Risk Management Application Research
The Coca-Cola Company
Introduction
For more than 125 years Coca-Cola had relentlessly stood the test of time and still managed to keep its legacy of being one of the most recognized brand and a mammoth beverage mogul in the world. Through the years of its existence, the company is constantly bombarded with several environmental issues concerning excessive water use. In India for example Coca-Cola opened its largest bottling plant in the country in Southern state of Kerala. The company is accused by the people in the area of draining the water supply that supposed to feed the community wells and farmlands. There is also an allegation that the bottling plant is channeling their waste water to the land that poisons the crops, despite the company's claims that it waste water is supposedly a fertilizer (Brown, 2003).
Because of the controversies regarding matters of environmental degradation particularly on the issue of water usage and waste water management. Coca-Cola reviewed their initiatives in the subject and established action plans that will address the problems. Recently, the company has partnered with World Wildlife Fund or WWF to promote water conservation and employed environmental and technological strategies. Water is a major issue for the company considering that water makes up 90% of their beverage product components. The initiative of the WWF and Coca-Cola partnership is to maintain and promote sustainable water supply in the world's key locations. In a normal bottling operations, the ratio of water consumption versus the product output of Coca-Cola is at 35 liters for every half a liter of Coke. While a premuim orange juice product takes about 518 liters of water to make a liter according to their water usage assessment (Siegel, 2010). Because of the high output on water usage and public criticism on water conservation practices, the company employed a technology called "Hot Fill Technology".
Discussion
Hot filling technology is a simple process, hot water is pumped into the beverage containers to eliminate bacteria, which will prolong shelf life of the beverage products. This is a more effective way of sterilizing the containers instead of running them through a series of washing. The Niles plant in Illinois has been using the technology since its introduction in 2004 and continuously developing the process to further enhance its advantage potential. The way hot filling works is that the water pumped into the Niles facility is normally at 39 degrees Fahrenheit. Hot filling on the other hand requires that the water temperature should be at least 200 degrees. In order to reach that temperature, the facility have to have boilers. However, the amount of energy needed to heat large amount of water is staggering. Because of energy consumption issues, the hot filling technology simplified the process by preheating the water as it passes through the pipes. The energy used to pre-heat the water is channelled from the boiler's itself and once the water reach the boilers it is already heated up from 39 to 106 degrees, which is immensely reducing the amount of energy needed in the process (Ilarraza-Boyed, 2012).
Because of the technology used by Coca-Cola in their bottling plants, water consumption has been reduced by an impressive 16% as of 2005 and targeting 20% improvement by 2012 (Ilarraza-Boyed, 2012). The water ratio has improved since the introduction of the hot filling technology in their facilities. In Europe, the approach enabled the company's bottling operations to save water of about eight million cubic meters from 2004 to 2008 (Coca-Cola, 2010, p. 11). Installations of more effective water treatment facilities also improved the company's waste water management. This allowed Coca-Cola facilities to bring the water back to the environment in a standard clean condition that's enough to support aquatic life (Coca-Cola, 2010, p. 11). The company has implemented this strategy to 96% of its facilities worldwide and targeting to achieve 100% by 2012.
The initiative to save water has been supported by WWF because of the baseline strategies presented by Coca-Cola to WWF outlining their conservation plans. Among the goal of the plan is to offset the water being used in their bottling operations, which is being implemented with the aid of hot filling technology. The plan also includes replenishment programs that will promote conservation through watershed development projects, sustainable agriculture support and USD$29 Million support fund to be awarded to WWF for the said initiative and river basin conservation (Landsberg, 2007). The Wolrd Water Week assembly held at Stockholm on September 5 to 11 2010 marked the official partnership between Coca-Cola and WWF for the said project (Thecoca-colacompany.com, N.D.). The initiative of the company to participate in water conservation efforts through employment of technology such as hot filling entailed positive results to the business and to the community. Generally, the result of using hot filling technology in their bottling facilities paved way for the realization of the company's water conservation plan. The social benefits of using the technology is generally to reduce excessive water use.
