Fonterra's Business Organization: Challenges and Improvements

This report provides a detailed analysis of Fonterra's business organization, focusing on its history, financial performance, vision, core values, and key markets. It identifies sustainability challenges faced by Fonterra, including issues related to farmer stress, rising production costs, pollution, and greenhouse gas emissions. The report examines the quality management systems adopted by Fonterra, such as ISO 9001 and Sedex member ethical trade audits, highlighting challenges like excessive documentation and a focus on quality over customer satisfaction. Furthermore, it discusses sustainability steps taken by Fonterra to address these problems, including sustainable consumption practices, operational improvements, customer focus, and enhanced milk yield. The report also explores initiatives for continuous improvement in dairy operations, such as research investments, cleaner energy sources, water efficiency, waste management, and logistics improvements. Finally, it suggests tools like Kanban, A3, PDCA cycle, and 5 Whys to enhance Fonterra's functioning and policy development.

Running head: BUSINESS ORGANIZATION OF FONTERRA
Business organization of Fonterra
Name of the student:
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Table of Contents
1. Introduction........................................................................................................................3
 Brief background of the business industry......................................................................3
 History.............................................................................................................................3
 Financials of Fonterra.....................................................................................................4
 Vision and mission of company......................................................................................5
 Core values posed by Fonterra........................................................................................5
 Brands which Fonterra owns...........................................................................................6
Key markets...........................................................................................................................7
 Australia is the largest milk pool outside of New Zealand and home to some of the
country's favourite dairy brands.........................................................................................7
 China - Dairy demand is expected to double in the next ten years in the world’s
most populous country.......................................................................................................7
2. Sustainability challenge.....................................................................................................7
Challenges faced by Fonterra related to sustainability: -.......................................................7
Two Quality management system which is adopted by Fonterra..........................................9
 ISO 9001......................................................................................................................9
 Sedex member ethical trade audit................................................................................9
Challenges and issues related to quality management systems...........................................10
1. A lot of documentation..........................................................................................10
2. More towards quality less towards customer.........................................................10
Issues: -.................................................................................................................................10

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1. Resistance toward new technology........................................................................10
2. Departmental system..............................................................................................10
Sustainability steps taken by Fonterra to overcome problems stated above:.......................11
 By making consumption sustainable.........................................................................11
 By improving operations...........................................................................................11
 Proper attention to customers....................................................................................11
 Enhancing milk yield per cow...................................................................................12
3. Continuous improvement.................................................................................................12
Initiatives taken by Fonterra to continuously improve their dairy operations.....................12
 Fonterra invests in research.......................................................................................12
 Using cleaner source of energy.................................................................................12
 Effective use of water................................................................................................13
 Proper solid waste management................................................................................13
 Improvement in logistics...........................................................................................13
Tools that can be used in Fonterra to improve the functioning............................................14
 Kanban.......................................................................................................................14
 A3..............................................................................................................................14
 PCDA cycle...............................................................................................................15
 5 whys........................................................................................................................15
 Policy development...................................................................................................15
Summary: -...............................................................................................................................16

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1. Introduction
 Brief background of the business industry
Fonterra organization is famous for their services like milk as well as other dairy
products. Fonterra is a multinational company that provides its services all around the world.
Its head office is situated in New Zealand because it is a kiwi company. Fonterra have
partnership with other companies and cooperates with the farmers as well. Fonterra deals
with more than 140 countries and it covers 33 % part of the world in dairy products.
 History
New Zealand, as the other cooperatives have the long history of establishments and
growth. In the year of 1920, approximately about 85 percent of diary products manufacturing
were owned, controlled and managed by cooperatives. Then here in New Zealand two

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companies merges i.e. Diary group and kiwi diary group along with NZ diary board to
become the Fonterra. This merger faces many difficulties in initial stages but after a tine
being got approval by government. This company’s main revenues generates from diary
products which is known for its quality and brands. For expanding their ways this company
acquires Denning ton company to give a change to Australian dairy products and powdered
milk so that they can acquire market share in 2005 (McGiven, 2016).
 Financials of Fonterra
Financial for the year 2018
Serial no. Particulars Resultant
1. Sales volume Down 3%
2. Normal revenue Up 6 % ($ 20.4 billion)
3. Net loss after tax $ 196 million dollar
4. EBIT $ 902 million (Down 22 %)
5. Return on capital Down 6.3 %
6. Earnings per
share
24 cents
Reasons of low sales and hence revenue as follows: -
 Butter prices didn’t come down which impact sales as well as volumes
 Increase price of farm gate milk increase the cost

