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TRANSCRIPT
INDEX
INTRODUCTIONCODE OF ETHICS
Fundamental values Employment Innovation
INCREMENTAL ANALYSIS Make or Buy
BUSINEss Code Packaging Raw Materials The Loyalty and Consistency of Business Partnership
INTRODUCTION
“The Ferrero family is a great example of an Italian entrepreneurial family that in a few decades’ time was able to
conquer a world-leading position in its field – confectionery – taking roots in many countries.”
Ferrero S.p.A. is one the first confectionary companies recognized worldwide. It
represents a successful family-business born in the ‘40s when the Ferreros decided to turn a
pastry shop into a factory. From here on, the firm has grown and reached extraordinary goals
becoming a multinational company. Today, the Group is composed by about 70 companies under
Ferrero International. According to the Consolidated Financial Statement relating to the
financial year ending 31st August 2012, Ferrero International S.A. closed the year with a
consolidated turnover of 7,795 million euros, up 8% from the previous year. Furthermore,
Ferrero’s products are exported and sold in hundred countries and it constitutes one of the
world's largest confectionery makers. The Ferrero S.p.A. is successfully run by Michele Ferrero,
86, and is a firm based on solid family values. According to Forbes, Michele Ferrero is one of
the richest people in the world and he is at the 23rd position among billionaires. The company’s
success is due to the following of the family motto: “Work Create Give.” What characterizes the
Ferrero Company is the caring of hygiene, the environment, social issues and the local
communities where the company is present, as well as its own human resources. All the
ideas and the strategies for a new product’s production are centered on the consumers’ needs.
Furthermore, the company accomplishes its goals thanks to its main characteristic to be “glocal,”
which means: “think globally, act locally”. Accordingly, “Ferrero focuses on international
development, without losing sight of its relationship with local communities.” The uneasy
financial context in which the entire world is passing through has led markets to have negative
food consumption. However, Ferrero was moderately affected by the financial crisis thanks to its
extraordinary dynamism, the constant efforts of innovation, research and development.
According to the result of the company’s financial year, Ferrero had difficulties to face the
international economic context as there were increases in prices of principal raw materials,
packaging materials and energy. Ferrero got several awards for its entrepreneurial ethics,
meritocracy, and social responsibility. In 2009 Reputation Institute's survey ranks Ferrero as the
most reputable company in the world. While in 2010 the Group was assigned the Falck-Family-
Owned Business Award.
CODE OF ETHICS
FUNDAMENTAL VALUES
A strong moral code is what characterizes the Ferrero Company. The fundamental values that
underlie this company were published in 2010 in its first Corporate Social Responsibility Report.
Its set of ethical principles is known all over the world and is one of the reasons of Ferrero’s
success. Such values are also the basis for everyday relations with consumers and partners. The
more important are
Loyalty and Trust
Integrity and Sobriety
Passion for Research and Innovation
The company pursuits their entrepreneurial objectives without losing a special focus on respect,
professionalism, and responsibility. The relationship of trust with its customers that the company
has built over the years is the result of its transparency and excellence in quality. The key
principles that are at the basis of the company are summarized in the motto “work, create,
donate”. As Michele Ferrero stated, the Group favors the “ethics of doing” over the “practice of
appearing”. The constant attention towards consumers’ needs is what pushes Ferrero’s team to
create new products and continually try to improve its production processes. The combination of
effort, involvement, and creativity has brought Ferrero’s to excel in the confectionary sector.
Moreover, the company managed to successfully balance freedom with rules, creativity with
responsibility, and individual initiative with collective protection. The philosophy that inspires
the company is founded on the Group’s two main objectives:
Creating value for the community
Creating value for the company
While before creating value at the social level was related mainly to the creation of employment,
nowadays it requires also social commitment, respect for the environment and the defense of
human rights and workers’ rights. On the other hand, creating value for the company means
creating profit. Such a result must be reached by safeguarding the benefits of the stakeholders.
The deep dedication to the consumers’ satisfaction results in the attempt to make products that
are appealing to consumers today while anticipating and satisfying their changing tastes.
EMPLOYMENT
The keyword is meritocracy. The main goal of Ferrero’s company is to create a
stimulating environment and help to arouse the workers’ skills. The basic idea is that a pleasant
and positive environment increases employees’ performances. Indeed, passion for their activity
is what characterizes Ferrero’s workers that are supported by several services. The company, in
addition, provides workers with small children programs designed to guarantee “part time” work
hours. Michele Ferrero really cares about his employees, and he demonstrates it through rewards
on the basis of merit. Furthermore, despite of the worldwide crisis, the leading exponents of the
company continually try to find alternative solutions to avoid firing their workers. The distinctive
trait of this leading manufacturer, is the sense of belonging shared by all its workers. The mutual
trust between colleagues, moreover, results in their full dedication, and engagement to the work.
INNOVATION
The mission of Ferrero family turns around its main feature: innovation. The main goal of
the company is to develop new products capable to create new products categories. Originality is
what characterizes this confectionary manufacturer. Its power stands in the ability to think
beyond the models in products, packaging, selection of materials, and advertising. Product
freshness is guaranteed with the complete traceability of the origin of each supply.
INCREMENTAL ANALYSIS
Companies regularly make business decisions and their effects can be short-term in nature or
have long-term impacts. Changing the color of a product, introducing new products, and
discounting a production are examples of short-run decisions that are compatible with
incremental analysis. In a short-term context, the resources must meet the current marketplace. In
order to understand what kind of information is relevant in a particular business decision it is
necessary to make a distinction among the different kind of costs. On one hand, opportunity
costs, incremental revenues and costs, and out-of pocket costs are relevant information in the
incremental analysis. On the other hand, sunk costs are not relevant because they have been
already incurred and cannot be affected by future decisions. Out-of-pocket costs are those costs
that are not yet been incurred and that may vary among the possible courses of action.
