International Trade: Physical Distribution - Assignment Example

International Trade- Physical Distribution Question What levels of integrated relationships does Kellogg have with their suppliers and their customers? To answer this question, it is necessary to split it into two parts, firstly, relating to suppliers and secondly, relating to customers. Relationship with suppliers: In the best interests of business, it is necessary that Kellogg’s builds and sustains long term relations with their business partners and suppliers. Suppliers form a strong nexus and potency for large scale operators like Kellogg’s, given the fact that economies of large scale business which is practiced by large MNC’s like Kellogg’s , need to be actively sustained and nurtured by its stream of vendors and suppliers. Perhaps, one of the major aspects of Kellogg’s production units is that it is based on Just in Time inventory systems. Under this system, first introduced by automaker giant, Toyota, the stock items are procured on actual need basis, and thus there is no lockup of inventory capital, or need to maintain a large expensive inventory beyond need. Only the items that are actually needed for production are kept close to plant shop floor levels, in order to facilitate quick transportation to actual production floor. “Just-In-Time inventory systems provide for an attractive, cost-cutting production system as long as risks are weighed and mitigated.” (“Risks of being just-in-time,” 2005) Strategic partnerships with Vendors: Coming next to the need for development of strategic partnerships with their vendors and procurement agencies,to fecilitate supplies of right product mix, at right price and at right time. These play very important role, especially in case of consumer oriented and competitive items like food cereals which is the primary business of this company. This is especially important since Kellogs could boast of 19 production centers worldwide, serving nearly 160 marketing feeder centers. The business growth of Kellogg’s has truly been phenomenal. “Throughout 2009, we continued to invest in our strengths— building our brands in our core categories, spending effectively on brand-building advertisements and marketing, innovating and renovating our products to meet our consumer’s changing needs, and identifying and implementing systems for improving efficiency and cost saving , throughout our organization. This investment lays the groundwork for continued, sustainable and dependable performance now and well into the future.” (“A foundation stock for your portfolio,” 2010, p.1) Therefore, it is believed that Kellogg’s vendor participation in success is 50:50 and vendors have contributed handsomely to success story of Kellogs, and their contribution has been very important for the present state of this enterprise. Besides, there have also been instances of strategic partnership with raw cereal producers, flavouring companies and other vendors and suppliers. Relationship with customers: Coming next to customers, they are the core of business and are responsible for its growth and development over the years of its eventful history. The sales figures for 2009 stands at $12.6 Billions, and profits stood at $2001 million, during 2009, as compared to just $1953 million during 2008, an increase of nearly 3% over the earlier year. (“A foundation stock for your portfolio,” 2010). The fact that even in these troubled economic times, Kellogg’s has been able to register good profits and pay consistent dividends to its stakeholders speaks volumes about the consistent and growing relation with its band of shareholders. Kellogg’s list of satisfied and loyal customers, not only in the United States, where it has its principal offices, but also in other countries of the globe where it has business interests. “Our Company has a century-long tradition of corporate responsibility, dating back to our founder, W.K. Kellogg. We know that our customers, consumers, employees, share­owners and other stakeholders want us to be successful in business terms while also being responsible to environment and society. Our Company is committed to achieve both.” (“Corporate responsibility,” 2010). It is very important from the point of view that Kellogg’s, which is now operating in 160 countries, is also able to reach out to more customers and clients, not only in the US but worldwide. A standing testimony to this has been the fact that during 2010, the rise in sales in first quarter , as compared to the same period during 2009 has been around 5%, ($3169 to $ 3318 million)which is quite evident from the table shown below. The constant support and advantageous attitude of customers are also seen with regard to the fact that EPS has risen from $0.84 to $1.09 during the two years’ comparison. Question 2: What are the advantages and disadvantages of these relationships? Perhaps the main advantages of such relationships have been that the company has grown from strength to strength on a global basis. Vendors are important to any company since they help reduce costs of manufacture and help achieve economies of large scale operations, especially in the context of a major food cereal giant like Kellogg’s. In terms of logistics, it could be seen that most of the distribution centres of Kellogg’s are located near plants, which help reduce movement and transportation costs. Since Kellogs operates in the secondary sector business.” It obtains its raw materials of wheat, corn, cocoa, rice and sugar from primary suppliers around the world. These materials help make over 40 different breakfast cereals and snacks to sell to customers through the tertiary sector. It is a large-scale manufacturer and stores sufficient stocks to meet customer orders. As part of its Research and Development (R&D) programmes, it develops recipes to expand its range of cereals and snacks.” (“Supply chain from manufacturing to shelf,” n.d, p.2). There are various aspects that impact business, and