Operations Management of Fonterra

This report discusses the challenges faced by Fonterra, Quality Management Systems adopted by the company, and sustainability initiatives taken by Fonterra to improve dairy operations. It also talks about the initiatives taken by Fonterra to improve the herd nutrition program and the measurement of Milk Urea Nutrition (MUN) in DHI milk samples.

Running head: OPERATIONS MANAGEMENT OF FONTERRA
Operations Management of Fonterra
Name of the student
Name of the University
Author note

1OPERATIONS MANAGEMENT OF FONTERRA
Executive summary
The primary purpose of this report is to elaborate on the background of Fonterra and the
challenges that are faced by the company. The report discusses about the quality management
systems that has been adopted by the company. The report also throws light on the
sustainability initiatives that can help company in overcoming the issues. The report also
states the initiatives that have been taken by company that have helped it in improving the
dairy operations.

2OPERATIONS MANAGEMENT OF FONTERRA
Table of Contents
Introduction................................................................................................................................3
Sustainability Challenges...........................................................................................................4
Challenges of Fonterra...........................................................................................................4
Quality Management Systems................................................................................................5
Sustainability initiatives of Fonterra......................................................................................6
Continuous Improvement...........................................................................................................7
Initiatives of Fonterra for improving operations....................................................................7
Tools for continuous improvement........................................................................................9
Conclusion................................................................................................................................10
References................................................................................................................................11

3OPERATIONS MANAGEMENT OF FONTERRA
Introduction
Operations Management refers to area of the management that deals with the
designing along with controlling of the process of the production. It helps in the redesigning
of the business operations so that it can produce the goods along with the services (Heizer et
al., 2017). Operations Management ensures the fact that the business operations run in an
efficient manner so that it can meet the requirements of the customer.
History and kind of the ownership
Fonterra was formed in the year 2001 after the merging of largest dairy co-operatives
called New Zealand Dairy Group with that of New Zealand Dairy Board. Fonterra refers to
dairy co-operative that is owned by around 10,000 farmer shareholders of that of New
Zealand (Fonterra.com.,2019). A co-operative refers to autonomous association of that of
persons who unite voluntarily so that they can meet the economic, social along with the
cultural needs with the help of an enterprise that is controlled in a democratic manner.
Products
It is the largest processor along with the exporter of that of the dairy products that are
used by more than that of 100 countries across that of the globe. The farmers of Fonterra
takes recourse to sustainable farming that helps in meeting the needs of the stakeholders of
New Zealand. The company believes in the fact that power of the dairy can bring about
differences in the lives of the people. The company lends support to the farmers so that they
would adopt the good management practice that can help in improving profitability along
with resilience of the organization in the competitive environment of New Zealand. The
company has harvesting standard in relation to the raw milkand the farmers are asked to meet
the standard that helps in maintaining the quality of the milk in the organization. The

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company builds relationships with that of the farmers and it supports the farmers so that they
can improve the farming system.
Financials
Fonterra has been able to earn the return on the capital of 6.3 % and the normalised earnings
per share of the company is around 24 cents. The company has succeeded in earning the free
cash flow of $ 600 million (Fonterra.com.,2019). Fonterra has been able to earn a net profit of
$ 745 million in the year 2017.
Mission
The mission of Fonterra is to enhance goodness of the dairy so that it can serve the
consumers across the world.
Vision
The vision of the company is to satisfy needs of the new generation of the customers with the
help of their functional product. The vision of Fonterra is to share goodness pertaining to
dairy nutrition across the world.
Value
The main value of Fonterra pertains to the construction of the trust partnerships that can help
them in constructing precious relationships in the process of supply chain. Tiaki means caring
for the people along with the place. Fonterra ensures Tiaki by being committed to the needs
of the future generations. The values of the company pertains to the collaborative spirit,
transparency along with inclusion.
The main purpose of the report is to discuss about the challenges that are faced by
Fonterra in relation to quality that makes them use sustainability in the operations. The report
talks about Quality Management Systems that can be adopted by the company for ensuring

