4/26/05

ISQA 458
Unifine Richardson Case
The problem facing Unifine Richardson is that Harrington Honey, its main honey
supplier will be out of Chinese honey inventory by May 17, 2002 because of CFIA
inspection issues. For now, Unifine will have to look for alternative sources for honey
until the Chinese suppliers figure out a way to detect and reject contaminated honey. Its
current cost for 50-50 blend of Chinese and Canadian honey is $1.08 Canadian dollars
per pound. Harrington Honey has proposed three main options: a) 100% pure Canadian
honey, which costs $1.75/lb; b) 100% U.S. honey at $1.10/lb in U.S. dollar ($1.79
Canadian dollar); or c) 50-50 Canadian-Argentinean honey for $1.42/lb. As a result of the
supply shortage, prices for non-Chinese honey have gone up significantly. There are also
concerns of product availability regardless of price.
Unifine purchases one million pounds of honey a year. The average price for
honey during the past year is $.91 per pound. With the current price, it will cost them
$1.08 millions annually. However, if they were to buy the 100% Canadian honey, its
going to cost them $1.75 millions. Likewise, it will cost them $1.79 millions for 100%
U.S. Honey. On the other hand, using a 50-50 Canadian-Argentinean honey will only cost
them $1.42 millions. These prices are a significant increase from what Unifine used to
pay for its honey.
Based on the given facts, it would be wise for Unified to go with the 100%
Canadian honey for now. The reason being--its a little bit cheaper than the 100% U.S.,
and also because using a 50-50 Canadian-Argentinean would risky, for it might be
recalled by CFIA if found to be noncompliant. In addition, the Canadian-Argentinean

blend does not taste as good as the pure Canadian, and their largest customer would not
like it. If they chose to use the pure Canadian honey, their customer would have to pay an
additional $.67 cents per pound--this is a 62% increase in price. Their customers would
not be happy, especially the large franchise retailer that buys 80% of the firms recent
honey.
Unifine should explain this crisis to its customers and let them know that Unifine
will not pass the whole cost increase onto them, but absorb half of it. This will mitigate
the impact of the situation. Also it will be as if Unifine is doing their customers a favor by
absorbing the price increase with them, and they will not be as hostile. It is important to
let them know that the price increase is temporary, and Unifine is doing everything that it
can to figure out an alternative supplier with a better price. Another alternative is to
persuade their customers to use a substitute for their honey dips until things get settled.
It is also a good idea for Unifine to secure a long-term contract with the new
alternative honey supplier to lock down on the best price, since prices will increase in the
immediate future. Terms of contract would include the shipped amount for each order
cycle, the agree-upon price and quality, etcAlso if supplies were to fall short, that
supplier would be liable to pay for the difference in increase price when Unifine have to
purchase supplies elsewhere.
Another suggestion would be to look for honey supplies elsewhere, maybe from
Mexico or Turkey. Obviously, Unifine would have to look at the availability and compare
the costs and quality of those alternatives. In the future, they might have to use two
suppliers instead of one sole supplier. Of course, this will lessen their leverage on
bargaining power. They have to make a trade off between price and risks.

Lastly, to prevent such incident from happening again, they will have to monitor
their suppliers suppliers. They have to look at the entire supply chain to look out for
potential problems before they occur. It will take a lot of managerial effort to do so, thus
they would have to ask their suppliers to control their own suppliers. For example, in this
case, Harrington Honey should advise their Chinese bee farmers not to use the
chloramphenicol antibiotic on their honeybee population, but to use something else to
remedy the contagion. Thus, Harrington would be helping its suppliers to prevent such
incident from happening. Another that thing that Harrington should do is to warn Unifine
of this problem ahead of time before it had occur. Instead of doing this, they told Unifine
that they have nothing to worry because CFIA did not have the mean to test for the
chloramphenicol. Unifine should find a better supplier than this.