Strategies For Sustainability And Economic Growth At Fonterra Group Co-operative: An Essay.

Adopting Lean Management for Improved Sustainability

Question:

Discuss about the Evaluation of the sustainability of contrasted.

The vision of Fonterra Group Co-operative Group Limited is to provide its customers all round the globe with high quality dairy products. The environmental analysis of the cooperative organisation shows that it faces sustainability challenges.  The firm has introduced sustainable methods of waste management but is still under the pressure to reduce its carbon output in the environment (fonterra.com, 2017).

Fonterra can adopt lean management as the chosen approach to gain higher degree of sustainability. The firm can use lean management and streamline the decision making process to take quick decisions on business operations. The cooperative can empower the middle level managers to take decisions to take advantage of market opportunities which would enable the firm more profit. Thus, application of lean management would make the firm financially more sustainable.

The adoption of lean management at Fonterra would enable the cooperative to gain sustainability in several forms which justifies the adoption of the approach at the cooperative. The apex management of Fonterra should adopt lean management which means, they would require empowering and training the middle level managers to take business decisions. The middle and lower level managers are more in direct contact with customers and are in better position to understand profit opportunities. Hence, adopting lean management would enable these mangers to take quick decisions to take advantage of market opportunities which would enable the firm to earn more profit. This would enable the firm to gain financial sustainability and become more profitable. Secondly, these mangers would be able to take prompt decisions to deal with recycling of waste and low grade materials to direct them towards further production. Thus, this would enable the firm to manage wastes more efficiently and gain sustainability. Moreover, recycling wastes to produce energy would enable the firm to reduce its energy expenditure and become energy efficient. Thus, it can be justified that adoption of lean management as the chosen approach would enable the firm to become more sustainable and energy efficient.

The following are the high level recommendations can one can make to the organisation regarding optimising its operations to tackle this pressure of sustainability and achieving its vision with:

Fonterra must integrate farmers in not only producing milk but also ensuring sustainability. The previous discussion shows that the cooperative suffers from environmental issues like emission of greenhouse gases and unsustainable waste management practices. The firm must train the farmers to manage the cows in more scientific ways which will minimise the emission of the greenhouse gases (Clark et al., 2016). The cooperative can aim to set up greenhouse gas plants which would utilise the gases released from managing the cows. The cooperative can utilise this energy from its own greenhouse plants to meet a portion of its energy requirements. Moreover, the cooperative should allocate funds to set up windmills which would again generate energy for its use (Vanlauwe et al., 2015). Fonterra as a result can use this strategy in the long run to produce its own energy and reduce its operation expenditures, thus becoming economically sustainable.

Integrating Farmers to Ensure Sustainability

The cooperative should aim in the long run to expand its global presence. An analysis of the global markets of some of the top competitors of Fonterra like Nestle points out that these companies have presence in more than a hundred countries. Fonterra in comparison to competitors like Nestle is present in Oceania, a small part of Asia and some parts of South America (nestle.com.au, 2017). The company has weak or no presence in the profitable markets of Europe and North America. The management of Fonterra should consider of more expansive global expansion in the long run (fonterra.com, 2017). This will enable the cooperative to diversify its risks and losses over a huge market that will earn it financial sustainability.

The next strategy which the apex management of Fonterra can take to gain sustainability and optimise its operations is expanding its product cycle. The cooperative, according to the first strategy should gain environmental sustainability, should install greenhouse gas treatment plants and windmills to curb use of non-renewable sources of energy (Sattari, et al., 2014). This installation of windmill would require immense investment which requires the cooperative to expand its revenue base. Fonterra should expand its product line into other food products like noodles and chocolate bars. This will allow the cooperative to earn higher revenue and support its long term vision to gain sustainability by selling its new products to a huge base of customers. Moreover, the third recommended strategy of expanding into new markets would allow Fonterra to sell its existing and new products in new customer bases and generate more revenue (Styles et al., 2015).

The apex management of Fonterra should emphasis on aligning manufacturing of products with the expectations of the customers to achieve total quality management. The production manager should use the information about customer preferences to form product strategies. This would ensure that the raw materials like milk and cream are utilised efficiently. This in turn would minimise wastage of resources and save the company from spending exorbitant amount of money to manage wastes (Bourlakis et al., 2014). Thus, the cooperative using this strategy of aligning production with customer requirement would be able to achieve TQM which ensure that customer get high quality products according to their expectations. An analysis of the outcome of this strategies shows that the cooperative would be able to again both environmental and economical sustainability by adopting this strategy.

