DBN509 Operations Management: Assessment 1 Part A Answer
DBN509 Assessment 1 Part A – 2018
Reference Style: APA
Word Count: 2500
Fonterra is a co-operative dairy firm, involving around 10,000 farmer shareholders in New Zealand. The company was founded on 16th October 2001, following the merger of kiwi Cooperative Dairies and New Zealand Dairy Group with the New Zealand Dairy Board. It is the largest company in New Zealand that accounts for around 30% of the total dairy products export in the world. The total revenue collected by the company in 2016-17 is around NZ$19.232. The total operating income and net income of the company in FY 2016-17 was around NZ$$1.120 billion and NZ$$0.745 billion. As of 2017, Fonterra has a total asset worth NZ$17.842 billion (Fonterra.com, 2019).
The company has the vision to share its dairy products with the world. Fonterra wants its customers to use nutritious dairy products of the company. By attracting people towards their products, Fonterra can achieve its vision of being a natural source of daily nutrition for every person. Although it is a bold objective for a business, it can be achieved with continuous product improvement. The mission statement of the company says that Fonterra is dedicated to maintaining key criteria required for being in the leading place in the global dairy industry. Fonterra’s mission also suggests effectively providing advanced client service (Fonterra.com, 2019).
Fonterra manufactures dairy products, including butter, yogurt, cheese, milk and milk powder, which are full of nutrition. The company manufactures, distributes and markets their consumer products, including branded dairy products, which are sold to customers directly. Some of the well-known brands of the company include Anmum, NZMP, Anlene, and Farm Source, all of which are made using trusted processes and the best quality natural dairy. Three global brands of Fonterra include Anchor, Anlene and Anmum.
Every individual associated with Fonterra is shaped by diverse professional, cultural and personal experiences. The shared values of Fonterra’s employees certainly enable them to combine their personal strengths with others to make the company successful, stronger, and better. The values are most important to the company as it operates in many countries and multicultural settings.
2. Sustainability Challenge
a) Five challenges faced by Fonterra
Five quality and performance related challenges encountered by Fonterra include water quality and scarcity, access to nutrition, limiting and adapting climate change, threatened biodiversity, and slowing down of improved global land productivity. It has been reported that around 792 million people around the world are undernourished. Another major concern for the company is that intensified agriculture has resulted in declining water quality around the world, contributing to reduced nutrients from the food items. The agriculture production contributes to emission of air polluting gas, causing climate change (Ross, 2017). Due to the changes to climate and increased variability in weather patterns, the food production system around the world has been largely affected, resulting in low productivity in food manufacturing companies. Growing demand for food around the world has been another significant concern for food manufacturing companies, including Fonterra, as the companies encounter difficulties to increase the production of food due to lack of access to the agricultural land. Over the decades, innovation has made significant contributions to the increasing productivity of food. However, in recent years, the production of food based on innovation has slowed down to a great extent, which has resulted in people unfulfilled demands for food around the world. In order to overcome these challenges related to business performance and food quality, Fonterra has adopted sustainability in their various operations.
b) Explanation of two Quality Management Systems
Fonterra has adopted different quality management system to maintain a standard quality bar in products and services. The approach of the company towards human rights has prioritized protections and rights of Fonterra’s employees around the world. In 2014, the company adopted ISO26000, which provides a standard guideline to become socially responsible (Papp, 2018). The implementation of this quality management system indeed has facilitated the company to widen its activities to protect human rights. With the application of ISO 26000 facilitates Fonterra to act transparently and ethically, making huge contributions to the health and welfare of the society. Some of the core subjects surrounding ISO 26000 include organizational governance, human rights, labor practices, the environment, fair operating practices, consumer issues, and community development and involvement. When implementing ISO 26000 in the organization, the management of Fonterra encountered a number of challenges. For example, due to the implementation of this standard, the organization has increased its budget in functions surrounding social responsibilities. The leaders and managers were given additional training to gain their understanding of the standard and its role in protecting human rights effectively. Before the implementation of ISO 26000, Fonterra used to involve them in various social activities. However, the organization has started using a process-approach post implementation of this quality standard, which demands appropriate planning and schedule. Therefore, it can be assessed that the implementation of ISO 26000 has helped Fonterra to maintain human rights and social responsibility in an effective manner.
