Sanlu IndividualCase Report
The Sanlu milk crisis arises on 2nd August 2008, when the executives of the world`s largest milk trader, Fonterra Group, arrived for a crucial meeting at the Chinese joint venture headquarters, Sanlu Group. The arrivals of the Fonterra Group executives at the Sanlu Group headquarters were in for a surprising shock. The powdered milk belonging to the Chinese Company was found to be laced with melamine. Melamine is a chemical used in the production of plastics, and that this chemical was making infants and young children sick across China. Over the next four weeks, the two partners, Fonterra Group, and Sanlu Group engaged in a racking battle over what they would do. Meanwhile, the parents unknowingly went on feeding their infants and young children with Sanlu`s contaminated milk.
The Chinese milk farmers should be deemed responsible for the crisis. Governmental tests were discovered to not only limit to the milk producer, Sanlu. Other milk products across the twenty dairy companies were also discovered to be contaminated with the chemical. Farmers are deemed responsible having been intertwined between the rising costs of production and cap on prices from the government. These farmers claimed the chemical boost protein level of the watered-down milk products.
Outsourcing refers to a strategic application of external sources to handle activities that were traditionally done by the internal staff. For example, Sanlu Group outsourced its primary contacts to the Fonterra Group, who end up being a valuable business partner. Reasons, why companies outsource, are because they aim at reducing operating costs. Other reasons include improving the company focus, gain access to international market, increase resources, and share risks with the partners, for example, in the case of the Sanlu and Fonterra Groups.
Advantages of outsourcing positively reflect by the enterprisesacross the industries. These advantages include the betterrealization of revenues and enhancement of returns on investments,lower costs of labor, and increased economies of scale realization.Additionally, there is increased the quality of delivery and speed ofall the outsourced activities. There will also be reduced cashoutflows and optimization of resources. The disadvantages includepossible loss of business processes, reduced quality of products andturnaround timeframe. Others include performance shortcomings andover expectations of results and benefits.
The role of ethics in the supply-chain management within and outside an organization is based on the interaction between people, which gives rise to all the issues ethical at different stages. One of the roles is professionalism. Supply chain participants are required to exhibit high professionalism standards, which mean one entity should treat the other with equal trust and respect.
Secondly, supply chain managers should exercise personal integrity.They are supposed to a strong level of commitment towards opennessand morality. Receiving favors, gifts, stakes, and preferentialtreatments are not supposed to be on the business ethics codes. Otherroles include transparency, accountability, and compliance. Allparties taking part in the supply-chain management are required to beaccountable and open.
Following the Sunla Group tussle and crisis that engulfed Chinese milk production in 2008, some things have to be done to restore consumer confidence in the milk products. The parties involved including the Chinese market should first accept the responsibility in place of farmers. Secondly, the Chinese government should strengthen the quality of milk dairy products through inspection. Through quality inspection of the milk source and production process, to ensure safe milk.
Again, the tighter inspection should be carried out by ensuring allthe milk products are labeled as melamine-free, especially at thesupermarket chains across China. This way, the labels will start towoo all the milk consumers back to consuming domestic milk products.The Chinese safety watchdog should strengthen milk tests, milkproducts, and yogurt, to be sold in dozens of milk brands across themajor cities. Testing should also extend from the baby formula todifferent other types of powdered milk.
Sanlu`s crisis management during the milk scandal helps with the recovery of the industry and restores consumer confidence. The Chinese dairy market that resulted in the chaos following Sanlu`s scandal about tainted milk formula for babies saw encouraging recovery signs thanks to the efforts of crisis management. During the scandal, crisis management had to move swiftly to ensure the milk were again melamine-free. They promised to assume responsibility for the aftermath. Two companies, Sunla Group, and Fonterra Group, issued apologies to all the consumers.
Following the scandal, the crisis management team promised to takeback all the types of melamine-contaminated baby formula. Whatfollowed was that the powdered baby milk was halted, and there wereproduction changes, which was also covered in the apology. Again, allthe adulterated powered and dairy products were also ordered to becleared from the shelters and be destroyed. Finally, therepercussions that characterized the industry at the time resulted inthe crisis management issuing immediate investigations are carriedout and the people involved to be held responsible.