supply chain is one of them. Just as vendors and suppliers are important to Kellogg’s in order to save costs and ensure efficiencies, just as much, clients and consumers generate revenue and incomes for the business. If Kellogg’s is not able to satisfy reasonable demands of customers, there would be loss of business, since competitive business would gain due to mass exodus of customers from Kellogg’s to its many competitors in cereal and snacks industry. “Kellogg states that they need to be able to give their customers what they want, but the truth of the matter is they are probably being strong-armed by Wal-Mart. Kelloggs point is legitimate, however, when they say that they should be able to quickly and correctly serve those outlets that are setting up shop in every corner of the globe.” (“Supply chain management development,” 2004). Thus the advantages of having good relations with customers and vendors is reflected in the bottom lines of the business in increased profits and profitability, excellent performance and good, consistently increasing returns to shareholders. All major areas of accountability for a publicly quoted Limited Company like Kellogg’s having outside shareholders are quite evident. Besides rational cost cutting without hurting the pockets of employees and staff are also important since employees are the most valuable assets in any company, big or small. It is indeed to Kellogg’s credit that it has not resorted to retrenchment of workers or undercutting staff costs, which would be unproductive in the long run, especially when the times are not good. Coming next to the disadvantages of such relations, perhaps one the major one would be in terms of service commitments which vendors need to execute. Under such circumstances, vendors would not be able to supply in free markets and this would, in real terms, be a liability. During times of rising material costs, fixing raw materials prices pegged at one level may be onerous for vendors. Customers need to buy under competitive and free markets and there should not be any kind of impositions or restrictions on their buying preferences. Any agreement or strategic partnerships, in essence would be laying restriction for competitive business and this, by far, while benefiting individuals, in real terms do not help trade. If strategic agreements restrict choices of customers in what to buy, from whom to buy and how much to buy, this , in reality is an anti-competitive and monopolistic tendency which would jeopardize trade, very much. “Today, Kellogg faces the most difficult operating environment, it has experienced in many years. Mainly among the challenges confronting Kelloggs are rapidly rising prices for several of the key inputs for its cereal and snack foods, including corn and wheat, rising energy prices, high input prices by increase in the cost of transportation and delivery to Kelloggs distributors. Finally, Kellogg faces intense competition from General Mills and Kraft in its core U.S. market where a slowdown in consumer spending threatens to hurt sales.” (“Kellogg company (K),” 2010). Question 3: Explain and illustrate the advantages and disadvantages of Quality control? To a very large extent, what the consumer eats is what accounts for his continued good health and well being. Besides, in most developed countries of the world, the government is extremely concerned about the quality and nutritious value of what people eat and drink. This is not only to ensure the best and most appropriate quality of what is being eaten, but also that no health detriment is caused by ingestion of contaminated food and drinks. Thus, Kellogg’s for one, being a global food major, needs to exercise extreme caution and circumspection in the kind of cereals and snacks it serves, not only in terms of preserving its high reputation as a quality food producer, but also in terms of the fact that Kellogg’s is as much concerned about the food which consumers eat, as most probably the customers themselves are. In their bid to earn high profits, companies often go overboard and Kellogg’s for one has been no exception. “The whole purpose of the Smart Choice program, of course, was to influence gullible parents into buying highly-processed, dead food products that earn more profits for participating food companies. And in order to accomplish that, this group had to abandon commonsense, nutrition and push processed food products onto a nation full of children who are already obese, diabetic and increasingly diagnosed with ADHD.” Adams (2009). Thus the quality control aspect assumes greater significance, especially in a changing world, where health and hygiene are mission critical aspects for any food business. Kellogg’s fully understands its quality responsibilities. As a matter of policy, QC is deeply embedded in all its functions. “Raw materials, processing, and packaging operations are continually checked to assure the production of cereal with consistent flavour, texture, purity, and nutrient content. Many of Kellogg Company’s standards are even more stringent than those required by the government. Kellogg Quality Assurance personnel regularly visit suppliers’ plants to assure that proper sanitation procedures are being followed and that the raw materials they supply meet Kellogg Company’s rigid specifications.” (“Quality assurance,” 2010). In the event, proper care is not taken, Kellogg’s could find itself embroiled in several cases as this one. “The lawsuit also alleges that by using inspectors who were paid by the PCA, Kellogg failed to properly inspect the ingredients used in its products to ensure they were safe for consumption and not contaminated with salmonella. It claims that Kellogg’s misrepresents the health and nutrition messages on its website, that its food safety procedures are inadequate, and that it should have known its products could have been contaminated with salmonella.” Scott-Thomas (2010). Thus, it is seen that Quality control is very important