Posted: February 19th, 2015

AOL Peanut Quality Control

AOL Peanut Quality Control

The case has four Parts: A, B, C, and D.   Each Part is followed by a set of questions. Your paper should thus be divided into four Parts, each with a separate heading: “Part A” or “Part B,” etc.  For each part, write a short, mini-essay addressing all the questions for that Part.

Please DO NOT rewrite the questions or the facts of the case in your answer. Just answer the question. Also please do not hand in notes.  This assignment requires a written essay.

As you answer the questions, you should refer to your reading and class discussions.

PART A – Background Facts
1.    Your new job at Delectables Corp.
You are a recent MBA graduate who just started working in a great employment position with Delectables Corp., a multi-national food company well-known for its sweet snacks and peanut products like peanut brittle, peanut butter, and peanut butter chocolate bars. This position will be an excellent opportunity for you to get hands-on experience in a major company in the food industry.  You will be starting as a low-level manager overseeing Quality Control, among your other responsibilities, in one of the company’s peanut plants located in the state of Georgia (U.S.).  If you do well, you could quickly be promoted.  Delectables Corp. has an excellent and rewarding career ladder.  The company likes to promote from within. In fact, almost all of the company executives started working in one of Delectables’ factories. Most started in the peanut plants, the company’s most important facilities.

2.     The economic pressures on the company
You know that you are incredibly fortunate to get this job.   It is well paid.  Many of your classmates have not been so lucky finding high-paying jobs during the current recession.
However, you are also aware that the company is facing difficulties. Delectables Corp., which commands 35% of the peanut and candy market in the U.S., is facing unprecedented competition from its major competitor Prince’s Fare, which used to command 27% of the U.S. peanut and candy market.  Both companies also do significant business abroad. Prince’s Fare recently moved most of its peanut and candy plants to less-developed countries like Mexico, Brazil, and Paraguay, where labor and raw material costs are well below those in the U.S.  Prince’s Fare has thus been able to slash its prices, while still making a profit.  Delectables, on the other hand, has kept its production in the U.S.  To remain competitive, however, the  company had to choose between keeping its product prices steady, and potentially losing market share to Prince’s Way, or to lower its prices.  Delectables chose to reduce its prices, based on research that showed that customers were becoming increasingly price-sensitive and less brand-loyal as the recession continued.
Earnings from the last two quarters showed a decline in profits. This was reflected in the stock price: while Prince’s Fare’s stock price increased 5%, Delectables’ fell 6%. Analysts are predicting further stock price declines unless Delectables does something quickly.
Delectables has also had a history of food safety problems.  In 2005, two people allegedly contracted salmonella poisoning from Delectables’ Peanut Butter.  However, it was never confirmed that Delectables’ products were the source of the food poisoning.
A few months later, problems emerged in a Georgia plant when a manager “blew the whistle” and reported that he had found salmonella in peanut butter in the plant. Delectables refused to release its laboratory tests. The Food and Drug Administration (FDA) did not pursue the matter, however, and thus there was no confirmation of the salmonella report. The whistle-blowing manager was fired for what he claims was a pretext, namely, that he had lied on his resume about having earned a masters degree that he never actually received.  His lawsuit against Delectables is still pending.
Recently, another salmonella food poisoning allegation emerged concerning Delectables’ peanut butter chocolate bars.  However, the evidence linking the company to this situation is not clear.  Delectables’ food safety experience has so far been better than that of some other food companies, whose salmonella outbreaks have been confirmed and cost them millions of dollars in litigation and a loss of market share.

3.    Your aspirations as you start your job at Delectables
Your job is to improve plant operations, increase efficiency, and reduce costs.  You are very excited about starting your new job. You’ve already met with the marketing and production teams in your Georgia-based plant. They seem enthusiastic about having you onboard. You hope that, in your new role, you will make a positive impression in the company.

4.    What you see and learn when you begin work – Quality Control Director’s status/Established inspection procedures
On your first few days at work, you learn that Delectables hired a Quality Control (QC) Director one month earlier. You are curious about him because you never met him during your many rounds of interviews with the top brass and never heard anyone mention him or his position.  The factory people never uttered a word about the QC Director either. So, after considerable searching, you eventually find the QC Director’s cubicle, which is tucked behind a pile of boxes in an isolated corner of the first floor. Peering from behind piles of folders is a sleepy-looking man who introduces himself as the guy “hired to do quality control.” You introduce yourself (standing – since there are no chairs in the cubicle). You ask about the QC program. He explains that since he started his job, he has been suggesting to senior management that there be more frequent inspections and testing of the company’s products. One suggestion was to sample one jar of peanut butter per production line every ½ hour, as is the practice at the “best”-run plants. His superiors, however, rejected this suggestion as being too expensive and insisted that this plant could only afford to sample one jar per production line every week.
The QC Director explains the sampling identification process that he has established as follows: Factory supervisors label the boxes with Red or Yellow stickers. A Red sticker signifies unacceptable contamination. If an item is tagged with a Red sticker, the entire batch of products that come off that production run must be discarded. A Yellow sticker means that the box could be mildly contaminated but that the test results are not certain.  If one jar has a Yellow sticker, all the products that come off that production run are set aside for further testing. If a box has no sticker, that means that the results did not show any signs of contamination.

