Case study: 20 million KOO and Hugo's canned products to be recalled

Tiger Brands, South Africa's biggest food manufacturer, announced on Monday, the 26 of July 2021 that it is immediately recalling about 20 million KOO and Hugo's canned vegetable products over safety concerns due to potentially defective cans. This amounts to a recall of 9% of annual production and the final impact is estimated to amount to up to R650 million. Tiger Brand's share price initially dropped 6.40% after the announcement on Monday morning. The issue with the cans, which is a deficient side seam weld that could cause the cans to leak, was initially discovered in May this year with 18 cans at one of Tiger Brand's facilities. The cans came from a supplier. While that batch and several others weren't released for trade, a probe determined that some cans from a defective batch did. It did a test and out of 287,040 cans inspected after a transport and handling test, a side seam leak had developed in two cans. This prompted the recall. "A leak in a can presents a risk of secondary microbial contamination after the canned products are dispatched into the marketplace. Where such contamination occurs, it will present a low probability of illness and injury if the contaminated product is consumed," Tiger Brands said in an announcement. "Tiger Brands considers it appropriate that it institutes an immediate recall of all products that could potentially be affected. This involves the withdrawal of specific canned vegetable products manufactured under the KOO and Hugo's brands between 1 May 2019 and 5 May 2021(both dates inclusive), amounting to approximately 20 million cans, which is [approximately] 9% of annual production. "The financial impact of the recall, including the cost of the potentially affected stock that may be written off, transport and storage costs, as well as the loss of margin on the returned stock, is estimated at between R500 million and R650 million." KOO canned fruit and KOO canned pilchards are not affected. Affected canned vegetable products can be returned to any supermarket or wholesale outlet for a refund. Tiger Brands said it has product recall insurance. "The company's claim under the contract with the third-party supplier is yet to be assessed."

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Question 4 (20 Marks)

Operations management is concerned with converting materials and labor into goods and services as efficiently as possible to maximise the profit of an organisation. An organisation can respond to risks by moving to a more appropriate type of operation. Critically discuss the basic types of operations and associated risks that Tiger Brands in South Africa should take into considerations.