PCACS NEW PANVEL (410 206)

Submitted by: Chinmay Joshi

Sec: FYBAF
Roll No. 316
Subject: Global Trade (Certificate Course)
CASE STUDY- MAGGI

Maggi episode is first of its kind in the independent India leading to recall of
number one packed food product. In my assessment, this is a gross risk
management failure and particularly operational risk that may open lid in other
industrial sector to take the risk management more seriously. The seriousness
should come from the Board at the top setting the tone.
To assess the risk management culture in Nestle India, I explored the details
available on its website through reading code of conduct, Annual report,
auditor's report etc. The Company has Risk Management Committee with three
members-one, the CFO, second the Technical member and the third Head of
Treasury. The point to highlight here that there is no member with Risk hat.
However, it is not clear the role of Technical person whether he is involved in
the quality control. it is noted that the Company does not have a dedicated Risk
unit to handle the risk issues.
In the 2014 Annual report the Company did SWOT analysis iden: lying
following threats:
Availability of Argo based commodities that meet Nestlé specifications.
Regulatory developments impacting processed foods
Increasing concern on currently prevalent packaging Material’s and absence of
viable alternatives.
First is a proud statement contracting the actual outcome, secord is true in any
regulatory environment while third is getting close to actual event. Though the
actual event is arising out of misleading the customer and failure to maintain
quality.
Such events are extreme events and sits on the tail of the distribution with very
small probability and very high cost. Risk Management come to the rescue here
by running the process through following five stages of risk management
1. Risk Identification
2. Risk Measurement
3. Risk Management
4. Risk Monitoring and 5. Risk reporting
if the failures are checked against the above five process, the first failure is
misleading customer with message "No added MSG", if MSG is coming from
natural ingredient, that should have been clarified. So the risk has slipped
between the cracks leading to failure in risk identification
The the manufactured samples need to be tested for quality control and sent for
consumption only when found statistically credible The Company may be doing
this but no details of such tests conducting found in Annual report, though the
annual report mention spending on R&D.
Because the company was not aware of the above two, took time in reacting at
the first instance of break of the news- this is failure of communication.
Now the damage is done and reputational risk is a mother of all risks, once
broken cannot be joined. This is a very important point that I want to mention
through this article that many of the failures in the operational risk can create
un-repairable damage and bring down reputation to naught.
The time is here when many of the business houses should start looking into
taking the risk management more seriously not just in financial services but also
in all sectors. The benefit of risk management is through adding the
shareholder's value and no one can dispute the level of loss that Nestle has
suffered in this episode. This also brings some of the habits in the human to
overlook the basics and ignoring the obvious.

Questions:
Q.1 Discuss the problems related to withdrawal of MAGGI noodles from
the market?
ANS: The withdrawal of Maggi noodles from the market posed several
significant problems, both for Nestlé India and the broader food industry. Here
are some key issues:

1. Reputational Damage
 - Loss of Trust: The incident severely damaged consumer trust in Nestlé and its products.
Once a brand is associated with quality issues, regaining consumer confidence is a long and
challenging process.
- Brand Equity Impact: Nestlé’s brand value suffered as customers began to question the
integrity of other products in their portfolio.

2. Financial Losses
- Immediate Financial Impact: The withdrawal led to direct financial losses from unsold
inventory, logistical costs, and potential compensation claims.
- Long-term Financial Ramifications: A decline in sales not only affected immediate
revenue but also projected long-term growth and market share.

3. Operational Disruption
- Supply Chain Challenges: Halting production and distribution disrupted the entire supply
chain, leading to inefficiencies and increased operational costs.
- Resource Allocation: Resources had to be diverted to manage the crisis rather than
focusing on growth and innovation.

4. Regulatory Scrutiny
- Increased Oversight: The incident attracted regulatory scrutiny, leading to stricter
regulations for food safety and quality standards that could impose additional compliance
costs on the company and industry as a whole.
- Potential Legal Consequences: Nestlé faced legal challenges, which could further
complicate operations and drain resources.