5.    Back in the factory – what you observe
Walking around the factory floor, you notice that most workers seem indifferent to the quality control system. Paid by the hour, they don’t seem to care or understand why some boxes of product are tagged with the colored stickers. However, the production line foremen, who are evaluated and rewarded based on maximizing the number of finished boxes of product they can produce each day, look highly annoyed and do not appear to take the inspection procedure seriously.

6.    Implementation of the Yellow and Red  tagging system
You often see the production line foremen looking through Yellow-tagged piles of boxes. They appear to be holding a few of the jars of peanut butter up to the light and then, a few seconds later, removing the Yellow stickers thereby clearing them for market. When you ask one of the production line foremen, Tom, what he is doing, he brusquely replies – “What does it look like I’m doing?  Inspecting.  Nothing wrong with these jars.  I bring them home to eat all the time.  We don’t need this nonsense with these stickers.”
One day you hear Tom tell the trash delivery crew not to remove a large pile of boxes of peanut butter bearing Red tags. Tom explains that the jars need to be “re-inspected” before they can be thrown out. You learn that, later in the day, after hours, Tom returned and removed the Red stickers from the boxes, thus clearing those boxes for sale.

Several other details catch your attention as possible food safety issues. Open crates of raw peanuts are stored right next to open vats of peanut butter. The peanut roaster looks old and rusty. When you ask the foreman in charge of the roaster operation if the roaster is calibrated to maintain a temperature adequate to kill deadly germs, he just looks angry and does not answer.  You also learn that the plant workers put on their uniforms at home, which could potentially bring contaminants into the factory.
Additionally, because of disrepair, the roof of the factory and one of the windows leaks after every rainstorm.  They were initially damaged in a hurricane.  Although Delectables had the initial damage repaired and has workmen clean up after every storm, puddles can sometimes be found when people return to work after a rainy weekend.  Water of course can be a breeding ground for food contaminants, including salmonella.

7.    You are wondering what to do.
You are wondering what to do.  Your job requires that you sign a form every month certifying that the company’s quality control process is running smoothly. The production line foremen obviously resent any interference in their established ways of doing things..  They ignore you and a few of them even temporarily block your way when you are on the factory floor. If they speak to you at all, they keep it short and don’t provide any more information than absolutely needed to answer a question.  You know that you need their cooperation to succeed in your job.  However, the more you probe into food safety, the less cooperative they become.
Most of the factory workers seem to be following their supervisors’ lead.  They generally do not to talk to you. They are paid minimum wage, and almost all of them seem to be from racial or ethnic minority groups. A large number of them do not appear to speak English.  There are rumors that many are undocumented immigrants.
You also fully understand that safety measures can be very expensive and that the company is experiencing financial strains.  You know that, if production costs rise, profitability shrinks, and the value of Delectables’ stock will go down.  On the other hand, if prices are increased to cover the higher production costs, the company will lose market share to its competitor Prince’s Fare. If Delectables has to close factories, thousands of employees will be laid off.   In view of their limited job skills, these laid-off employees may not be able to find other jobs. You are also concerned that higher production costs might push Delectables to move its plants overseas, as many of its competitors have done.
As for your own prospects in the company, you want to do well and be promoted. But you also don’t want to be partly responsible for Salmonella illness.  Further complicating matters is that your boss has told you she wishes to cash in her stock options next quarter, so there is even more reason to avoid near-term stock price declines.

Part A Questions (based on the Part A Background Facts):
A1. What should you do? Would you “blow the whistle” on the inspection protocol violations?
Your answer should  address the following related issues:
• What questions would you ask yourself before deciding how best to proceed?
• What theories of business ethics could you use to justify your decisions? What analytical models would help you make a decision in this case?
• In your discussion of whether you would “blow the whistle,” explain how you would think through your decision including consideration of whether there are risks in “blowing the whistle,” what they are, what are the benefits of “blowing the whistle,” and how to weigh the respective risks and benefits.  What factors would you consider? Would you sign the quality control form?

A2. Upper management asks for your specific advice on how to improve the food safety and quality control situation at Delectables.  What would you advise?
Your answer to this question should address the following issues:
•    What do you think is the root of the food safety and quality control problem at Delectables?
•    Can the Quality Control Director be effective in the current company culture? Why or why not?
•    Are there problems that need to be addressed by upper management?  What are the issues related to the attitudes of the workers and foremen on the factory floor? What pressures and challenges will you face in trying to improve quality control at Delectables?