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 Expenses in some areas of business were too high.
But in 2019 this company will do their best to provide best result by doing cost cuttings
and various ways of marketing to improve EPS and fundamentals (Macdonald, 2014).
 Vision and mission of company
Fonterra is the company which wants to spread environment friendly practices while
manufacturing of the products that comes under their name and want to do that things which
are suitable for the environment. They want to produce nutritious products which is good for
the health of consumers as well as for society as a whole.
They help in the development of farmers to build the suitable diary community and
take steps to provide them every help in farmer’s development and well-being. Due to this
collaborative tactic that they are the leading exporter of dairy products.
They always aim at finding the new innovative ways to protect environment and helps
in sustainable development. Like they use large grounds of grass to feed the cattle’s rather
than using manufacture foods to reduce cost and increasing efficiency.
 Core values posed by Fonterra
 Fonterra is spread across various countries along with various cultures which makes
Fonterra diverse and serve people with care and with due diligence
 They want to create a sustainable environment which is environment friendly and as well
as benefited farmers
 Always try to catch the attention of consumers by new innovative products which are
nutritious and healthy
Develop trust among their partners, farmers and consumers by their best services and
ways of dealing with them all.

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 Brands which Fonterra owns
 Anchor is the brand under which is manufacture milk, cream and butter.
 Anchor milk yum under which flavoured milk, custard yogurt and ice cream comes.
 Anchor – A Greek yogurt.
 Anchor kid’s yogurt.
 Anmum the brand which Fonterra owns.
 Another brand named ‘country goodness’ who manufactures blend spread of butter and
margarine as well as dips of sour cream.
 The brand named ‘De winkel’ under which the food yogurt is made.
 The brand named ‘Fresh and fruit’ under which yogurt is made.
 Galaxy brand under which cheese is made.
 Perfect Italiano as name suggest Italian cheese us sell under this brand.
 Tip top is the brand under which ice cream come.

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Key markets
 New Zealand is home to our 10,000 farmer shareholders and the base for our global
operations.
 Australia is the largest milk pool outside of New Zealand and home to some of the
country's favourite dairy brands.
 With a population of 210 million Brazil’s dairy market is worth more than USD$26
billion.
 With more than 20 years in the Chilean dairy industry, Sop role is Fonterra’s oldest
offshore investment.
 China - Dairy demand is expected to double in the next ten years in the world’s most
populous country.
 Their purpose is to inspire families to get the most out of their lives through trusted dairy
nutrition for a stronger, healthier and happier Indonesia.
 Fonterra began operating in Malaysia in 1975 and brands such as Anlene, Anmum and
Fern leaf are household names.
2. Sustainability challenge
Challenges faced by Fonterra related to sustainability: -
 Due to due to the urban communities and other others farmers feels that situation is turn
against them which creates stress among them. Along with this due to dropping in the
prices of milk farmers may bear losses which impact their revenue and earn them losses
hence many farmers may have wiped out. Due to this Fonterra may face difficulty due to
this problem and shortage occurs. Hence it directly impacts the performance.

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 Cost of production related to Diary production has been increased over two decades.
Along with increase in volumes and sales equally the cost increases which may hamper
the growth so cost cutting is required form some areas.
 Fonterra diary business practices may create pollution which impact both performance
as well as quality of operations. With the growing demand of Fonterra products there’s
increase in pollution too. Poorly treated waste water with high level of pollution due to
bad operations. 3 complaints are reported against Fonterra related to this pollution in past
 Due to diary production various greenhouse gases are emitted form the manufacturing
which causes global concerns. Various gases that are emitted as nitrous oxide, carbon
dioxide, methane and other fluorinated gases. Hence impact quality.
 And due to this creation of pollution and emissions of various gases in environment this
will leads to the climatic changes with is not good for the country as a whole so a
sustainable approach is required as most of the emissions are produced due to diary
business from animals which impact both quality as well as quantity.

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Two Quality management system which is adopted by Fonterra
 ISO 9001
ISO 9001 is the internationally recognized Quality Management System (QMS) standard that
can benefit any size organization so it is adopted by Fonterra. Designed to be a powerful
business improvement tool, ISO 9001 Quality Management certification can help you to:
 Continually improve, streamline operations and reduce costs
 Win more business and compete in tenders
 Satisfy more customers
 Be more resilient and build a sustainable business
 Show you have strong corporate governance
 Work effectively with stakeholders and your supply chain
 Sedex member ethical trade audit
A non-for-profit organisation which are committed to providing various ways and
direction to. Improve the supply chains. SMETA helps in Ethical trade audits and provide
action plans to Fonterra to improve the supply chains. Hence leads to more transparency
which is beneficial for society and stakeholders.
Also this helps in proper communication between management and worker on health
standards and various other labour norms that are beneficial to be maintained in Fonterra.