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sustainability. The report also throws light on the five initiatives that were taken by Fonterra
so that they can improve the dairy operations.
Sustainability Challenges
Challenges of Fonterra
The first challenge faced by Fonterra is in relation to protection of the environment.
Fonterra has to face challenges pertaining to quality along with the performance that has
made them adopt sustainability in the operations. The population of the world would increase
to around 9.7 billion by the end of the year 2050. There would be a 50 % increase in that of
demand of the food and this has caused to company to make use of sustainability. The second
challenge that is faced by Fonterra relates to Research & Development that can help the
organization in developing the process technologies in the organization. Fonterra is facing
challenge in relation to the investing in the new technologies and in the area of the Reserach
& Development. Fonterra faces challenges in relation to the improvement of the product
quality. The generic effort of that of the dairy farmers should be complemented with the help
of the research and the development that can help in the final stage of that of new product
formulation (Hitt, Xu& Carnes, 2016). Fonterra was facing issues because the Research &
Development was not in the company was not fully developed that can help it in getting grasp
of that of the market niche (Swink et al., 2017).
The third challenge that was being faced by the company is in relation to packaging
and the product development of the products of Fonterra. The new products of the company
should be developed by the modification of the packaging along with the flavours that can
help them in catering to the needs of that of the modern day consumer. The product
development relates to the usage of the dairy ingredients that can help in improving the foods
along with the beverages (Ketokivi& McIntosh, 2017).

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The fourth challenge for Fonterra relates to the aspect of community management.
Machinery along with the equipment act as the embodiment pertaining to the manufacturing
technology (Mahadevan, 2015). The co-operatives get the new manufacturing technology by
the purchasing of the new machinery along with the equipments. It makes the company face
challenges in relation to sustainable packaging that can help in the process of delivering safe
nutrition to that of the customers.
The fifth challenge that is faced by Fonterra pertains to that of waste management.
Fonterra has to face the challenges because it does not use the modern manufacturing
technology that can help the company in succeeding in the competitive environment of New
Zealand. The company has to suffer losses owing to environmental non-compliance that
made the company suffer a fine of $ 192,000. The challenge faced by the company is in
relation to the fact that there does not exist additional agricultural land that can help in
meeting growing demand in relation to the food (Holweg et al., 2018).
Quality Management Systems
Quality Management System has been used by Fonterra that can help the company in
improving the operations. ISO 26000 helps in the identification of the microbiological along
with the chemical hazards that helps in the elimination of the hazards within the organization
by taking recourse to certain measures (Corbett et al., 2017). This quality management
system helps in providing the specifications in relation to products, services along with
systems that ensures the quality along with the efficiency of the various processes within the
organization. It helps in ensuring assurance in relation to process quality that has helped in
the establishment of that of international normative frame that has helped in managing the
quality of the dairy products of Fonterra. The quality management system of ISO 14000 has
been taken recourse to by Fonterra that has helped in setting criteria in the organization (Hitt,
Carnes &Xu, 2016). It has helped in widening the focus of the organization and considered

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broader aspects in relation to the human rights. It is on the basis of different kinds of
principles like the customer focus along with motivation that ensures the continual
improvement of the organization.
Fonterra may have to face issues in relation to the implementation of the Quality
Management System. Fonterra can face challenges pertaining to ISO 26000 owing to the lack
of the technical expertise that can cause problem for the organization. The employees
working within Fonterra does not have the knowledge in relation to the food safety that acts
like a hindrance in the path of operations of the organization (Swink et al., 2017). The
organization can face hindrance in relation to implementing of ISO 14000 on account of the
limited funding along with the resources of the organization. The lack of the funding along
with the resources can act as a barrier in the path of implementation of ISO 26000 and 14000
in the organization. The cost of the implementation can be quite huge that can create
problems in the path of Fonterra. The implementation of ISO 26000 can cause problems for
the company owing to lack of the documentation procedures in Fonterra. The procedures are
not controlled that may give rise to problems for the company (Noe et al., 2017).
Sustainability initiatives of Fonterra
There are various sustainability initiatives that can be undertaken by Fonterra that can
help the company in overcoming the issues along with the challenges. The sustainability
initiatives that have been taken by Fonterra relates to the reduction of the on-farm emission of
the greenhouse gases within New Zealand by that of 15 % by the end of the year 2030. The
company has lifted the ambition and they have set a new target for that of climate-neutral
growth for that of the pre-farmgate emissions within New Zealand (Ketokivi& McIntosh,
2017). This can help in increasing the milk volumes that can help in serving the growing
population of the world. The company would achieve this by taking recourse to the electric

