Abstract
Nestle operates in the in the foods and beverages sector. It is one of the largest producers and distributors of consumer goods in the world. Within the last one decade, the image of the company has suffered from a series of scandals. The scandals include allegations made in 2005 that the organization was selling contaminated baby milk. Most recently, it was claimed that the firm’s beef products contained horse meat. All these shortcomings can be attributed to poor quality management and an ineffective supply chain. They can also be linked to the need for organizational change in the company. The current case study reviews how Nestle handled these scandals to win back the confidence and trust of its customers. In addition, the study proposes some theories, models, and techniques that can further enhance the company’s processes and reputation.
Introduction: The Challenge
A number of companies have been hit by various quality control issues at one time or the other in their operations. The issues are related to the products they offer to their customers. However, the nature of the decisive measures taken by the management to deal with the situation determines the success or failure of the company in subsequent ventures. Nestle is such a company that suffered major quality flaws in its production.
The first quality control issue occurred in 2005. It forced the company to recall more than two million liters of baby milk that had been distributed to various European economies. According to Elamin (2005), packaging problems were detected and chemicals used in printing were feared to have contaminated the milk. On November of the same year, Nestle was informed that traces of Isopropil ThioXantone chemical had been detected in one of its products.
On February, 2013, another flaw in relation to the company’s products raised major concerns among the consumers. The British Food Standards Agency discovered traces of horsemeat contamination in two of the company’s refrigerated products. The meat was found in Beef Tortellini and Buitoni Beef Raviolli products (Nestle, 2014). The two brands were distributed by a German firm, H.J. Schypke. Schypke was also associated with Nestlé’s subcontracted supplier, JBS Toledo N.V, which was blamed for the fault (Nestle, 2014).
A critical analysis of Nestlé’s situation reveals that the problems detected in the products are rooted in quality control, especially in relation to the company’s supply chain. In most cases, a number of techniques are used by the managers to address such issues. However, total quality management and balanced scorecard are more suited to the organization.
The Customers
The first quality issue with regards to the contaminated milk created fear among the consumers. Many parents, especially mothers, feared that their children had been exposed to the dangers associated with the ingestion of chemicals used in printing the labels used by the company (Elamin, 2005). In response, Francois Xavier, Nestlé’s spokesperson, argued that the problem was a packaging issue. He insisted that it had nothing to do with the quality of the product (Elamin, 2005). Later, Xavier added that drinking the milk posed no danger to the health of consumers. On his part, Peter Braebuck, Nestlé’s Chairman and Chief Executive Officer, regarded the problem as a ‘storm in a teacup’ (Elamin, 2005, par. 4).
The recent problem of horse meat contamination has taken a different dimension. According to Castle (2012), the management was of the opinion that the situation did not pose any food safety problem. On the contrary, they were convinced that it was a standards failure brought about by mislabeling. It is a fact that some people consume horse meat. However, the problem with Nestlé’s products is that the customers were not informed of what they were consuming. Some consumers attributed the issue to mislabeling. However, others regarded it as outright fraud.
According to King (2013), as a result of the horse meat scandal, many consumers became wary of Nestlé’s products. They started questioning the source of the company’s food products. King (2013) blames the problem on the company’s food supply chain. They system has several shortcomings, even though it is one of the most safety conscious and sophisticated chain in the world. Such quality flaws are an indication of the company’s major shortcomings and weaknesses. Recalling products may make customers lose faith in the brand. The outcome can lead to the collapse of the brand.
The Discovery
According to Castle (2012), the adulteration of Nestle’s products with horse meat was revealed following food tests by the British Food Standards Agency. The agency stipulates that beef products should not contain more than 1% of horse’s DNA. A total of 2,501 tests were carried out in the British food industry. The analysis found that 29 products were below the expected standards. Two of them were from Nestle (Castle, 2012).
Actions Taken by Nestle to Address the Challenging Issues
The company’s management team could not afford to sit and watch as the scandals ruined the brand. However, in spite of these concerted efforts, more needs to be done to mend the already hurt reputation of the company. According to Haigh and Brubaker (2010), a strategy to restore the image of a company influences the perceptions that stakeholders have towards its corporate responsibility initiatives. The restoration strategy also affects the credibility of the entity, as well as the efficacy of its public relations programs.
The first response in addressing the problem of contaminated products involved recalling two million liters of infant and baby milk from four major European markets (Elamin, 2005). The management was alive to the fact that the step would cost the company a lot of money. However, they were more concerned with regaining the confidence of the consumers. According to Xavier, the company wanted to show the consumers that it was taking the issue seriously (Elamin, 2005). Campaigns to reverse the problem were initiated. Nestle informed members of the public that the recall was purely on a precautionary basis. It was not an admission of any health dangers posed by the product (Elamin, 2005).