Another quality management standard that Fonterra has been trying to achieve is ISO 14001:2015, which specifies the requirements for an environmental management system that an organization can implement in order to bring improvement in its environmental performance (Noe et al., 2017). ISO 14001:2015 is used by organizations to successfully manage its responsibility towards protecting the environment, contributing to the environment support of sustainability. One of the main reasons why Fonterra has focused on implementing ISO 14001:2015 is that it contributes to the organizational achievement of an environmental management system, providing value for the environment. It can be assessed that the possible outcomes of this environmental management system that Fonterra could achieve post-implementation include improvement of environmental performance, attainment of environmental goals and objectives and accomplishment of compliance responsibility. One of the major challenges of implementing ISO 14001:2015 is that visible leadership, as well as support from the higher management, is critical in the revised standard (Siva et al., 2016). Representatives from the top management of Fonterra must possess adequate knowledge of modified areas in ISO 14001:2015 in order to ensure that it follows all the major obligations mentioned in the guideline of the standard. Another significant challenge that Fonterra might encounter when implementing ISO 14001:2015 is the determination of risks and opportunities surrounding this standard. Hence, it can be assessed that the implementation of ISO 14001:2015 could bring some challenges for the leaders and top management of Fonterra.
c) Four ways in which sustainability initiatives taken by Fonterra
In order to resolve the issues regarding lack of access to nutritious foods, the management of Fonterra has focused on developing affordable products modified according to specific nutritional needs of people in the community (Nanda, 2016). The improvement of the wellbeing of individuals is also carried out through the innovative approach in producing advanced dairy products. The management has also focused on addressing various public health-related challenges by enhancing the nutritional product profile.
Fonterra has also taken a number of steps towards improving productivity and protecting the environment to a great extent. The company has improved the biodiversity and health of land and water through the reduction of effects of manufacturing and farming. Fonterra has also emphasized on investigating in infrastructure and innovation to eliminate greenhouse gas emission from the supply chain.
In order to produce high quality and safe products, Fonterra has implemented a sustainable dairying programme. In 2017, Fonterra launched Tiaki sustainable dairying programme, aimed at caring for the land. With the implementation of this sustainable programme, Fonterra has been able to care for the environment, and health and wellbeing of dairy cows.
The existing efficiency-based operation focuses on reducing the emission of Green House Gases from each unit of production. Fonterra has set a target of reducing the emission of greenhouse gases by 30% by 2030 from their milk collection and global manufacturing operations. The company has also aimed at reducing the emission rate to 0% by 2050 through the transition of cleaner sources of energy (Fonterra.com, 2019). Hence, it can be assessed that the organization has taken several sustainable initiatives to overcome diverse challenges.
3. Continuous Improvement
a) Five initiatives taken by Fonterra to improve dairy operations
Initiative 1: Fonterra has taken several initiatives to bring improvement to their dairy operations. Recently, the company has started using a new technology called Aggregate, which is an online tool developed by Fonterra’s farmer-facing business unit named Farm Source, and New Zealand Livestock Improvement Corporation. The main reason to use this tool is to aggregate data from farmer’s business, which provides an online dashboard, allowing the company to take faster and smarter decisions (O’Neill, Sohal & Teng, 2016). This particular dashboard allows Fonterra to identify diverse aspects of the farming system, such as animal health, weather conditions, milk production, fertilizer, and financials. Consequently, it makes significant contributions to dairy production.
Initiative 2: Another sustainable approach taken by the company to improve dairy production is the use of sustainable dairy farming, as mentioned earlier, Fonterra has implemented Tiaki Sustainable Dairying Programme to guard land and to care for dairy cows, which in turn has made a significant impact on the dairy production. Without caring for land and dairy cows, it is not possible for Fonterra to make continuous improvement to dairy production.
Initiative 3: In order to maintain the natural goodness of milk, Fonterra uses sustainable operations, where the manufacturing sites’ energy usage is reduced using advanced technologies. Moreover, the use of new technologies also makes a large contribution to deal with climate change issues that affect the dairy production process to a great extent.
Initiative 4: Waste management is an integral part of the dairy production process (Aquilani et al., 2017). In order to maximize the nutritional value of the products, Fonterra has focused on reducing food loss across its supply chain. The particular process facilitates the company to ensure that farmers supplying raw materials get maximum return, which can be used further to increase dairy production to a large extent. It also plays a major role in minimizing the impact on the environment.