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Challenges and issues related to quality management systems
Challenges: -
1. A lot of documentation
Many times Fonterra maintain a lot of documents which may hides the quality
management real purpose. So maybe the employees loose interest towards quality
management and hence leads to less productive results for which this system. Was once
implements in the organization. Hence this leads to the wastage of resources.
2. More towards quality less towards customer
Due to these quality rush customers may get side parted and give less attention who are
the most important ingredient in the business expansion and main source of revenue. But
sometime much attention is given toward quality. Even the quality systems like ISO is based
to satisfy the needs of the customers and retain their confidence. So this also possess a great
deal of challenge (O’Connor, Bergmann & Keane, 2015).
Issues: -
1. Resistance toward new technology
The main setback occurs when management tend to stick with old ways of running the
business. But for the companies like Fonterra its very important to improve technology time
to time to grow and expand their operations. But in most cases the middle management and
lower management is okay with changes but top management tends to stick with old ways of
running the business. Hence to improve the quality new technology is mandatory for any
organisation whether it is Fonterra or any other organisation (Malik et al., 2018).
2. Departmental system
As in Fonterra the management follows the departmental system which may also is the
big enough issue to discuss in this report as most of targets are set on departmental basis.

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Hence the quality control issues are also set accordingly. But that particular department is
only think of their own department so that rather than others to. But quality control is the
responsibility if whole organisation to provide best to their client, customers, stakeholder and
society.
Sustainability steps taken by Fonterra to overcome problems stated above:
 By making consumption sustainable
Fonterra not only takes cares of the farmers and stakeholder but also impacted the society
by providing the quality products to the society. They exported their items to various
countries and to various cultures. So hence they have done deep research on various cultures
and on their product nutrition’s. Proper packaging is available e.g. For juice product tetra
packing is done for holding nutrients. They help to reduce non diary products in their
products like added flavours, sweeteners and limit sodium and fat content in their products.
They run the campaigns in schools for telling the benefits of diary product to aware the
children towards them (Wright, 2015).
 By improving operations
In Fonterra operation that takes place are sustainable and quality of products are checked
at various stages to reduce wastage and maintain the quality of the product. Fonterra use
various Quality control measures like ISO and Sedex trade audits so that proper efficiency be
maintained at every kevel. The wastewater from their operation are discharges to municipal
dumps or further recycles rather than discharging that chemical water to sea. They use water
properly without wasting it. Their food safety measures lead to less wastage and dumping of
solid waste are properly treated in landfills.

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 Proper attention to customers
Without customers no business be exist hence rather than focus on quality solely a due
attention must be given to customers. Not to forget the quality system like ISO is based to
give the customers full satisfaction. So by solving the customer’s problems via products is the
best way to deal with customers. So that they feel as the part of business. Proper marketing
channels be utilised to satisfy this. So Fonterra must know the customers needs and
expectations well.
 Enhancing milk yield per cow
This better enhancement in cow yield be come through better production system adopted
by the Fonterra quality insemination services, accessing quality of equipment’s like pasture
improvement, veterinary services and pasture services. Hence cost reduces and this will
impact price of product at lower prices with quality product.
3. Continuous improvement
Initiatives taken by Fonterra to continuously improve their dairy operations
 Fonterra invests in research
Every year Fonterra invest millions of dollars that are spent on research and development
so that sustainable ways to be adopted to Protect natural resources of farmers. Fonterra
invests in research and make a successful impact on society and communities.
 Using cleaner source of energy
In the way to find alternatives of coal, Fonterra come across natural sources of energy as
a cleaner source of fuel, for operations. By following this sustainable method, they look
forward to reduce this emission by 30 percent till the year of 2030. Although in some places
like South Island, coal is used but at a very low extent. Fonterra is working with the
government to find new ways. Wood biomass is also used as the natural fuel.

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 Effective use of water
New Zealand dairy cooperative Fonterra has installed a ‘ground-breaking’ reclaimed
water system at its plant in Pahiatua, on the country’s North Island. The company expects the
system to save half a million litres of groundwater every day – the equivalent to 18 milk
tanker’s worth significantly reducing the environmental footprint of the site. The groundwater
recovery system that Fonterra has developed finds a way to reuse water from condensation
that is produced during the milk powder manufacturing process. The P3 milk powder plant at
Pahiatua, which was built in 2015, was already completely self-sufficient for water, meaning
it does not use any groundwater in the manufacturing process.
But previously, the excess water produced from the evaporators were typically used for
irrigation on nearby farmland. Now, rather than irrigate the excess water, the new reclaimed
water system treats the excess water using reverse osmosis and chlorination before combining
it with the site’s main water supply for general use.
 Proper solid waste management
In Fonterra solid waste is properly discharged and treated so that environment don’t get
polluted. About 90 percent of solid waste are treated in landfill and dumped their so that no
harmful things be mixed in environment. Fonterra have the aim of reducing the solid waste
by 20 percent in future. About 4598 tonnes of solid waste is treated and dumped properly in
New Zealand without harming environment.
 Improvement in logistics
In Fonterra all the milk is collected and supplied via the tankers and overtime these
tankers are evolved and improved allot. Regular improvement in tankers take place in
Fonterra Like new engines, regular maintenance and proper driving practice given to drivers.
A sophisticated computed system is also there to plan and manage the journeys of tanker
drivers to their time or save their time and saving emissions and money too.