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vehicles within the fleet of that of light vehicle by the end of the year 2019. It can help in
protecting the environment by reducing emission of that of green house gases.
The company has developed the Fonterra Research and Development Centre that
employs the leading experts of the world in that of dairy science. It has helped the company
in getting access to the research facilities that has helped the company in the area of
innovation (Holweg et al., 2018). The Centre is instrumental in employing 280 researchers
along with the scientists that can implement innovative practices in the operations of
Fonterra. It can aid the company in improving the quality of the products.
Fonterra can appeal to the new customers with the help of the creative products that
can help the firm in getting a hold over the market. Fonterra takes care of the product
development by taking recourse to diversification along with the specialisation of the
products that can help in meeting the demands of the customer (Gerasimov&Gerasimov,
2015). The milk of the company contains 15 essential vitamins along with the nutrients that
helps in taking care of the health of the people. Fonterra has created the Strategic Innovation
Group that helps in balancing portfolio of the projects. They have also created the dairy
research facility that helps them in the area of that of product development. It can help them
in the area of sustainable packaging that can help the company in earning profits.
Fonterra can overcome the challenge in relation to manufacturing technology by the
help of adding the dimension of that of value added manufacturing technology. The company
uses the fractionation technology that helps it in extracting lactoferrin that helps in boosting
the immunity in the body. It helps in developing the capability of Fonterra of extracting the
bioactives that helps in maintaining the health of the consumers of the product .Bioactives
proves to be of high value that can prove to be beneficial for the human health. This
technology can be used in extracting the target protein that can serve the needs of the

9OPERATIONS MANAGEMENT OF FONTERRA
consumers of the present age (Ross, 2017). The speciality milk products of Fonterra helps in
serving needs of consumers of that of the present age. It has opened plants that has helped in
advancing the manufacturing capability of Fonterra. It helps in providing defence against that
of the infections which booss immune system of the consumers of the milk products of
Fonterra. It can prove to be useful in enhancing the efficiency of the firm and greatly help in
that of community management.
Continuous Improvement
Initiatives of Fonterra for improving operations
Fonterra takes initiatives that has helped the company in improving the dairy
operations. Fonterra can improve that of herd nutrition program that can help in ensuring the
fact that the cows have the nutritional value that can help in taking care of health of that of
consumers. Fonterra takes steps for measuring the Milk Urea Nutrition (MUN)in that of DHI
milk samples that helps in the measurement of the nutritive value of the milk of the company.
Milk Urea Nutrition acts as an inexpensive measure that can help in the measurement of how
the cows are making use of protein sources within ration (Sanz-Calcedo et al., 2015). The
adoption of the MUN can help in providing revenue for the firm. Fonterra takes care of the
fact that the value of the MUN falls in between 8 and that of 12 mg/ dl. The higher level can
help in indicating that protein sources within diet are not being properly utilized. The lower
level of the MUN would show that the cow does not have enough protein and the protein can
act as a limiting factor in relation to optimal production. This initiative helps in ensuring
sustainability as it takes care of the element of animal welfare that is crucial in relation to
sustainability.
Fonterra focuses on the quality of the milk that can help the company in staying
sustainable within that of the competitive environment. The company carries out the Bulk