Since the primary problem facing the Kerala facility in India is scarcity in supply. The fact that the bottling plant needed as much water they can get to sustain operations, it affected the agricultural community in terms of supply. With the use of hot filling technology, it will enable more water supply available for the community. Hot filling no longer needs repeated washing cycles with the containers because the job of cleaning will be replaced by the temperated water instead. The process entails, millions of gallons of water still available for agricultural and domestic utility use within the communities around the facility. Social disputes will be less likely to occur because the community's concern is mostly the supply and quality of water available for them to use. Waste water management is also a social issue that has been addressed by Coca-Cola with their water conservation program plan, which is also socially beneficial in return.
However, despite the benefits entailed by the use of hot filling technology in Coca-Cola bottling operations, there is still a risk that has to be considered that may threaten the company. The use of such technology greatly reduces the amount of water needed during bottling, but there is side-effect in the process. The high water temperature passing through the bottle containers does not escape right away even after the hot water has been drained from it. The hot temperature heats up the plastic bottles used for the juices, soft drinks and sports drink that the company produce. As far as the bottling operation goes, after the bottle undergone a hot filling process it will proceed to the content filling line. In this process, the actual product is being poured into the containers followed by capping and labelling. The problem is, the liquid product is being poured into the containers while it is still warm from the hot filling line. The speed of the bottling process cuts the time for the containers to cool down until cold enough for the liquid product to be poured in.
As a result, the hot filling technology appears to have a significant effect to the quality of the product because warm temperature affects the overall product taste (PET Planet, 2008). Another problem is that the use of hot fill technology requires heavier and thicker pet bottles. This is because the hot water injected inside the containers at a high pressure will soften the plastic container and eventually distorts its shape upon cooling down. Therefore, in order to maintain the shape of the container after a high pressured hot water bath, heavier and thicker plastic containers has to be used for the beverage products. This requirement entails higher packaging cost that is why skeptics doubt the effectiveness of hot filling technolgoy in terms of cost savings. This is about the question whether the amount of savings derived from water conservation will compensate the additional cost of heavier plastic packaging. Furthermore, questions about up to what extent of effect does the hot filling technology has on the product taste is also a main concern.
Knowing the reputation of the company is terms of producing quality and great tasting beverage products. They cannot afford to lose consumer confidence because their product quality has been compromised by their noble water conservation initiatives. The main risk of concern in this case is increased cost on packaging and deteriorated product quality. It was mentioned earlier that hot filling technology enabled the company to realize their water conservation efforts in relation to environmental obligation. However, the risk of using the technology is aiming towards cost and product reduced product quality. From a business management point of view, these kinds of risk are a perfect ingredient for business disintegration. On the other hand, Coca-Cola is too big to be easily toppled by a couple of business risks. The company had already seen it all, they have been there and back again, they had gone from bad to worst, but still managed to keep their name on top of the market. However, the described risks are far too much to be ignored, even if Coca-Cola was able to pull-off a great feat of saving water using the hot filling technology. They will still be facing issues coming from avid consumers that might notice the thermal effect of the technology to their product quality.
The hot filling technology has two types of failure, one is mechanical and another is technical. Mechanical in terms of equipment and machines used in the hot filling technology that might break down during operations. However, it is a kind of risk that can be rectified using mechanical knowledge to put the broken machines back to work. The effects of mechanical breakdown is temporary and may disrupt the business for just a few hours or days depending on the extent of damage. However, the technical side of the problem that the hot filling technology's failure could bring to the company is rather focused more on the financial side of the business. This is a long-term issue that could take months or years for the effects to be fixed. The fact that the risk of using hot filling technology involves the product taste, the consumers would not be pleased to find out that their favorite Minute Maid juice drink is no longer as pleasant as it was. Therefore, consumers will no longer include that orange juice in their weekly grocery list and that leads to plunging product sales. Now, in terms of cost since hot filling technology requires heavier containers, it could either lead to price increase (which has the same consumer effect as the product taste difference) or more frustrating financial bottom-line.
