Analysis of the Situation of Scarcity of Raw Materials of Choc-Deluxe - Term Paper Example

Case study for Choc Deluxe Table of Contents Introduction 4 2.An overview of what is happening with the cocoa market 4 2.1How this is likely to affect the production of chocolate products by established companies 4 3.Production of chocolate 5 3.1Identification of the stage at which the ‘problem’ occurred 6 3.2 What should have been done to avoid the problem? 6 4.Quality 7 4.1Quality and its importance 7 4.2Quality on Operation Management perspective 7 4.3Quality on the perspective of the customers 7 4.4Other department involved in quality control 8 5.Conclusions 8 6.Recommendations 9 1. Introduction 4 2. An overview of what is happening with the cocoa market 4 2.1 How this is likely to affect the production by established companies 5 3. Production of chocolate 6 3.1 Identification of the stage at which the ‘problem’ occurred 7 3.2 What should have been done to avoid the problem? 7 4. Quality 8 4.1 Quality and its importance 8 4.2 Quality on Operation Management perspective 9 4.3 Quality on the perspective of the customers 9 4.4 Other department involved in quality control 10 5. Conclusions 10 6. Recommendations 11 Abstract Scarcity of resources has taken center stage in today’s world. With ever increasing demand, the existing supplies of cocoa are unable to meet the demand. This has triggered a shortage of cocoa in the market. Firms, such as Choc-Deluxe, that use cocoa as its primary raw material have found themselves in a dilemma on whether to abandon their operations or find alternative raw materials. Choc-Deluxe has chosen the latter, using carob as a substitute for cocoa. The report analyses the situation of scarcity or raw materials, costs of using alternative raw materials on the firm and the customers and also the possible solutions to the problems through a set of recommendations. 1. Introduction Management decisions in times of business crisis are very crucial for the success of the firm and continuity through the crisis. Choc-Deluxe is facing a shortage of its main raw material, chocolate. Unfortunately for the company, its chocolate forms its competitive advantage in the market since customers are willing to pay more for the chocolate. This implies that the firm had to devise ways to overcome the pending problem. The management decided to sort the pending orders through a substitute product carob. The product is believed to have similar taste to cacao and thus could be used to make chocolate bars for the Christmas season. The plan backfired as the customers lodge complaints and legal suits about the low quality chocolate. Consequently, the firm did not disclose accurate information about the contents of its chocolate as required by law. 2. An overview of what is happening with the cocoa market The situation in the cocoa market is that there is more demand for raw cocoa than supply. The situation is that more cocoa is being consumed that it is actually grown. This had led to decline in the supplies of cocoa. According to the laws of demand and supply, prices shoot up when demand exceeds supply (Arnold 2010, p.87). Increased demand in fast developing countries such as India, China and Brazil among other markets, leave cocoa dependent firms in a dilemma on substitute raw material (Müller 2011, p.8). Cocoa plants take around 5 years to mature. This implies that there is an urgent need to address the prevailing problem otherwise firms would go bankrupt before new plants mature. This is due to the high cost of obtaining pure cocoa and more firms willing to pay more for the product. Shortage of cocoa can be attributed to increased globalization that leads to the emergence of many firms that use cocoa as raw material (Dand 2011 p.79-87). The commodity became very valuable and scarce. 2.1 How this is likely to affect the production of chocolate products by established companies Companies that rely on cocoa for survival are in a very risky situation. This is because a vital resource is the backbone of the production process. This implies that, without the cocoa, the firms cannot manufacture chocolate products. This spells doom for companies like Choc-Deluxe that banks its competitive advantage on the taste and quality of its chocolate, on the customer’s perspective. Established companies will devise alternative raw materials to represent cocoa in the production of chocolate products. This can be done by making a hybrid combination of cocoa and other materials in making of chocolate, such that cocoa use is minimized to reflect its scarcity. Though complaints can be lodged, there will be no significant fluctuations in the market or shifts in market share since the problem hit all players in the industry. Despite the problem affecting all companies in the industry, many chocolate firms will have to trim their chocolate product line in favor of other products. There will be increased diversification to buffer the firm against further deterioration in the cocoa market (Knecht 2014, p.50). The management can take this strategic decision by making products that relate to chocolate or are close substitutes, for example, biscuits. 3. Production of chocolate Production map of chocolate 3.1 Identification of the stage at which the ‘problem’ occurred The problem is in the delivery of raw material cocoa. After an order is made, the firm embarks on an active process of buying cocoa from its suppliers to aid in the processing of the orders. However, the raw material, cocoa, unavailable due to the factors explained above. This hinders the production process of chocolate and also affects the delivery of products in the quality that the company has undersigned. The company’s quality assurance department failed to identify the alien materials, such as nuts, that were not intended to be in the chocolate. The problem with delivery of raw material affects the terms of the contract. The firms must thus revise the contract to fit the prevailing conditions, otherwise, there will be a derived problem in the delivery stage. 3.2 What should have been done to avoid the problem? The problem of cocoa shortage can be resolved from the rots cause. The cause is excess demand for cocoa that emanate from incased demand and production of cocoa products. Cocoa production is low and thus cannot meet the demand. Choc-Deluxe thus needs to brace itself for change in its production tactics and also its product line. One of the tactics that can be used to prevent the problem is to enter into future contracts. This entails an agreement to deliver certain amounts of cocoa at specific period at a specified price. Having a futures contract ensures that the firm buffers itself from market uncertainties that affect production and distribution of cocoa. In this case, producers of cocoa must strive to honor the elements of the contract otherwise legal action can be taken and they may be compelled to pay the costs. Choc-Deluxe can buy the available cocoa in bulk and store it in its warehouses. The cocoa can then be used in case there is a problem with the supplies. For example, in a high demand season like the festive season in December, Choc –Deluxe would be in a better business situation than its competitors if it has cocoa reserves so that the quality of its chocolate remains unrivaled and mysterious to its competitors. Choc-Deluxe can use alternative material to stand in for cocoa. This is a strategic decision since the problem of scarcity affects all players in the industry. The alternatives, such as carob, can enable the firm meet its demand. However, usage of the product must be outlined in the list of ingredients (Miller & Hollowell 2008, p.271). 