The incremental analysis is fundamental in order to make specific decisions such as the
product mix decisions and the make or buy decisions. This technique is used to compare two
different course of actions and determine consequently which one is the best choice. For
example, whenever a factor limits the production, the
contribution can be maximized by discontinuing the
manufacturer of the item less profitable. In the production
constraint decisions the managers have to identify the input
factor that limits the amount of output. Furthermore, they have also to find the perfect production
mix to maximize the contribution margin per unit of the limiting factor. Nevertheless, it is
important taking into consideration the current demand of the item as well as its complementary
product.
In other manufacturing operations, the incremental analysis is useful in order to figure out
whether the company should buy or produce a part required in the assembly process of a certain
product. To determine which decision is the most profitable, the firm has to compare the selling
prices and the production costs. Since not all the costs are relevant, it is important to identify the
incremental costs.
In 2011 Ferrero introduced a line of frozen products called "Gran Soleil". It is a shelf-
stable frozen dessert which has to be shaken, and if left overnight in the freezer, can be eaten as
a sorbet.
The company received an innovation award for the product in March 2011. The demand for Gran
Soleil is not sufficient to allow Ferrero to sell all of the items it is capable of producing. Also, as
the firm spends many labor hours and direct materials in order to produce Gran Soleil but its
demand is scarce, the best choice to make is stopping producing Grand Soleil. Operating income
would be maximized by producing Estathè once the demand for Nutella is satisfied.
Among the products produced by Ferrero Company, it is easy to understand from the tables that
Nutella and Estathè are the products that have been sold the most. As a consequence, the firm
decided to exploit this outcome by
propagandizing a new marketing idea. To
maximize its sales, Ferrero invented an
ingenious product which combines both
Estathè and Nutella. The new product was
called “Nutella & Go”.
The product has a circular packaging divided in half. In one compartment it has the
Nutella chocolate and in the other, it has the Estathè which is Ferrero’s tea. The bread-like sticks
are used to be dipped into the Nutella. The combination of this and the Estathè is a perfect one
because the Estathè can then be used as a drink to go along with this delicious snack. In order
for this product to be combined, Ferrero created the model of having three compartments in one
jar.
As Nutella is a product sold and known worldwide, Ferrero should make it better by
working on a new marketing idea. Other pastry companies have already invented the double
chocolate cream. For “double cream” they mean both white and black chocolate creams. Ferrero
has not the white chocolate cream among its products. For this reason, in order to improve their
sales, Ferrero should create the white chocolate cream. As member of the Ferrero Company, I
would suggest to invent a squeeze bottle idea of having both the original Nutella and the white
form of Nutella combined, when squeezed, but not mixed. The idea is that when both forms of
Nutella come out of the squeeze bottle, they form a twist.
MAKE OR BUY
Producing Nutella requires thousand hazelnuts. Ferrero Company is one of the world’s
largest hazelnuts users. At the beginning Ferrero used to purchase hazelnuts mainly from
Northern Italy and Turkey, which are both producing countries of hazelnuts. By doing some
computations, Ferrero noticed that it would be convenient for the company growing its own
hazelnuts. The group would save $ 33.300 if it stops trading hazelnuts with other foreign
customers. In accordance with this project, Ferrero created “Hazelnut Business Development”
(HBD), which establishes long-term partnerships with producers. HBD develops its strategy by
identifying and purchasing land where hazelnuts can be cultivated and processed through its own
techniques and resources.
Business code
THE 5R FERRERO STRATEGY IN PACKAGING
The commitment of Ferrero Company to reduce the environmental impact of its
packaging pushes its team to find new eco-sustainable solutions.
The 5R’s of packaging:
R-Removal: elimination of unnecessary packaging component
R-Reduction: creation of smaller packs with resultant saving of materials
R-Recyclability
R-Reuse: besides traditional Nutella glass containers, Ferrero company is working on
new ideas of “reusable” packaging
R-Renew: attempt of utilizing larger amounts of materials from renewable sources
Nutella packaging is composed of 92.58% glass. The glass is a material 100% recyclable, and ,
moreover, 34% of the glass used by Nutella is recycled glass.
RAW MATERIALS
All raw materials must meet specific requirements regarding freshness, quality, and safety.
Furthermore, the acquisition procedure is related to the following criteria:
Selection of suppliers based on their competences
Inspections and control on agricultural production
Analysis of conformity of raw materials
The relationship of Ferrero’s company with its suppliers is based on
mutual respect, communication, and transparency. In addition, the
reciprocal fairness in its commercial partnerships are incentivized
through a transparent price policy as well as the achievement of
rewards in order to stimulate the maintenance of high quality
standards. The choice of suppliers is made by looking at
requirements of integrity, quality, efficiency, and cost effectiveness.
THE LOYALTY AND CONSISTENCY OF BUSINESS PARTERSHIPS
In the choice of business partnerships the adopted rule is to not enter into agreements that
prevent the client from buying products from competitors of Ferrero. In particular in the
acquisition of raw materials, equipment, goods, and packaging, the selection of trade partners is
preceded by some considerations regarding the potential partner by looking at in particular:
Quality and safety
Ethical, social, and environmental principles
Cost effectiveness analysis
Furthermore, Ferrero Company determined some main principles for engaging into a trading
relationship:
INDEPENDENCE
Trading partners are independent economic entities
RESPECT FOR COMPETITION LAW
FAIR TRADING