Fonterra Co-Operative Group Ltd

TABLE OF CONTENTS:……………………………………………………….2

1. Background of the company……………………………………..……………3-6

2. Suppliers………………………………………………………….…………….6-7

3. Flow of Supply chain……………………………………….…………………..8-9

4. Supply chain Optimization…………………………………..…………………9-11

5. Cost………………………………………………………..……………………11-13

    5.1 TCO implications……………………………………………………………13

6. Control policies……………………………………………….………………….13-14

7. References………………………………………………………..……………….15-16

1. THE COMPANY BACKGROUND

Fonterra Co-operative Group Ltd is well known in dairy sector globally which is owned by farmers of New Zealand. Fonterra exports about 95% of its production which is why called as world’s largest exporter in dairy sector. Farms are in New Zealand and exports dairy products for consumers in about 140 countries.

In case of milk production, New Zealand is down to 3% in February compared to previous year in the same month where as in Australia the production decreased 6% in January in same aspects and EU is also in the same line. The country which shows increase in production is US.

In case of exports, New Zealand and Australia dairy exports increased by 3% with 6% increase in European Union and 4% in US compared to last year same month.

China is leading in import volumes with about 14% increase in import of dairy products compared to previous year whereas milk collection has decreased compared to previous year.

Fonterra is always keen to use new technology to satisfy the customer demand globally. Their strategy is to meet nutritional requirements in world’s most leading growth markets and to direct healthier returns to New Zealand farmer shareholders. There are different kinds of customer demands in different regions. Recently in 2017, Fonterra has developed NZMP ingredients like Gold Whole Milk Powder for UHT, Tasty Cheese Powder and Butter Concentrate products in favour to customer demand of nutritional solutions.

[pic 1]

Figure 1: Picture illustrating the history of developing product and markets based on the customers demands and value till 2000 and more products have been developed till now (Fonterra Investor day, 2017).

In Indonesia people are demanding for full fat or reduced fat products instead of no fat products because they prefer natural food. There is increase in demand for “grab and go” products which are conveniently packed and are healthy.

For non-traditional dairy consumers Fonterra is developing some ways of encouraging them to buy its products as it enters into what it describes as a "renaissance period for dairy".

The children in Hong Kong are being attracted to cheese products and one of the product among them is Anchor candy cheese - bite-sized cheese cubes which leads to demand from the parents for more nutritional options for their children lunchboxes. As cheese contain less sugar content and rich in nutritional content twice than that of regular cheddar.

The business tends to bunch between two groups; local suppliers and global producers. In case of local supplier’s competencies lie in the production of milk. The focus of the large supplier’s is on profitable home markets of US and EU; however, some suppliers have more focus on regional and global export markets. But there is some threat of new suppliers to Fonterra who are emerging from low cost nations. Local suppliers include all co-operatives.

Global producers are made up of food manufacturing companies such as Nestle, Kraft and Unilever. These describe quick development and more global operations. Majority of the growth is by acquisition but some growth is with organic. Global producers like Nestle had made multiple contracts with Fonterra because of the lack of global suppliers.

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Figure 2: Core competitor competencies ("Fonterra Dairy solutions", 2003).

Fonterra’s Strategic Innovation Group have developed all innovative activities, stabilize the portfolio of projects and to support these projects they certify that they have the right capability and resources. Fonterra has the biggest committed dairy research facility and includes it also one of the world’s biggest committed dairy pilot plants. Employment includes around 400 staff including scientists, engineers and technologists.