The aims of these recommendations are to gain operational efficiency to become more sustainable and solve environmental issues within the next ten years. The first strategy around involving the local farmers towards gaining energy efficiency and reduce energy costs. The second strategy is entering new markets to generate more revenue to support the energy efficiency strategy. The third strategy is expansion of product cycle to serve more customers and generate more revenue to support this operational efficiency objective. The fourth strategy is to achieve TQM by aligning production with customer expectations (Wilhelm et al., 2016). An analysis of these four strategies clearly show that gaining of environmental and operational sustainability has to aligned with gaining of business expansion and economic sustainability. The apex management of Fonterra should adopt the policies of TQM and Kaizen to achieve these two aspects of sustainability. This will enhance operational efficiency because continuous inflow of financial capital by adopting the second and the third strategy would ensure fast installation of windmills and greenhouse gas plants (Bonneau et al., 2014). Thus, the four recommended strategies have to be dealt with simultaneously to achieve operational efficiency within 10 years.

Expanding Global Presence for Financial Sustainability

Figure 1. Milestone chart for Fonterra

(Source: Author)

The figure above presents a timeline which the apex management would follow to achieve operational efficiency and sustainability. The cooperative should set six milestones and aim to achieve specific outcomes some of which would go beyond 10 years.

The first milestone or M1 is to float fresh shares in the primary stock market and subsequently in the secondary stock market. The cooperative should keep on releasing shares to ensure generation of continuous capital to supports the subsequent or successor milestones. The outcome of this milestone would be generation of capital for achievement towards achievement of successor milestones.

The second milestone or M2 would be divided into two divisions, PESTEL and SWOT. Fonterra should invest a part of the generated capital from milestone 1 into conducting PESTEL analysis to gain information about the markets of New Zealand, the countries where it is present currently and a selected number of host countries where it wants to enter. The firm on the basis of the information gained from PESTEL would conduct its own SWOT analysis. This information would lead to achievements of milestones 3, 4 and 6.

The third milestone or M3 involves Fonterra in forming new product strategies to introduce new products and innovative versions of existing products from the fifth year onwards. The achievement of M2 and the financial strength rendered by M1 fuel this production of new and innovative goods.  Fonterra would be able to sell these new products in its existing markets, strengthen brand equity and generate more revenue. This would earn it more revenue which in turn would fuel its next milestone, entering new markets.

The fourth milestone or M4 of Fonterra would be entering new markets like the United States of America. The firm would use the information gained from PESTEL analysis of the selected new markets achieved in M2 and new products achieved in M3 to enter new markets from the 7^th year onwards. The outcomes of achievement of this milestone would be generation of more revenue and strengthening of the brand value of Fonterra internationally. This would in turn fuel the first milestone, attracting more investments to strengthen the operations of the cooperative.

The fifth milestone or M5 is dependent on M2 and involves installation of greenhouse gas plant and windmills. Fonterra would use the technological advancements and human resources to install windmills and greenhouse gas treatment plants to gain environmental sustainability and cost effectiveness as per the first and fourth recommendations. The cooperative should aim at achieving this environmental sustainability milestone between 6 to 10 years.

The sixth milestone or M6 is becoming a public limited company and listing on more stock exchanges around the world. Converting into public limited company and listing on stock exchanges in the host countries as well is very important to strengthen the market position of Fonterra. This would allow the cooperative to generate capital from global stock market which would in turn promote to the outcome of first milestone which generation of huge capital to support its subsequent milestones.

Expanding Product Cycle for Revenue Growth

As pointed out in the milestone figure, Fonterra first must float shares to generate the huge amount of capital required to strengthen its sustainability standards. The second milestone would consist of conducting a SWOT and PESTEL analysis of the market of New Zealand present host markets like China and Brazil and new markets.  The third milestone would be forming a product strategy to introduce new products into these markets and also enter new markets with these products which is the fourth milestone. This would generate revenue to support expensive sustainability initiatives like setting up of windmills, its fifth milestone.  The final milestone would be becoming a public limited company from a cooperative firm. The company as a part of the final milestone should also get listed on the stock exchanges of the host countries to generate more capital to support construction of sustainable plants and windmills (biodieselmagazine.com, 2018).

The most immediate milestone which would require Fonterra to undergo organisational changes is the formation of new product strategies to introduce new and innovative products as shown in the figure below.  The following are the operational changes which the organisational will need to implement to initiate the realisation of the milestone within 4 years.

The management of Fonterra is required to install new advanced production plant to produce new goods as per the customer preference information gained from M2. The new production plant should be capable of producing goods by using minimum energy and emitting lower quantities of wastes. This would allow the firm achieve Six Sigma to gain cost effectiveness and cut down energy management expenditures (Loucougaray et al., 2015).

The first operational change namely installation of new plants to produce new goods would necessitate the second operational change, recruitment of new operational staff members. The new operational staff members would be skilled and trained to operate modern manufacturing facilities. They should be skilled to use software to manage new production projects efficiency so as to ensure high productivity by using minimum energy and emitting low amount of wastes (Schuppli et al., 2014).

Figure 2. Operational changes to be introduced in Fonterra to realise M3

(Source: Author)

References:

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