Setting and maintaining ethical standards is paramount in any business. It is as significant, if not more, in the Food and Beverage (F&B) industry. The products are consumed by people and any shortcuts to success are potentially harmful for the consumers.
Kellogg’s is a renowned multinational brand of the Kellogg Company. Kellogg has been recognized as one of the best companies in the F&B sector by dint of their adherence to food safety laws. The company’s reputation around the world has relied on the quality and safety assurance given by the company to its customers . Moreover, the company assures its customers that its food safety rules comply with the government’s standards of food safety and Kellogg takes a proactive interest in food quality and assurance. But it has not been an easy journey; the company has suffered food safety related setbacks in the current decade which brought to question its ethical practices. This paper shall discuss the 2012 product recall and the impact it had on the company and the industry.
On October 8th, 2012, the company released a statement through the FDA (see Appendix 1) that it was recalling several million boxes of Mini Wheats, a popular breakfast cereal manufactured by Kellogg. . The recall had been initiated because tiny fragments of metal got mixed up in several batches of Mini Wheats. The cereal was called Bite Size, and several affected batches both the Frosted and Unfrosted versions of this cereal had been released into the market nationwide. The company voluntarily pulled out 2.8 million boxes from retailer shelves across the country. The company had determined that pieces of flexible metal mesh from a faulty manufacturing part may have found their way into the boxes. . It notified the FDA and initiated the recall.
The company had already experienced a supply chain issue in 2010, when consumers complained of bad odor from the packaging. The root cause was traced to poor quality plastic lining in the packages; the lining was supplied by a plastics company. In the 2012 recall, the company was quick to notify the media that their earlier investments into addressing their supply chain issues had minimized the impact of the current problem. No injuries were reported from any consumers and the FDA determined that chances of future injuries were extremely low. The case was significant because it showed that for a company like Kellogg which was dependent on primary suppliers like suppliers of food grains, suppliers of equipment and machinery to run its business, the supply chain was a critical framework . Company-wide policies on safety and health would not be enough to ensure the required standard; policies had to be drawn up in such a way that the entire supply chain was up to standard. The case had a lasting impact at the company level, the industry level and it had impact on the market as well.
Impact
The immediate impact on the company was that it cost the company up to $30 million in write-off inventory, recall costs as selling, general, & administrative or SGA expenses, and losses in share value. . (See Appendix 2). The long term impact was even more significant. The case had brought to question the ethical standard of the company and its commitment to food safety. If the company had been aware of a faulty part why had it allowed the manufacturing process to go on? Why had there been no ethical standard to control this type of incident? . But far from breaking the company, the incident acted like a catalyst. Apart from the product recall, the company refocused on its food safety operational priority along with the other goals the company had set for itself (Kellogg Company). The company’s food safety plans in America in 2012 were associated with the Food Safety Modernization Act or FMSA. According to the Act, food safety focus would be shifted from responding to contamination to prevention of contamination .
For meeting the requirements of the FMSA, a cross-functional team was set up by Kellogg, which had over 30 leaders who were associated with food safety, quality, operations and legal issues; together they came up with the Kellogg Food Safety Plan. This plan incorporates all of the various food safety programs of the company under one shade.
It also introduced allergen control in its plants through training and policies and procedures. Kellogg also invested money into upgrading the infrastructure of its manufacturing units. Apart from this Kellogg expanded its auditing program for suppliers of ingredients to ensure that they were adhering to Kellogg standards. The company also started auditing packaging suppliers from 2012 completing 134 packaging supplier audits worldwide that same year. . The company carried out highly advanced sanitation programs at all the plants worldwide wherever Kellogg’s operated. The efforts were improved by carrying out workshops and training programs for employees and the sanitation personnel hired by the company. The plan was to combine and advance the programs that were currently in progress so that the company would be ahead of other food organizations and be in compliance with the FMSA requirements. It is believed that the standards followed in the present day are high above Kellogg original ideas.
The case also had a profound impact on the food industry as well. The company hosted a meeting of over 85 representatives of 50 of Kellogg’s supplier companies at the annual Food Safety Summit. This summit carried out in 2012 was focused on discussing on how the FMSA requirements were going to be met by the suppliers. . By auditing suppliers of ingredients and packaging material, Kellogg’s continues to ensure that all its products worldwide adhere to the same standards. In addition, by investing $100 million to improve its supply chain Kellogg’s created a ripple effect of propagating food safety measures across various sectors.
The government took notice of the positive impact that Kellogg began to bring to other businesses as well. By revamping their safety standards, Kellogg had shown that they cared about the end customer and it has been a positive example for other companies.
The effect of this case on the market was huge enough to put the company on the list of most ethical companies in the world. The commitment to food safety has ensured that the brand has remained strong in the market. Since the incident, Kellogg’s has added more products to its brand. There are currently over 1600 products that are present in the market, and Kellogg’s is advertised prominently in the media . In 2013 itself the company recorded sales of over $14 billion. In 2015, the company reported sales of $13 billion and in 2016, its share value has been consistently over $70 . Since 2013, Wal-Mart has been the single largest consumer of the Kellogg’s brand accounting for 20% of the net sales.
Conclusion
The ethical standard of any company must be set with a view to its consumer and must encompass not just the company, but its supply chain as well. Kellogg, a multibillion dollar food empire, had issues relating to food safety in the near past which brought to question its ethical commitment. In order to overcome the impact, the company then began to adopt the food safety regulations as per the FMSA. It targeted the contamination problem, the presence of food allergens, infrastructural issues, began auditing all policies implemented, began auditing its suppliers, started training of the food safety and regulation staff. It adopted the highest ethical standards not just in its own operations but brought the same culture into its vast network of vendors and suppliers, thereby impacting the entire industry. The company has made tremendous progress in sales. This case study proves that ethical business practices are the only practice by which companies can continue to dominate markets in their sectors.
Works Cited
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Kellogg Investor Relations. 2015 Annual Report. 2 January 2016. 13 April 2016 <http://investor.kelloggs.com/~/media/Files/K/Kellogg-IR/Annual%20Reports/kellogg-2015-AR-10-K-v3.pdf>.
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The Times. "Supply chain from manufactuirng to shelf." 20 October 2009. International Center for Entrepreneurial Studies. 20 April 2016 <http://www.ices-study.org/WhatIsEnterpreneurship/CaseStudies/(case%20study)%20kelloggs.pdf>.
Velasco, Schuyler. Kellogg Company recalls Mini-Wheats. Metal fragments in cereal. 11 October 2012. 20 April 2016 <http://www.csmonitor.com/Business/2012/1011/Kellogg-Company-recalls-Mini-Wheats.-Metal-fragments-in-cereal>.
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Appendix 1
Kellogg product recall 2012 – Statement released via the FDA
Appendix 2
Financial losses following 2012 product recall
