To: Olam International Management Team and Board of Directors From: UBC MBA Core Code 337 Subject: Tough times, tough decisions Word Count of Memo : 984 Olam International is a global success story in the agribusiness industry. The growth in the last 20 years has been very impressive in terms of profits, breath of products and geographies. However, the combination of a global economic slowdown and tighter credit conditions will make it difficult for the company to maintain the same historical growth rates unless some adjustments are made to the business model. I will address what I feel are the most pressing issues in each of the core business units: Logistics, Marketing, Human Resources, and Accounting. Logistics A streamlined and portable supply chain model has been a major contributor to the company’s success over the last 20 years starting in Nigeria in the 1980s. For example, the company’s main export was cotton from Nigeria in the early 1990s, but has steadily added adjacent products like cashews, cocoa, coffee as well as operations in neighbouring West African countries like Ghana and Tanzania (HBR, Olam International, 2008). Also, the supply chain (‘farm gate to the factory gate’) cuts out middlemen in the form of wholesalers, distributors, processors, has improved profit margins and strengthened the relationships with the end customers (HBR, Olam International, October 28, 2009). The major objective of the supply chain is to decrease costs in the business. My analysis suggests that Olam’s logistics segment of the supply chain could be a potential source of added profit. The company has the most extensive logistics network for agricultural commodities in Africa, Asia, and India. The company’s logistics segment is akin to a batch flow process as large volumes of products such as cashews, rice, and cocoa share nearly identical routes (cashews, cocoa exported from Africa and same routing for rice back into Africa). These same routes are used for metals like gold and copper as Africa is a large net exporter. Olam could become a third party logistics supplier (3PL) to deliver products directly to customers. The infrastructure is already in place and the net contribution would be quite high, hence the logistics operation is a significant ‘hidden asset’ that could be utilized. Marketing Olam should consider investing in its organic certification and fair trade sourcing services for its global customers. The organic food industry is growing in the developed markets faster than the traditional food industry as more and more food companies bring out organic lines of products. Also, growth of the middle class in the developing markets bodes well for these services as well. The company’s competitive advantage lies in the control of its supply chain all the way back to the farmer which would benefit both suppliers and customers. Organic and/or fair trade product suppliers would have greater distribution and marketing exposure due to Olam’s global supply chain network and the customers (food companies) would have a more direct way of getting organic and/or fair trade foods. Food companies would view this as a more convenient and less costly avenue for procurement.
Human Resources One of the key challenges facing the company’s management team as it acquires other businesses is integrating new personnel into Olam’s distinctive culture. They have articulated a clear vision/strategy (Olam’s Approach to Human Capital Development, 2008), and the next steps are to effectively communicate the strategy to the new employees and to determine where they can best fit into the company’s operations. In addition, the team must recognize and respect cultural differences in the workplace as well as was the case with the U.S. based Universal Blanchers acquisition. Another key challenge facing the company is the lack of skilled/educated workers, and the lack of interest of the skilled/educated workers in the agribusiness industry. If...
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