In relation to the horse meat scandal, Nestle responded in a similar fashion. According to Nestle (2014), all finished products containing meat supplied by Schypke were suspended. In addition, the company voluntarily withdrew from the market one frozen product used by consumers in the catering industry. It also did away with two other chilled products containing supplies from the same firm.
Further Solutions
In spite of the efforts made by Nestlé’s management to address the flaws in the company’s products, it is apparent that more should have been done. The company addressed the concerns raised by the consumers by withdrawing the contaminated milk from the market. However, the scandal indicated the need for changes in the company.
Haigh and Brubaker (2010) argue that there are four methods or strategies that can be used to deal with crises, such as those witnessed in Nestle. They include denial, forced compliance, voluntary compliance, and support efforts (Haigh & Brubaker, 2010). Each of these approaches has varying impacts on the firm’s corporate image. The company’s public image and social responsibility programs are also affected depending on how the crisis is dealt with.
Nestle chose to apply voluntary compliance by recalling the controversial products from the market. The company seems to be affected by these quality flaws on a regular basis. As such, acknowledging responsibility through voluntary compliance and support efforts will be more effective compared to other approaches (Barber, 2008). Support efforts strategy entails taking corrective action, offering compensation, and using communication campaigns to promote the company’s operations (Barber, 2008).
An analysis of the situation at Nestle reveals that the core issues affecting the company result from poor quality control and an inefficient supply chain. However, the faults have never been directly acknowledged or linked with the company. According to McPhee and Wheeler (2006), the supply chain involves sequences and processes that are involved in the production and distribution of commodities. Nestle can effectively win back the trust of the consumers by initiating efficient supply chain management programs.
The added value chain model focuses on organizational development. The approach involves expanded business activities derived from a broad range of operational models. It involves a revised definition of the concept of value (Saka, 2003). The revised conceptualization of value brings on board reputation, brand, and relationship-based drivers of the company’s performance.
Nestle made efforts to address shortcomings in its supply chain by developing a responsible sourcing strategy. For instance, the management called for more food tests. To this end, the company sought to eliminate inappropriate and non-compliant stakeholders from its supply chain. It is noted that combining the supply chain with the added-value model will be more beneficial to the company in the future compared to the use of a single approach. For example, the added value model makes it possible to combine the traditional business activities with modern strategic theories to improve the performance of the company (Omar, Davis, Fugate & Mentzer, 2012).
The added value chain strategy enhances performance by bringing together intangible elements of production, such as reputation, brand, and innovation. In addition, the model adopts a firm-centric view of the company, regarding it as part of the community. In essence, the value added chain model creates more categories of activities. The categories may not fall under the jurisdiction of specific departments. On the contrary, they involve cross-functional teams of employees.
Nestle can enhance its supply chain by adopting the value added approach. The model will also ensure that customers derive value from the products supplied by the company. The expanded sets of activities will ensure that all strategic tasks are performed. In addition, the strategy will help to make sure that opportunities for enhancing value are not over-looked.
According to Bamford and Greatbanks (2005), total quality management entails the continuous process of reducing or eliminating errors in production. It also involves streamlining the supply chain through effective management. The concept improves the experience of consumers by updating employees’ capabilities. A review of the two scandals mentioned in this paper reveals that Nestle failed in total quality management. The approach would have helped the company to hold all parties involved in the production process responsible for the quality of the final product. Inefficiencies in the processes allowed flawed products to proceed to the consumer level without detection.
Bharadwaj (2006) identifies three definitions of quality in relation to production. They include user-based, product-based, and manufacturing-based conceptualizations. Nestle failed in all these aspects of quality assurance. For example, the users felt that the products were unsuitable for consumption. The desired attributes of the products were not realized, leading to massive recalls and subsequent wastage in processing.
Total quality management techniques can also help in overcoming quality shortcomings with regards to product attributes, user suitability, and production processes (Bamford & Greatbanks, 2005). The measures taken by Nestle to ensure quality inspections at every stage of the production and supply chains were a major step in the right direction.
Results
Recall of faulty products and public reassurance seems to have benefited Nestle. The company is still one of the leading organizations in the food and beverages industry (Nestle, 2014). The scandals affected the European market only. The firm recorded a positive growth in 2013 in spite of the horse meat issue. According to Nestle (2014), the company recorded sales (CHF) of 26.1 billion in Europe alone. Within the same period, the firm posted +0.8% in organic growth. It also reported +1.9% in real internal expansion. The figures indicate that the consumers did not desert the company.
Conclusion
Nestle suffered a lot in terms of revenues and customer satisfaction as a result of the scandals revolving around its products. The various initiatives taken by the company to address the issue were an indication of organizational change. If this was not the case, the affected Nestle brands would not be positioned in the market as they are today. However, the management should realize that a lot needs to be done to reclaim the reputation of the company in the foods and beverage industry. If such flaws persist, the entire Nestle brand may be compromised.
References
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