Apparently, every risk can be mitigated. It is only a matter of finding the alternatives that promises to solve issue while keeping the same business and environmental objectives. Because of the tremendous effect that hot filling technology towards product quality and cost, Coca-Cola sought for an alternative that will address both the risk and environmental concerns on water conservation. The most attainable solution that Coca-Cola has regarding the risk is to switch to Aseptic processing. This process has less thermal impact than the hot filling method. This means the product would come out as natural and the risk of the flavor being compromised is much lower. There is a huge difference between the two process, in hot filling, quick paseturisation is the key step which involves heating the containers and cooling them as they go down the production line. Aseptic processing on the other hand involves product bottling process at a more ambient environment. The containers that undergoes the process does not require high temperature application such as tunnel pasteurisation. Basically, the aseptic process has two types, the wet and dry filling technology that ensures less probability of the product flavor to be affected in terms of taste. The wet bottle aseptic technology uses Peracetic Acid during sterilization while the dry process uses Hydrogen peroxide (Rao, 2012, p.46). The use of aseptic technology is something that the company sees as a potential alternative to hot filling technology. Aseptic process provides the same advantage both in terms of water conservation cost of production. Instead of using heavier containers, the company can use less expensive ones without sacrificing product integrity and packaging aesthetics. The only set back in aseptic technology is that it requires minimum production capacity in order to become cost effective.
It would be costly for a small volume production to use aseptic method. However, volume is not a problem with Coca-Cola because their production output is among the biggest in any products in the world. This means, cost-effectiveness is more impressive if the volume of production that uses the aseptic method is generally larger. However, it can vary from product to product because of the bottling facility's capacity. The reason that volume capacity is an issue with aseptic technology is because the processing method works in two ways, first is processing and the other one is packaging. The key principle in aseptic technology is to design units to have low energy consumption, lower product hold-up and optimum production capacity. The end results that aseptic technology aims to provide is the product to retain their natural flavors, use of economical and cost-effective packaging materials and most specially, water conservation (Rao, 2012, p.48).
Conclusion
The Coca-Cola Company has adapted change in their production strategies in order to address two issues that impact the business and the social communities as a whole. The company is constantly challenged by environmental issues that threatens their smooth business operations. The main concern with regard to environment is the company's excessive use of water for their bottling operation and poor waste water management. This issue evidently raised attention towards Coca-Cola's reputation as an environment-friendly company. However, Coca-Cola lived up to the challenge and addressed the controversies with a wide implementation of water conservation program strategies. Their participation and partnership with WWF is a statement of their dedication to give back to the world in terms of committing to the cause for water conservation and water source protection. Having said that, the company changed their business approach by using environment-friendly technologies such as hot filling method. The approach posed several risks, but it was mitigated by adapting the aseptic bottling technology.
References
Brown, P. (2003, July 25). Coca-Cola in India accused of leaving farms parched and land poisoned. The Guardian. Retrieved July 10, 2012, from http://www.guardian.co.uk/environment/2003/jul/25/water.india
Coca Cola Europe (2010). Water Stewardship. Environment Review, 11.
Ilarraza-Boyed, J. (2012, April 27). Coca-Cola saving water, energy through corporate sustainability strategies. Chicago Land H2O. Retrieved July 10, 2012, from http://chicagolandh2o.wordpress.com/2012/04/27/coca-cola-saving-water-energy-through-corporate-sustainability-strategies/
Landsberg, M. (2007, June 6). Coca-Cola dives into effort to save water. Los Angeles Times. Retrieved July 10, 2012, from http://articles.latimes.com/2007/jun/06/business/fi-water6
Procomac.it (2008, March). Aseptic bottling at Coca-Cola Spain. GEA Procomac S.p.A. . Retrieved July 10, 2012, from http://www.procomac.it/procomac/cmsdoc.nsf/webdoc/webb7kgbt3http://
Rao, R. (2012). A paradigm Shift in Beverage Technology. Insight & Outlook: Aseptic Technology, 46-48.
Siegel, R. P. (2010, September 17). How Much Water Did It Take to Make That Pint of Beer?. Triple Pundit. Retrieved July 10, 2012, from http://www.triplepundit.com/2010/09/how-much-water-did-it-take-to-make-that-pint-of-beer/
Thecoca-colacompany.com (n.d.). Converging on Water: An innovative Conservation Partnership. The Coca Cola Company. Retrieved July 10, 2012, from http://www.thecoca-colacompany.com/citizenship/conservation_partnership.html
