SECTION C CASE STUDY 30 MARKS

[Suggested time: 30 minutes]

Vila Spice ltd is seriously considering making dramatic changes to the company. It currently has production facilities in Port Vila and as well as other Pacific countries. The CEO, Daniel Kalsarap is concerned about several issues currently facing the company and he would like to resolve these using a sustainability approach.

First, the major supplies of spices are imported from small countries of Cook Islands and New Caledonia.In both countries toxic chemical sprays are used on plantations, and these sprays have affected plantations over the long term. The spice processors in both countries pay employees the equivalent of only A$3 per hour. The employees work long hours and breathe in chemical fumes, which over time may burn their lungs. Daniel is considering setting up a factory for preliminary processing of spices in Cook Is.

Finance manager Joy Doko believes that setting up this factory is a good idea, as the setup costs will only be A$1.2 million. The current cost of processing spices at Vila is $0.33 per kilogram, but will fall to $0.11 per kg if pre-processing is undertaken in Cook Island. The Vila figure is based on the following costs:

		Cost per Kg
Direct labor	$19 per hr to process 126 kg	$0.1508
Variable overhead	$5 per hr to process 126 kg	0.0397
Fixed overhead	$145,000 per annum to produce 1039427 kg	0.13395
Total cost per kg		$0.33

Grey Tambe, the Production manager, believes that the quality of the final spice products will not be reduced if the pre-processing is undertaken offshore.

Second, although the Vila plant currently meets the required environmental emissions standards, it has been prosecuted in the past for several violations of air pollution standards, and neighbors still complain about the smell. An improved filtering system would cost $290,000 to purchase and $17500 per annum to run. Daniel believes there would be no financial benefits in improving the air quality since the facility meets government standards. He does not think that the new system should be purchased. The quality manager Pride Boni, disagrees and believes that the improvements would enhance the company's reputation and reduce discoloration of the buildings. The local newspaper has twice run stories that were critical of Vila Spice. A recent story suggested that they were also water polluters, an assertion that the company claims is untrue. No contaminated water is released into the waterways; it is all evaporated using recycling ponds and a septic system.

The third problem is continuing low employee morale at the Vila plant. The previous production manager came to the plant from the army, and ran the factory very smoothly and efficiently, but using a military style. This led to serious clashes with some of the production staff and 12 of these employees continue to be unhappy. Daniel has thought about offering these people redundancies, at a cost of $285,000. Another alternative is to engage an external consultant to act as a mediator between management and staff, to see if problems can be resolved and help improve the morale. The approximate cost of the consultant would be $43,000. Joy is opposed to this as the performance indicator for staff in the company's social and environmental report is already satisfactory and is getting better every year. The money would therefore be wasted in trying to calm only 12 employees.

REQUIRED:

For each one of these three problems outlined above:

1. Outline the financial, environmental, social and broader economic issues that the company needs to take into account.

(24 marks)

1. Highlight any further information that the company may need to gather before it can resolve these issues.

(6 marks)