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Tank Contribution Report that can help in revealing which are the cows that can act as large
contributor pertaining to somatic cell count (Noe et al., 2017). It can help the farmers in
focussing on how to manage the cows that causes problem in relation to the quality of the
milk. Fonterra maintains that of the herd records that helps in assessing the physical condition
of the herd in Fonterra.
Fonterra can improve that of herd reproductive performance by taking recourse to
various tools. The company takes care of the fact that the cows are bred properly that helps in
ensuring nutrition of the herd. The animals in the farm undergoes the milk pregnancy test that
helps in making clear to the farmers whether the animal is pregnant. The milk pregnancy tests
are also taken care of by the company that has ensured the profits of the organization.
Fonterra has made investments in that of manufacturing intelligence that have helped
the company in achieving that of real time analytics. It can help the company in getting
insight into operations that can help in driving improvement in that of production process of
Fonterra (Gerasimov&Gerasimov, 2015).The manufacturing intelligence software can collect
and display that of real time process that can prove to be beneficial for the organization. The
investment in the new technologies helps the company in improving the process of the
production in the company.
Fonterra can produce the seamless data that can help in the continuous improvement
of the operations of the firm. It can help the company in the management of the automation
assets that can help the company in keeping the documentation updated in the organization.
The integrated control of the organization can help in making the informed decisions in
relation to the operations of Fonterra. It can help the company in taking care of that of the
food production system that can help in meeting demand of that of growing population within
that of the environmental limits.

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Tools for continuous improvement
Kaizen refers to approach pertaining to continuous improvement that can help in
bringing about positive changes in the organization. It can help in the lowering of the defects
and it helps in the elimination of the waste in an organization. Fonterra can apply these
method by taking recourse to integrated control that can help in providing facility operators
with the data that can help them in making the informed decisions in relation to the
operations. Kanban is indicative of visual system that helps in the management of work
within an organization. Kanban helps in visualizing both process along with actual work that
is passing through that of a process (Hitt, Xu& Carnes, 2016). The tool of Kanban can be
applied in the organization by streamlining the process of collection of the milk that can help
in providing the farmers with the latest information on that of the real-time basis. It can help
the farmers in getting real time knowledge about the location of the animals that can ensure
sustainability of the firm. Just-in-time is indicative of inventory management system that
helps in the reduction of unnecessary burden in relation to that of inventory management. The
projects of Fonterra has aligned and enhanced the supply chain that has helped in the
reduction of the time in delivering the products to the market. It has helped the organization
in providing fresh products to the customer. PDCA refers to plan, do, check and act that helps
an organization in taking care of the operations (Corbett et al., 2017). The PDCA cycle can
help in the strategic planning along with the needs analysis of an organization. This process
takes recourse to planning along with checking that helps in the operations of an organisation.
The PDCA cycle can be applied to Fonterra by making use of the software that can help in
improving the efficiency of the operations (Fonterra.com., 2019). Value stream mapping is
indicative of lean management method that helps in analysis of current state within an
organisation. It helps in the designing of the future state for that of events that can take a
product to that of the consumer by the reduction of the lean wastes. Fonterra can apply that of

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value stream mapping by taking recourse to the upstream supply management that can help in
securing high quality of the supply in a manner that is effective.
Conclusion
Operations Management helps in designing and controlling process of production in
an organization.
The challenges that the organization was facing pertaining to sustainability made
them adopt the factor of sustainability in the operations. The demand in relation to food is
increasing at a steady pace and this would create problems for the firm. The company faces
issues in the arena of Research & Development that can help the organization in the area of
innovation.
The organization uses the quality management system of that of ISO 26000 that helps
the company in identifying the microbiological hazards. ISO 14000 can set the criteria within
the organization that can improve its operations. Herd nutrition program can help in
improving the quality of milk of the company that can be useful for the consumers. Seamless
data produced by the company can improve operations of firm.
Fonterra can use Kaizen along with Kanban that can increase the profitability of the
firm. It can help in the elimination of wastes that can help for the growth of the organization.

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results/fy19/Fonterra-Annual-Report-2018.pdf
Fonterra.com. (2019). Retrieved from https://www.fonterra.com/nz/en.html
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