Initiative 5: Food safety and quality standards implemented in the organization have been playing a significant role to enhance dairy production largely. In the manufacturing operations, food safety and quality standards focus on delivering products right-first-time. The implementation of quality standards largely facilitates the company in delivering the best quality dairy products to the customers (Nilsson, Griggs & Visbeck, 2016). Therefore, it can be assessed that these five initiatives have been playing a significant role in enhancing the dairy production process at Fonterra.
b) Five continuous improvement tools
Kaizen: This tool is very easy to implement as the key ideas are derived from workers, who are less likely to be thoroughly dissimilar (Hák, Janoušková & Moldan, 2016). It is important for the management of Fonterra to collect ideas from their existing talents in the workforce, based on which the production of dairy products can be improved. Since R&D and other managerial positions are not involved in this process, it can be accomplished without investing a huge cost. When implementing this tool, workers of Fonterra, especially farmers, must be encouraged to provide their significant feedback on the dairying process.
Just-In-Time: Although the implementation of this tool in the manufacturing process is complex, the management of Fonterra should use it in order to maintain the high nutritional value of their wide range of dairy products. In order to establish a Just-in-time inventory, it is important for the organization to develop and maintain a strong relationship with suppliers, such as farmers (Le Blanc, 2015). There must be a strong communication channel between the suppliers and production team so that the product can be manufactured and delivered to the customers without any delay.
PDCA cycle: Four stages of this cycle include plan, do, act and check (Osborn, Cutter & Ullah, 2015). The management needs to define the problem to be identified in the first stage, which is planning. In the planning stage, relevant data need to be collected. The solution to the identified problem is developed and implemented in the next stage. In the third stage, the management of Fonterra needs to compare data before and after the implementation of strategies to confirm whether the desired results are obtained. The final stage, ‘Act,’ suggests the documentation of results and informing others regarding the changes. Through the implementation of this model, the management of Fonterra can carry out continuous improvement in business process management.
Figure: PDCA cycle
(Source: Nilsson, Griggs & Visbeck, 2016)
Value stream mapping (VSM): It is a flowchart method to analyze, illustrate and perk up the steps required to deliver a service or product. With the implementation of VSM, Fonterra could reduce waste not only from its manufacturing system but also from all functions carried out in the business. One of the major benefits of VSM is that it enables the organization to find out the real cause of the waste (Hák, Janoušková & Moldan, 2016). It is important for the management to consider some factors when implementing the VSM tool in manufacturing or supply chain process. For example, both value-adding and non-value adding activities in the production process must be identified in a careful way while drawing the current site map.
5 Whys: It is an interrogative technique, widely used to explore cause-and-effect relationships underlying a particular issue. One of the main reasons why Fonterra must implement this technique is to find out the root cause of an issue by repeating the question “Why.” In this process, each answer forms the ground of the next question. There are two primary techniques are available to conduct 5 Whys analysis, such as the fishbone diagram and a tabular format (O’Neill, Sohal & Teng, 2016). With the help of this technique, the management at Fonterra could identify the root cause of a problem affecting production or supply chain system.
Throughout this particular assessment, an in-depth analysis of different sustainable approaches implemented by Fonterra has been conducted in relation to the given case scenario. In this assessment, the researcher has identified Five quality and performance related challenges encountered by Fonterra, such as water quality and scarcity, access to nutrition, limiting and adapting climate change, threatened biodiversity, and slowing down of improved global land productivity. Fonterra has adopted different quality management systems, including ISO26000 and ISO 14001:2015, in order to maintain a standard quality bar in products and services. In 2017, Fonterra launched Tiaki sustainable dairying programme, aimed at caring for land and dairy cows. With the involvement of such sustainable programs, Fonterra has enhanced its production and supply chain method largely. Fonterra has set a target of dipping emission of greenhouse gases by 30% by 2030 from their milk collection and global manufacturing operations. Using advanced technology is one of the significant steps taken by Fonterra to enhance its dairy productions. For enhancing production process, in recent time, the company has started using a new technology called Aggregate, which is an online tool developed by Fonterra’s farmer-facing business unit named Farm Source, and New Zealand Livestock Improvement Corporation.