Cost and Canadian Honey

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Case Study: Unifine Richardson
Unifine Richardson (Unifine) is a company in Ontario, Canada with 110 employees with facilities located throughout Europe and North America. The company manufactures many products using honey that include salad dressings, ice-cream toppings, sauces and syrups. Consumers include the food service market, retailers and industrial customers. One million pounds of honey is purchased annually, which is 3 – 5% of the firm’s total expenditures. Almost all of the honey purchased is a 50-50 blend of Chinese and Canadian honey at a cost of $1.08 per pound. Unifine relied heavily on a supplier, Harrington Honey, for its honey. In 2002, the purchasing manager of Unifine was notified by Harrington Honey that traces of an antibiotic, chloramphenicol, was found in Chinese honey by the Canadian Food Inspection Agency (CFIA) and Harrington Honey was discontinuing their import of Chinese honey. Current inventory of the honey would be depleted in about one month so a decision is required immediately regarding an alternate source of honey. Prices of non-Chinese honey had gone up significantly to an all time high, while supply had decreased by 20%. Strategizing was required to ensure the firm’s sales to its largest major food service customer, as well as others, were not jeopardized. 80% of Unifine’s recent honey sales were made to this major food service customer for use as a dipping sauce for fried chicken on a cost-plus basis. Rob Pincombe, purchasing manager at Unifine Richardson was presented with three alternate options to choose from by Harrington Honey that included: 1) 100% Canadian honey at $1.75 lb

2) 100% USA honey at $1.79 per lb, or
3) 50-50 Canadian/Argentinean honey at $1.42 per lb.
The first option, 100% Canadian honey, is the second most expensive and would increase cost, which would have to be passed on to the customer to ensure profitability. The advantages of this option include a cost savings...
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