PART B – Background Facts
You learn that the U.S. Food and Drug Administration (FDA) and the corresponding State of Georgia agency, which are responsible for monitoring food safety, are understaffed and overworked. State and federal inspectors do not require the peanut industry to inform the public — or even the government — of salmonella contamination in its plants (i.e., disclosure is not mandated).
You also learn that Georgia, like 42 other states, has arrangements with the FDA for Georgia health and safety personnel to monitor food factories in Georgia.  However, Georgia state inspectors are vastly under-funded. The state has only 60 inspectors to monitor its 16,000 food businesses. The state has capped the number of miles inspectors can drive on taxpayer money because of funding shortages.  These caps severely limit the thoroughness of the state monitoring process. Moreover, the state  has a revenue deficit. Businesses in the state are closing. Other, more serious, outbreaks of food-borne illnesses have taken a toll on the state’s ability to monitor Delectables’ peanut factories. Georgia  officials, meanwhile, are loathe to lean too heavily on businesses (at least until they become embroiled in a public scandal) lest they force them into bankruptcy. Government officials consider Delectables to be a major employer in Georgia, providing jobs to thousands of workers, and keeping the towns where the plants are located economically afloat. The company has been praised repeatedly by mayors and by the Governor for keeping jobs in Georgia — rather than farming them out abroad – as other food companies have done.

Part B Questions (based on the Parts A and B Background Facts):
B1. What role, if any, should government play in assuring food safety in the food industry in general? What role should the state of Georgia, in particular, play in assuring food safety at Delectables?
Your answer to this question should address the following issues:
• What challenges does government face in dealing with food safety issues at companies like Delectables?
• How might the state of Georgia better address its own challenges in dealing with the situation at Delectables?
• In general, what steps can government take to encourage and support companies to act more socially responsibly?
• Alternatively, should the state let food companies regulate themselves?  How might industry self-regulation be compatible with protecting the public interest in food safety?

PART C – Background Facts
One day you see Tom, the production line foreman mentioned in Part A(6), speaking to your immediate supervisor in a corner of the factory floor.  As you come closer, your supervisor waves to you to join them.  She tells you that she does not want the boxes of products with Red stickers (i.e., those tagged as having unacceptable contamination levels) thrown out.  She gives you the contact information of the head of a supermarket located in San Lopez (a small, less developed foreign country).  She tells you to sell the merchandise to the San Lopez supermarket at reduced prices.  She explains that Delectables needs to convert every product it makes into cash. There is no food safety inspection system in San Lopez. It is also highly unlikely that Delectables would be linked to any illness because gastric illnesses are so common there. Your supervisor notes your look of concern and hesitation and so she further explains that the prevalence of gastric illness in San Lopez makes it much more likely that the population of San Lopez will have developed higher levels of natural immunity to parasites and bacteria like salmonella than Americans, who are not regularly exposed to such contaminants. Many people in San Lopez regularly eat what Americans might regard as “contaminated” foods, and usually without any serious ill effects. Delectables’ products, even if contaminated, might be considered superior in quality to many of the food products currently available in San Lopez. Moreover, studies suggest that a significant portion of the population in San Lopez is generally deficient in protein, and Delectables’ peanut butter is high in protein, thus helping to meet the country’s nutritional needs.

Part C Questions (based on the Parts A, B and C Background Facts):
C1. What legal and ethical issues are raised by your supervisor’s proposal to ship Red-tagged cases of peanut butter to San Lopez?
Your answer should include consideration of your supervisor’s arguments tested against the international business ethics theories and models presented in this course.

C2. How would your analysis differ from C1 if the proposal related instead to Yellow sticker products? Explain any differences in your responses.

PART D – Background Facts
When executives in charge of San Lopez’s supermarket chain learned of Delectables’ offer, they demanded a payment of $250,000 before agreeing to purchase the questionable peanut butter for their supermarkets.  The explanation was that their supermarket shelves are already full and that there are costs related to making room for Delectables’ products. Furthermore, if Delectables wants to place its product on the “eye level” shelves, that would cost an additional $25,000.
Delectables has also learned that the head of San Lopez security, a highly placed government official, requires a $100,000 payment to assure “safe passage” of Delectables’ goods to their intended destinations in San Lopez.  If payment is not made, the goods may be “lost,” perhaps to thieves, calamity, or some other “tragedy”.  Delectables further learns that San Lopez Customs officers regularly receive payments of $500 each to “facilitate” entry of goods into the country.

Part D Questions (based on Parts A, B, C and D Background Facts):
D1. Advise Delectables on what it should do in response to the situations in the Part D Background Facts.
You should refer to what you have learned about law and business ethics in this course. Do any of these situations raise issues of actions that might be considered legal but unethical?  Under what conditions is it possible for a business decision/action to be legal but still possibly not be ethical?

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