1. How did the Sanlu milk crisis arise? Who should be deemed responsible for the crisis?
The crisis began on the 2nd of August 2008, in Beijing, when executives of the Fonterra group (originally from New Zealand) which is the world’s largest trader of dairy products holding 43% of the shares of Sanlu group in a joint venture, arrived for a meeting at their headquarters in China. This was a moment of great shock for the company as the powdered milk product produced by them was found to be containing a certain amount of melamine (nitrogen-rich chemical compound that can increase the milk supplies’ crude protein level) which is a chemical used in the production of plastics and was sickening infants and young children around the country. By January …show more content…
This not just put Sanlu’s reputation at stake but Fonterra as well getting a bad name for the company which has such a great chain. They did not show adequate oversight led to the melamine being added to the milk powder during production.
• Government:
Apart from Sanlu’s supply chain problem, the government is equally responsible for its poor regulations and loopholes in its governance. The government even had introduced self-governance in China’s companies, that is, exempting the inspection of companies with larger market share. This method proved to be a failure since it’s a country with low ethic and hence this was called off after this incidence. Despite this Sanlu managed to get national inspection printed labels on their products claiming that the product was well-checked and is safe for consumption.
2. Why did Sanlu outsource milk production? What are the pros and cons of outsourcing? There were 6 main reasons behind Sanlu outsourcing its milk production;
I. Demand was too high
II. Focus on the care business
III. Maximize the profits
IV. Foreign companies were more …show more content…
Whereas the with a growing demand and decreasing supply the prices went up high and wasn’t affordable enough by the major chunk of the population. There were several foreign companies upcoming in the 1980s which joined China’s dairy industry. Therefore, to compete with the upcoming foreign companies Sanlu set up the first milk station in 1987 outsourcing the raw milk production. They outsourced a part of their business activities to some external service providers, as the milk stations were specialized with extended networks with the local farmers for collecting the milk which could decrease the production cost of Sanlu and lower the selling price as well to attract more customers. This way they didn’t have to bother much about the raw milk collection and could put all its focus on marketing and products diversification. Pros:
• If the risks and costs are transferred to the third party, part of the manufacturing cost is transferred to the farmers. Outsourcing reduces the production cost. It allowed Sanlu to adjust the production cost by changing the purchasing price of milk.
• It can also diversify the risk which the company already possessed. Since the company outsourced the tasks to the third party, a fraction of risk is ultimately transferred to the third party. If the third
The crisis began on the 2nd of August 2008, in Beijing, when executives of the Fonterra group (originally from New Zealand) which is the world’s largest trader of dairy products holding 43% of the shares of Sanlu group in a joint venture, arrived for a meeting at their headquarters in China. This was a moment of great shock for the company as the powdered milk product produced by them was found to be containing a certain amount of melamine (nitrogen-rich chemical compound that can increase the milk supplies’ crude protein level) which is a chemical used in the production of plastics and was sickening infants and young children around the country. By January …show more content…
This not just put Sanlu’s reputation at stake but Fonterra as well getting a bad name for the company which has such a great chain. They did not show adequate oversight led to the melamine being added to the milk powder during production.
• Government:
Apart from Sanlu’s supply chain problem, the government is equally responsible for its poor regulations and loopholes in its governance. The government even had introduced self-governance in China’s companies, that is, exempting the inspection of companies with larger market share. This method proved to be a failure since it’s a country with low ethic and hence this was called off after this incidence. Despite this Sanlu managed to get national inspection printed labels on their products claiming that the product was well-checked and is safe for consumption.
2. Why did Sanlu outsource milk production? What are the pros and cons of outsourcing? There were 6 main reasons behind Sanlu outsourcing its milk production;
I. Demand was too high
II. Focus on the care business
III. Maximize the profits
IV. Foreign companies were more …show more content…
Whereas the with a growing demand and decreasing supply the prices went up high and wasn’t affordable enough by the major chunk of the population. There were several foreign companies upcoming in the 1980s which joined China’s dairy industry. Therefore, to compete with the upcoming foreign companies Sanlu set up the first milk station in 1987 outsourcing the raw milk production. They outsourced a part of their business activities to some external service providers, as the milk stations were specialized with extended networks with the local farmers for collecting the milk which could decrease the production cost of Sanlu and lower the selling price as well to attract more customers. This way they didn’t have to bother much about the raw milk collection and could put all its focus on marketing and products diversification. Pros:
• If the risks and costs are transferred to the third party, part of the manufacturing cost is transferred to the farmers. Outsourcing reduces the production cost. It allowed Sanlu to adjust the production cost by changing the purchasing price of milk.
• It can also diversify the risk which the company already possessed. Since the company outsourced the tasks to the third party, a fraction of risk is ultimately transferred to the third party. If the third