143287747 Unifine Richardson Case

Topics: Cost, Cost overrun, Cost underestimation Pages: 6 (1133 words) Published: February 11, 2015
Issue:
The core issue Unifine Richardson (UR) faces is their sole honey supplier, Harrington Honey (HH), will run out of Chinese honey in a little over a month because the Canadian Food Inspection Agency (CFIA) recently found traces of chloramphenicol (a banned antibiotic associated with causing a sometimes-fatal blood disorder) and rejected the contaminated honey. Until China finds a way to detect contaminated honey, Unifine Richardson cannot sell any of its current Chinese-Canadian blend. Because of the CFIA’s findings, the global supply of honey will decrease by 20%, thus causing an increase in price. Harrington Honey will not be able to maintain the honey stream. The price of honey, globally, has already been on a steady incline (Exhibit 2) and the shortage will further intensify this trend. Another issue UR is facing is that there is also an uneven relationship between the two companies. Harrington Honey is well aware of this and is using this to its advantage by not offering better choices to UR. Additionally, 80% of UR’s honey operations are tied to one major customer, and this customer has tough standards. As stated earlier, Unifine Richardson has approximately one month of honey inventory left and it has to make a decision based on the available options presented by Harrington Honey.

Analysis:
Unifine Richardson buys about one million pounds of honey annually. The world supply of honey has decreased by about 20%. Currently, the company pays $1.08 per pound for the Chinese-Canadian blend honey. Harrington Honey provided UR with three alternative sources of honey: 1. Canadian-Argentinean blend

a. Cost: $1.42 million (a 31% cost increase).
b. Customers may reject because flavor is significantly different from current honey blend. c. Argentina is world’s third-largest honey supplier.
2. 100% Canadian honey
a. Cost: $1.75 million (a 62% cost increase).
3. 100% American honey
a. Cost: $1.79 million (a 66% cost increase).
b. World’s second-largest honey supplier.
These options all pose very significant cost increases for Unifine Richardson. Considering the strict timeframe that UR is under, it will not be possible to establish a new relationship with another supplier; however, UR does have the leverage with HH to negotiate on the prices they are currently being offered. HH suggested UR consider a long-term contract to lock down the price, which suggests UR is a high volume customer that HH does not want to lose.

Recommendation:
Based on the immediate options available, we would not recommend going with the 50/50 honey blend. There is a question about the taste of the Argentinean honey. UR could face expensive recalls; U.S.-imposed dumping fees, loss of reputation and a failure to meet customer expectations. The 100% U.S. honey is also not a viable option because it is the most expensive honey, and there could be additional issues such as unpredictable delivery, transportation delays, shipping costs, etc. The Canadian honey is the best immediately available option, considering the limited timeframe the purchasing manager has to make a decision. Because UR is located in Ontario, perhaps there will be a reduction in fees or transportation costs. Concurrently, Pincombe should also contact his finance partner at UR for analysis on price alternatives it could offer its largest customer, based on the current prices HH quoted them. Based on these findings, finance could recommend Alternative 6 (alternative shown in appendix). Considering that it might take 15 months to eliminate the CFIA issue of chloramphenicol traces in the beehives, UR should contact HH and advise that they will consider continuing business and signing a contract with them if they will negotiate on price. UR should suggest that HH offer a 20% discount on price (based on data provided by the finance department) and they will sign a contract with them. If they cannot come to an acceptable agreement, UR should advise HH that they...
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