4. Quality 4.1 Quality and its importance In vivid terms, quality can be defined as the ability of a product to be free from deficiencies or inferiorities and fulfill the customers’ expectations on standard, tastes and preferences. In business, the definition of quality is biased on the customer’s perspective. Quality is important in several ways. They include; Meetings the expectations of clients In todays world where globalization has taken the center stage, quality is important to a firm in order to meet its customer’s expectations (Chary 2009, p.10). If otherwise, the customers can select other producers from the large pool courtesy of globalization. This is the reason why Choc-Deluxe chocolate is consumed even with a premium price. Standard of the products Competitive markets, where firms have no control over vital aspects such as price. The firms can only influence demand through the quality of their products (Hoyle 2007, p.32). The products that meet the minimum standards that are set by consumers earn their loyalty thus a wider customer base. Enhancing the reputation of the firm A firm that is associated with quality products always yields more returns. As observed in the case of Choc-Deluxe, customer loyalty towards the firm that is deep rooted in quality is unlimited. From the provided information, the customers are even willing to pay more for Choc-Deluxes’ chocolate rather than buying cheap alternatives from other producers. 4.2 Quality on Operation Management perspective On the operations management perspective, quality is defined according to the attributes that are achieved in producing a given product. A quality product is defined as a product that has passed all the stages of production as stipulated by the firm’s production process, use of the specified raw materials and with the right quantities. Operation management thus defines quality in terms of efficiency in production and raw material. On the perspective of operation management, quality must support dependability attribute, speed, and flexibility. A quality product must follow the critical path in the production process. This means that operations management also view quality in terms of lower costs. 4.3 Quality on the perspective of the customers The customer defines quality based on the overall experience with a commodity or a service. Customers’ definition of quality depends on personal valuations of the consumption experience. This implies that the definition of quality of a product varies from one customer to another (Wankhade 2010, p.29). Tastes and preferences also define quality. For example, customers may like the taste of Choc-Deluxe chocolate; however, they may be unaware of the ingredients used to make it. This means that customers’ value quality based on their own judgment and assumptions that confuse quality with aspects such as taste, packaging or promotion. Since the management is interested in capturing the quality perception in the market, the decisions made should be aimed at enhancing quality on the customers’ perspective. 4.4 Other department involved in quality control Marketing department This department is responsible for communicating information to customers about the quality of the products the attributes of the products are used to build a quality perception among potential buyers Procurement department This department is concerned with acquiring of materials used in production from external sources. This department affects quality by choosing the materials to be used in production. By transitivity, high quality materials make high quality products 5. Conclusions In the current competitive world, resources are reduced significantly. This is due to excess demand that lead to overutilization. Scarcity of the resources makes firms look for working alternatives in an effort to stay in the business. Choc-Deluxe, a chocolate producing company, uses its main raw material, cocoa to gain its competitive advantage due to the quality perception instilled in the minds of the customers. The firm is on the brink of a crisis if the customers do not accept the new ingredient to replace the cocoa. It should be noted that reliance on agricultural raw materials is a risky situation since agriculture is affected by unpredictable aspects such as weather. Most firms are bound by continuity clause and must thus find alternative ways to maneuver around a problem. Choc-Deluxe devised Carob as the substitute for cocoa. However, it is legally sound to state the materials used in the manufacture of the chocolate bar or products. The law requires that the ingredients be stated in a language that the customers can understand and also be stated in a legible font. The idea of Choc-deluxe misleading consumers on the contents of their product and the measurements can be harmful both in the short run and the long run. 6. Recommendations It is recommendable that Choc-Deluxe disclose all the ingredients used in their products to the customers (Miller 2008, p.270). This may be done in packages and through advertisements. People appreciate sincerity and understand the genuine situation of cocoa shortage. Also, the disclosure should state the exact quantities of each substance. This is an the effort to avert the problem of lawsuit filed against the firm in relation to side effects related to the new products. It is also recommended that Choc-Deluxe source its raw material in advance before an order is made. This would reduce the scramble for existing cocoa. This can be done by establishing connections and futures contracts with cocoa producers. Bibliography Arnold, R. A. 2010. Macroeconomics. Mason, OH: Cengage Learning, South Western.p87 Chary, S. N. 2009. Production and operations management. New Delhi: Tata McGraw-Hill. P10-12 Cocoa Shortage Worries Chocolate Lovers - ABC News. (n.d.). Retrieved from http://abcnews.go.com/Business/cocoa-shortage-worries-chocolate-lovers/story?id=21249939 Cohn, J. 2009. What is scarcity of resources?. New York: Crabtree Pub. pp13-21 Dand, R. 2011. The international cocoa trade. p 79-87 Hoyle, D. 2007. Quality: Management essentials. Oxford: Butterworth-Heinemann. p 39 Knecht, M. 2014. Diversification, industry dynamism, and economic performance: The impact of dynamic-related diversification on the multi-business firm. Wiesbaden: Springer Gabler. p 50 Miller, R. L. R., Hollowell, W. E., & Miller, R. L. R. 2008. Business law: Text & exercises. 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