SCM426 Case study 3 - ABC Cheese Company

John Alex, CIO, and Robert Frost, CSCO, of the ABC Cheese Company in central Pennsylvania had just returned from a meeting with Tom Powers, who was the CEO of the company. John and Robert were both feeling the pressure of the competitive problems that Tom had presented in their weekly senior staff meeting. It was clear that ABC Cheese Company faced challenging market conditions.

Background

ABC Cheese Company was established in 1931 by two brothers, Ted and Terry Edwards, in ABC, which is located in an agricultural area in central Pennsylvania. At the time, the U.S. economy was in a severe economic depression. The local dairy farmers were experiencing financial pressure because they could not sell their milk at a price which would cover their costs. Part of the problem was transporting the milk to Pittsburgh and other larger cities at a landed cost that was competitive with farmers in Ohio. The Edwards brothers owned several tank trucks for transporting milk, but saw an opportunity to purchase milk and process it into cheese. With low savings and some borrowed capital they managed to set up a processing facility in Clearfield.

The company was a success and the Edwards brothers became legends to the local farmers and the employees of the company.The longer shelf life of the cheese allowed sales to expand into eastern Pennsylvania and Ohio.

Current Situation

Canada is the problem at the present time. Several cheese processing companies had been established near Toronto in the 1980s. For many years, the Canadian companies were not a problem, but with government subsidies to improve their manufacturing facilities and a much more favorable currency exchange rate, they were now encroaching into the established market areas of ABC Cheese Company with a quality product that had a competitive landed cost in central Pennsylvania.

John and Robert were given the charge by Tom Powers to come back to the next staff meeting with some suggestions to help improve their competitive situation. They all felt that their product processing and the quality of their product were not the issue, but that their supply chain was not as efficient and effective as it needed to be to compete with the Canadian producers. Their inventory levels were high and their transportation costs were increasing.

CASE QUESTIONS

1. What made Ted & Terry brothers to shift their Milk business to Cheese business?

2. How the Canadian companies were able to enter in to the markets controlled by ABC cheese company?

3. What strategies would you suggest for them to explore to improve their competitive situation?