement with Universal Juice Company by taking them to court for breaching their contract. Under this alternative, Beech Nut would have the added advantage of having Universal sign the “hold harmless” agreement. Anderson should realize the fact that Beech Nut is operating in food industry which has a direct impact on the health of people. Therefore, no nonsense from anyone, let alone the supplier, should be tolerated. Additionally, Anderson should notify Storer about his negligence regarding the suppliers and his wrongful bossy attitude. Anderson should not take the risk of delivering the finished goods to the market because a single complaint can damage the repute of the firm. According to Murphy’s Law, “An ything that can go wrong will go wrong”. Alternative 2: Bring the suppliers to cooperate until the company finds a new supplier
Under this alternative, the company should force the suppliers to cooperate by threatening them about pursuing a legal charge. In addition, Beech Nut should hold its suppliers liable to adhere to the terms agreed upon at the time of agreement. The company should set up a monitoring committee to monitor the raw material supplied by Universal. This would be a tentative agreement which would last with Beech Nut finding an alternative supplier. However, it should stop the current batch from going into the market. Alternative 3: Terminate the agreement with the suppliers immediately
Under this alternative, Beech Nut should severe all its ties with its suppliers. A person who can deceive you once wil l n ot th ink twi ce to deceive you th e second ti me. But this option would be least viable since it would cause more financial problems to the company. Customers would not get the products on time and this would bring a bad name to the company. Decision:
Under the given circumstances, alternative 2 is the most viable since it would not affect the financial position of the company in the short term and give the company enough time to find alternative suppliers. This would not harm the image of the company since there would be a change of suppliers. However, the company should erect a monitoring team to ensure that the next suppliers are not the same as the previous suppliers. Stopping the batch would reduce the risk that the company’s image or repute would be at stake.