5. Market Competition
- Opportunity for Competitors: The withdrawal provided an opening for competitors to
capture market share, potentially leading to long-term losses for Nestlé.
- Erosion of Market Position: Competitors could capitalize on the situation, enhancing their
own brands and products in the eyes of consumers.

6. Internal Culture and Risk Management

- Failures in Risk Management: The incident highlighted weaknesses in Nestlé's risk
management framework, signaling a need for a cultural shift towards more robust risk
assessment practices.
- Operational Risks Uncovered: The failure to identify and mitigate risks, particularly
regarding product quality and consumer communication, indicates a potential gap in
operational risk management.

7. Consumer Health Concerns

 - Public Health Risks: The incident raised concerns about food safety and health risks
associated with processed foods, leading to broader discussions about industry standards and
practices.
- Increased Consumer Awareness: Consumers became more vigilant and critical of food
safety, which could lead to changes in purchasing behaviors.

Conclusion
The withdrawal of Maggi noodles serves as a cautionary tale about the importance of robust
risk management, quality control, and transparent communication in the food industry. It
emphasizes the need for companies to prioritize these aspects to maintain trust, safeguard
their reputations, and ensure long-term success.

Q.2 Give your suggestions to solve the above issue?

ANS:
1. Strengthen Risk Management Framework

● Establish a Dedicated Risk Management Unit: Form a specialized team focused on

risk assessment and mitigation, including members with expertise in food safety,
quality control, and regulatory compliance.
● Enhance Risk Identification Processes: Implement comprehensive risk identification
tools, including regular audits and consumer feedback mechanisms, to proactively
identify potential issues.

2. Improve Quality Control Procedures

● Rigorous Testing Protocols: Enhance testing protocols for raw materials and final
products to ensure compliance with safety standards. Ensure transparency about these
tests in public communications.
● Supplier Audits: Conduct regular audits of suppliers to ensure that they meet quality
standards and specifications consistently.

3. Enhance Communication and Transparency

● Clear Messaging: Develop clear, transparent communication strategies about product

ingredients and quality assurance measures. Address potential consumer concerns
proactively.
● Crisis Communication Plan: Establish a robust crisis communication plan that enables
quick and effective responses to any quality or safety issues.

4. Engage with Regulatory Authorities

 ● Proactive Collaboration: Work closely with regulatory bodies to ensure compliance
and contribute to the development of food safety standards, demonstrating
commitment to consumer health and safety.
● Feedback Loops: Create channels for receiving feedback from regulators and
incorporate it into internal processes.

5. Consumer Education and Engagement

● Informational Campaigns: Launch campaigns to educate consumers about the quality

control processes and safety standards followed by the company, restoring trust and
confidence.
● Engage Consumers: Foster engagement with consumers through feedback
mechanisms and encourage them to voice their concerns or questions.

6. Continuous Improvement Culture

● Training and Development: Invest in regular training for employees on risk

management, quality control, and crisis management to foster a culture of continuous
improvement.
● Benchmarking Best Practices: Learn from best practices in risk management from
other industries to strengthen processes and protocols.

7. Reassess Product Messaging

● Clarify Labeling: Ensure product labels accurately reflect ingredients and their
sources, particularly in cases of naturally occurring substances like MSG.
● Marketing Transparency: Avoid misleading marketing claims and focus on clear,
honest messaging about product attributes.

8. Monitoring and Reporting

● Establish Monitoring Systems: Implement real-time monitoring systems to track

product quality throughout the supply chain, allowing for quick responses to potential
issues.
● Regular Reporting: Create a transparent reporting mechanism for stakeholders to
review risk management performance and outcomes regularly.

Conclusion

By implementing these suggestions, Nestlé India can not only mitigate the risks associated
with the Maggi noodles withdrawal but also strengthen its overall risk management
framework, enhance product quality, and rebuild consumer trust. This proactive approach can
serve as a model for other companies
THANK YOU!!