aspect of any business and especially so in the food business. There are also other disadvantages of QC, that rival business could be detriment in terms of taking advantage of the weaker parties for their own vested interests. This is more so in the case of a major well established business like that of Kellogg’s who could be susceptible to a horde of legal cases in order to defame them for material or non material gains. Besides, there is no franchising of Kellogg’s product range. “The Company’s cereal products are marketed under the Kellogg’s name and are sold to the grocery trade through direct sales forces for resale to consumers.” (“Kellogg’s company (public, NYSE:K),” 2010). Considering all these aspects, it is believed that Kellogg’s could well take up anticipatory insurance and other safeguards to protect its good name, reputation and stocks from harm caused by defamatory statements and quality complaints. The QC Manager needs to be updated with all types of complaints, major and minor and needs to come up with innovative solutions for problems that could add to business benefits. Again, QC itself is evolving and needs to work closely with Research and Development Department to gain substantive business advantages. There are also concerns with regard to business and non business QC complaints and issues that need to be sorted out. While the main advantages of QC is in terms of better product quality, greater customer acceptances, better business and goodwill, it is also seen that some of the major disadvantages could be in terms of competition, costs, evolving nature of QC especially in the food sector and also it is necessary to have well trained and qualified workforce who could ensure that QC is well maintained. This is a large task by some standards but not in the case of Kellogs who have invested heavily in training, R & D and also in QC. Automation, product testing, technical skills and competence are all major aspects that need to be considered in the context of QC and this is their mainstay of the business. Finally, it could be seen that in the context of Kellogg’s, the main aspect is that mass production is often the cause for slippages in QC and this need to be remedied. There should be special cells for QC who are specialized to look only into these aspects and nothing else. This specialization could ensure that all factors are considered and that QC possesses all advantages and minimum disadvantages in a changing consumer food industry. Moreover, there are also factors with regard to how the market and competitor views Quality control in the Kellogg’s context, given its uncanny ability to be always in the middle of news. There are also aspects regarding how QC could be maintained in a sustained manner in the ever burgeoning and large scale business operations of Kelloggs. To Kellogg’s , obviously, there are other aspects besides the need for strict and stringent QC, and these are in terms of gaining market benefits and competitive advantages, in which QC may definitely play a part. In as much as Kellogg’s is concerned, QC is a way of business and not a privilege bestowed by employers to customers and users. “Every product package is designed to help maintain nutrient levels, freshness and flavour; protect our products during handling, shipping and storage; identify the product; and provide important consumer information. Packages are made from various materials that are selected after extensive checks for moisture and/or air permeability, the effect of aging under various storage conditions for product protection. Consumer acceptability is key factors in selecting packaging materials.” (“Quality assurance,” 2010). In the final analysis, it would only be fair to judge that the many milestones crossed by Kellogg’s Company and its cereal food and snacks chain has only be reached due to its fetish for quality and unmatched quest for best raw materials at reasonable prices, excellent, labour and time saving food product preparation, excellent primary and secondary packaging and finally the use of a good network for reaching the customers at the shortest possible time. There are indeed many factors that have brought Kellogg’s to perhaps the highest pinnacle of fame and corporate reputation, and indeed QC has been a vital cog in the wheel of its success story. Bibliography Adams, M. (2009). Fraudulent "Smart Choices" food labeling program crumbles as food manufacturers flee scrutiny (opinion). Retrieved July 21, 2010, from Natural News.Com website: http://www.naturalnews.com/027380_food_labeling_nutrition.html A foundation stock for your portfolio. (2010). Retrieved July 21, 2010, from Kellogg’s website: http://files.shareholder.com/downloads/K/967653650x0x384893/e5bf9a7e-1d24-41c1-ab13-ca9453983666/Kellogg_Fact_Sheet.pdf Corporate responsibility. (2010). Retrieved July 21, 2010, from Kellogg’s website: http://annualreport2009.kelloggcompany.com/k-values.html Kellogg company (K). (2010). Retrieved July 21, 2010, from Wikinvest.Com website: http://www.wikinvest.com/stock/Kellogg_Company-(K) Kellogg’s company (public, NYSE:K). (2010). Retrieved July 21, 2010, from Google website: http://www.google.com/finance?q=NYSE:K Quality assurance. (2010). Retrieved July 21, 2010, from Kellogg’s website: http://www.kelloggcompany.com/company.aspx?id=37 Risks of being just-in-time. (2005). Retrieved July 21, 2010, from IIM, Calcutta, Inventory Management Review website: http://www.inventorymanagementreview.org/2005/10/the_risks_of_be.html Scott-Thomas, S. (2010). Kellogg’s sued over salmonella trained snacks. Retrieved July 21, 2010, from Food Productiondaily.Com Website: http://www.foodproductiondaily.com/Quality-Safety/Kellogg-s-sued-over-salmonella-tainted-snacks Supply chain from manufacturing to shelf. (n.d.). (Provided by customer). Supply chain management development. (2004). Retrieved July 21, 2010, from Wow Essays, Top Lycos network website: http://www.wowessays.com/dbase/ab1/iev234.shtml Read More