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Tools that can be used in Fonterra to improve the functioning
 Kanban
Kanban is software that helps to know that how the work has been flows in your team. It
helps to make a check on goals of individual and team as well by seeing the work progress. It
simply focusses on the fact that you cannot achieve which you pursue if you don’t know at a
point where you are.
Four main steps involved in Kanban are: -
1. Visualize your process
2. Limit your work in process
3. Focus on flow
4. Continuously improve yourself and team as well
It is widely used in finance, sales, accounts, marketing and other disciplines too.
 A3
A3 is the planned approach which is suitable for the organisations like Fonterra. As the
name suggest A3 this is paper with the plan. So the basic purpose for the A3 is as follows: -
1. Helps in facilitating communication with other departments
2. Provide proper decision making and problem solving
3. Helps in planning and organising
How it works: -
Firstly, the background is analysed and secondly current condition is analysed if any
deviation is there then proper analysis is carried on that deviation and finally that plan is
implemented and follow up.

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 PCDA cycle
It is the excellent tool for the improve and act as best improvement technique. It stands
for first plan secondly do then check and finally act.
Strategy: - Recognise opportunity as well as plan for it
Prepare: - Implement that particular plan in smaller scale
Examine: - Now properly check the actual result with planned one time to tome for proper
analyses.
Hence this tool will goanna be very beneficial for improvements in organisation like
Fonterra.
 5 whys
This technique of improvement helps in finding and root cause of problem and correct
them. When the team met with the problem they not only try to repair it but also try to abolish
its root cause. When problem arises the team will only try to ask why towards the problem till
that problem be solved and corrected. So no blame be placed on other rather try to find new
ways of dealing with these whys. This will help to uncover a lot of problem and new ways of
dealing with it.
 Policy development
The tool policy development is used by Fonterra to develop a roadmap to a low emissions
future. The partnership is an example of how the private and public sectors can work together
to accelerate New Zealand’s transition to a low carbon economy.
Advantages of it: -
1. Improve efficiency by promoting sense of ownership and accountability.
2. Helps in improves organisation alignment

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3. This helps in pointing out what do you need a d how will you get hence simply it is focus
on action not just the goals.
Summary: -
Fonterra is the cooperative business that helps in the sustainable development of
environment along with the development of farmer, community, society and stakeholders as
well. Many brands come under the name of Fonterra that helps in the development of
business and this product are renowned for the quality of their products (Swaffield, 2014). In
the meantime, this company faces many challenges like increasing cost, bad emission form
diary business into environment and milk prices are declining. Along with this management,
the company may be reluctant towards the better technology of quality control and on the
other hand, lots of documentations required in quality management system which makes
quality control a cumbersome process. But Fonterra are able to maintain its good image as it
learns from past and improve its productivity by improving costing, operations, logistic and
solid waste management. Some of the recommended improvement methods for Fonterra is
A3, PACD, policy development and 5 whys that helps in the better management and
decision-making regarding improvement of products in Fonterra.

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References: -
Macdonald, T. O. (2014). The financial costs of environmental compliance through reducing
nitrate leaching for a range of Waikato dairy farm system intensities (Doctoral
dissertation, University of Waikato).
Malik, R., Knapman, R., Mann, R., & Director, C. O. E. R. (2018). RAPID
BENCHMARKING AT FONTERRA USING THE TRADE BEST PRACTICE
BENCHMARKING METHODOLOGY.
McGiven, A. (2016). The Future Opportunities and Challenges for one of the World's Largest
Dairy Export Firms: Fonterra in New Zealand. Journal of Applied Business and
Economics, 18(3), 16-23.
O’Connor, D., Bergmann, D., & Keane, M. (2015). The challenges posed by price volatility
in the EU dairy sector. University College Cork, Ireland.
Swaffield, S. (2014). Sustainability practices in New Zealand agricultural landscapes under
an open market policy regime. Landscape Research, 39(2), 190-204.
Wright, J. M. (2015). The politics of sustainability in New Zealand: A critical evaluation of
environmental policy, practice and prospects through a case study of the dairy
industry (Doctoral dissertation, University of Waikato).