Rob Pincombe is the purchasing manager at Unifine Richardson, a company that specializes in manufacturing of food products. Rob received a phone call from Joanna Killian at Harrington Honey, his main honey supplier. Joanna told Rob that the Canadian Food Inspection Agency found traces of chloramphenicol in Chinese honey imports, an antibiotic that is banned in food products in Canada. Now all imports will be tested for traces of any antibiotics in them. The penalty for having traces of antibiotics above the acceptable limit has not been determined yet. Unifine purchases about one million pounds of honey per year and almost all of its honey purchases are a 50-50 blend of Chinese and Canadian honey. The main three honey producers in the world are China, US and Argentina, whereas Canada is the 10th largest producer. Due to the fact that there might be a recall of all products that contain Chinese honey, it is highly recommended that Unifine stop using any of the available Chinese honey and look for alternative source. The three available options are Canadian honey at $1.75/lb, US at $1.10USD/lb and a Canadian-argentinian mix at $1.42/lb. The Chinese and Canadian blend of honey that Unifine used prior was priced at $1.08/lb.
The main issue in this case is the immediate disruption of honey supply to Unifine due to the import ban of Chinese honey. Eighty percent of Unifine’s honey sales are due to a single customer that is known for their stringent standards and purchase many of their products beside honey. Three to five percent of total expenditures at Unifine go towards honey procurement and therefore an immediate solution is required to deal with this issue.
As an alternative, I would consider looking into the option of sourcing honey from local Canadian suppliers temporarily until the ban exists. Once the Chinese suppliers improve their standards and comply with the demands of CFIA, Unifine could go back to using Chinese honey. This process could take around 15 months according to estimates provided in the case. Another option would be to wait 20 days and see if the Argentinian honey passes regulation compliance. This would be the most cost effective solution in the short term but it comes with the risk of waiting for 20 days as well as being exposed to anti-dumping tariffs. The third possible alternative would be to import US honey. This option would only be considered if Canadian suppliers would not be able to meet the demand of Unifine. At current exchange rate given in the case, the US honey would be the most expensive option ($1.10USD x 1.63 = 1.79CAD). Another risk that should be considered is exchange rate risk. Due to the unpredictable exchange rate