Add a Little Lemon Zest to Your Strategy

Over the recent months, the price of spice commodities has begun to rise. The majority of these spices are grown near the equator. The region around the equator has experienced some devastating weather events that have affected the supply and also driven up the prices of spices. Additionally, countries which produce spices, such as Egypt, have experienced long periods of political unrest, which has also affected the cost of the commodities. Further still, the economic downturn has affected the demand for spices, especially among restaurants. McCormick & Co., one of the world’s largest spice dealers has seen the effects of these factors. In an interview with the Wall Street Journal, McCormick’s CEO Alan Wilson states; “the prices of most of our commodities have really surged in the last year.” All the while, demand for spices has declined as people have begun making simple and inexpensive meals in an effort to save money.

In the face of these natural, political, and economic factors, McCormick & Co. has had to make important capacity and inventory decisions in order to try to keep their profit margins. In response to political unrest in Egypt, the company decided to build up their inventory of herbs from the country in order to ensure they had those commodities in the future. As we know from our activity “The Gaming Company” from last week, it costs money to hold high levels of inventory, especially if a large quantity is purchased up front. The company also made sure to find additional suppliers of the herbs they normally purchased from Egypt to ensure they wouldn’t face shortages.

As costs of certain inputs rise, McCormick has had to make decisions about their production levels in order to once again achieve optimal operating levels. They forecasted that the demand they had been receiving from restaurants would decrease, and subsequently changed their strategies to regular consumers. In order to try to ride out the economic downturn, the company has turned their focus to marketing simple and inexpensive, yet delicious, meals to families by recommending popular spices and recipes cooked in the home.
Lastly, in an effort to save money and reach more optimal operating levels, McCormick & Co. has made a four year goal of saving $150 million in operating costs. They project that they will meet their goal a year ahead of schedule because they have been so successful at creating more capacity at their plants and have been able to avoid building new plants.

I have outlined only a few scenarios where McCormick & Co. has had to make important capacity and inventory decisions. It is imperative for companies to maintain a close eye on the environment outside their business so they are prepared for whatever may come up. Do you think the company is on the right track with their strategies as they face different external factors that impact their business?

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http://online.wsj.com/article/SB10001424052970203899504577126892320260290.html

13 thoughts on “Add a Little Lemon Zest to Your Strategy

  1. In regards to your question, yes, I think that McCormick is on the right track with their strategy. With some signs of economic upturn, I think a reduced cost strategy will benefit them when sales begin to rise. A low cost strategy can help them maintain operations when variability in the market occurs as well.

    1. I also think they are on the right track and have used some smart business strategies to navigate through the recession. The lower cost strategy has been a long process and has resulted in an overhaul of their operations. They should be excited about their future and the possibilities that will be available to them as a result of operating as a more lean and efficient company.

  2. I can definitely relate to this article since I work for a furniture company in Bahrain and due to the political unrest we have faced last year our sales have decreased and our inventory stock is barely moving. We purchase new collection of furniture quarterly from our head quarters, and display them in our showroom in hopes that customers will buy the floor pieces. However, due to the unrest people are very careful when it comes to spending their money. Our manager tries to forecast what our sales will be like in future, but since the political problem is still not 100% over, we are facing low sales and tight storage space. Therefore I strongly believe with your statement that “It is imperative for companies to maintain a close eye on the environment outside their business so they are prepared for whatever may come up”.

    1. Exactly. We have seen what happens when companies don’t stay ahead of the curve and watch the external environment. Such examples include: Blockbuster, Nokia, Honda, etc. These companies have seen losses both in profits and market capitalization because of their blunders. The best of luck to the furniture company you work for!

  3. Seeing as though McCormick has been able to meet its four-year goal of saving $150 million dollars in three years, it can be said that they must be in the right track towards a greater strategy that would benefit the company as a whole in the face of adversity. While it can be said that shifting towards a household market, which consumes more regularly, may offer a good alternative to their previous strategy, I think it is important to note that this strategy may not be sustainable in the long run. While spending is ultimately decreased due to political instability, with confidence in the markets ultimately plummeting, it is perhaps interesting to note that an increase and shift towards this consumer “home-oriented” market could possibly be seasonal. While McCormick capitalizes on that quite well, this seasonality (for the lack of a better word) in the face of adversity may create a false sense of security. While lowering costs in the short run will allow McCormick to obtain its short-term profitability goals, major cost reductions may cause an eventual loss in quality of their product. Quality is essential, and therefore, I believe that it could be possible that McCormick is jeopardizing long-term quality in lieu of short-term profits. This could ultimately prove counter-productive because a company that has historically been the one of the largest in terms of market share may lose its reputation for providing goods of high quality and in response, competitors may outperform McCormick in the long-run. While this may be very theoretically driven, I would like to reassert that given the information regarding McCormick’s current strategy, it can be said that, ultimately, YES, McCormick is on the right track.

  4. This post reminded me of the ‘food-fuel dilemma’ ; A big issue with ethanol production where the demand for corn-based ethanol fuel is causing food costs to rise around the world. The IMF reported that there was a 10% increase in food prices in 2006, “driven mainly by surging prices of corn, wheat and soybean oil in the second part of the year.” I found this post very interesting because it always opens up my mind to things we might think are unrelated, consumers may not be aware of it, but food contains large amounts of corn, not just in the form of corn itself, but also in the meats that come from corn-fed animals. Therefore I think it is important to look into things more deeply and to understand how everything ties together in operations.

  5. I see McComricks they are in the right path and by implanting there new strategy the company is going to achieve their objective and the most important thing is lowering their cost, I think increasing prices for the commodities are now a major concern around the globe it not just related to a political issue as mention in the article , but it is also related to the global warming witch cause a lot of harmful for our natural recourses, that’s why the prices is increasing which need from any organization working in these filed to find out how they are going to solve these issue ….

    1. I’m not sure I agree with your statement about global warming, but there are definitely more issues that play into rising prices of commodities. It is not always easy to pick out the exact reasons for changes, but what I feel McCormick & Co is doing well is that they are being proactive no matter the reasons for the rising prices of commodities. They are being forward thinking instead of reactive, and I think this will help them maintain their market share and place in the industry.

  6. McCormick is on the right track, companies should always consider such changes in the political situations. I’m impressed with the management of McComrik because they were flexible enough to do such rapid change in a short time, they faced a downturn however they were able to cut their cost.

    1. I agree. It isn’t always easy to make rapid changes in big companies, so I am also impressed at their speed and gumption to take action.

  7. Yes MicCormick is on the right track with their strategies as they have to be prepared for any external factor that would impact the business in the present time and future. For example, Toyota was really effected by the earthquake and have suffered from shortage in supply and had no contingency plan at the time. Therefore, they had lost sales.

    1. Toyota served as a valuable reminder for many companies to make sure their operations are prepared for any type of disaster. It is obviously unfortunate that it had to happen this way, but in a way it was an important reality check for the entire business world.

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