The Business process of the Ferrero organization

Introduction

For my Business Process module of the BA Business & Enterprise course I looked into several companies, some small and some large. However, still undecided on which company to pursue, I took a walk to my local shop to buy my two sons’ a special treat. The shop has a vast array of goodies for children including both chocolate and toys. My two boys both wanted a Kinder Surprise egg as they get both chocolate and a toy. This made me think, I remember Kinder Surprise eggs when I was a small boy and how excited I use to get when I went to the shop to buy one. This made me think, how a product can maintain the reputation, sales and recognition from generation to generation without fading away or being challenged by competitors?

With all this in mind I decided to base my project on the Ferrero Company.

During the research gathering process I have compiled the following reasons why Ferrero will be an ideal company for my project:-

Massive company growth and Globalisation

Multi Generational Marketing (Kinder Surprise Egg)

Devotion and relationship with all their employees

Outstanding contribution to the community

Problems the company has faced in the past

Strategic advantage over competitors

Dedication to their Corporate and Social Responsibility

Utilising IT development to enhance distribution

Relationship with competitors

One of the top ten confectioners in the world

This project (Course work 1) will introduce you to the Ferrero Company itself, its fantastic history and I will also talk about its massive global success. I will explain the Organisational structure of the company, the five levels of resources (Strategic, Tangible, Intangible, Unique and Core Competences) and compile a PESTEL report.

Ferrero

The Beginning

Born in 1898, Pietro Ferrero began his career as a pastry maker in Dogliani, Italy. He opened his first pastry shop in Turin but was forced to move to Alba during World War II. Ferrero sought to develop new products in order to overcome the short supply of traditional pastry ingredients. By the end of the war, Ferrero had developed a new spread which combined hazelnuts, cocoa butter and vegetable oil. Ferrero called the paste ‘pasta gianduja’ which he began selling in 1946. In that year his brother, Giovanni and son, Michele joined the company which had now been incorporated as ‘Ferrero SpA’. By the end of 1946 the company had employed more than 50 workers and had approx 200 delivery vans distributing their product around Italy. In their first year sales had topped £660, Ferrero began contracting farmers to ensure the supply of hazelnuts continued and at the same time improving their quality.

1948

On 4th September 1948 a huge flood had isolated the factory and put its existence in great danger. However, due to the fantastic relationship the family had with all their workers, they all; including Pietro and Giovanni worked solidly for 4 days and 4 nights in order to save the factory.

On 2nd March 1949, Pietro Ferrero died aged 51, his brother Giovanni took the Helm.

The 50’s

By the 1950’s Ferrero had developed its own efficient distribution network around Italy and opened several depots. By 1954 Ferrero was a household name in Italy.

1956

In 1956 Ferrero opened its first factory abroad in Stadallendorf, Germany. They produced just two products for the German market and both had an extraordinary success.

1957

Giovanni Ferrero died in 1957 and Michele Ferrero took the helm. Michele renewed the production plants in order to boost production through increased technology and sophisticated machinery

The 60’s

Ferrero moved into – France, Belgium, Netherlands, Luxembourg, UK, Austria, Denmark, Sweden and Switzerland.

In 1964 Michele Ferrero created Nutella

In 1968 he launched the Kinder Chocolate, especially made for children.

The 70’s & 80’s

Ferrero USA opened in 1969 followed by Canada, Latin America, South East Asia and Australia. By the 1980’s Ferrero was strategically placed in all five continents.

In 1985 two new production plants were opened in Southern Italy to help the people devastated by the Irpinia earthquake.

The 90’s

Ferrero developed into Eastern Europe including Poland, Hungary and the Czech Republic along with a new plant in Poland.

Again in November a terrible flood hit Italy killing many people and damaging the Alba plant. Production was interrupted but just like back in 1948, the employees worked alongside the Ferrero to rebuild the plant and get back on its feet. Some of the employees helping to rebuild the plant had just lost their homes to the flood.

In 1997, Michele Ferreros’ sons Pietro and Giovanni became Chief Executive Officers of Ferrero International.

The 2000’s

In 2006 a new production plant in Canada was opened and by 2009 there was more than 20,000 employees worldwide, over 20 different products and a turnover of more than 6 billion Euros.

Business Units

Years

Production Plants

Years

Germany

1956

Italy – Alba

1946

Belgium

1958

Germany

1956

France

1960

France

1960

Italy

1964

Italy – Pozzuolo

1965

United Kingdom

1966

Australia

1974

Switzerland

1966

Ireland

1975

Sweden

1968

Ecuador

1975

Austria

1971

Italy – Balvano

1985

Ireland

1975

Italy – Sant’Angelo

1985

Netherlands

1980

Belgium

1989

Spain

1988

Poland

1992

Poland

1992

Argentina

1992

Luxembourg

1993

Brazil

1994

Hungary

1994

Canada

2006

Czech Republic

1994

Cameroon

2006

Russia

1997

India

2007

Ukraine

2003

South Africa

2007

Croatia

2003

Russia

2009

Greece

2005

Repackaging Centre

Years

Romania

2006

United States

1969

USA

1969

Social Enterprises

Years

Canada

1974

Cameroon

2004

Australia

1974

South Africa

2005

Puerto Rico

1975

India

2007

Hong Kong

1976

Japan

1978

Argentina

1992

Mexico

1992

Brazil

1994

Sri Lanka

2004

India

2004

South Africa

2004

Turkey

2005

China

2006

Ferrero’s main competitors are Kraft Foods, Mars and Nestle, however you will see in Course work 2 how integrating with the competitors can be of a huge benefit to all parties and the environment.

Success

I believe Ferrero is one of the world leaders when it comes to business growth and success, this I have measured by the following means –

Phenominal amount of Global business units and Production plants

Amount of Employees

The annual turnover

Their ability to develop their own production machinery in order to gain a strategic advantage over competitors

Their use of Multi Generational marketing (Kinder Surprise)

Their contribution to society and charitable work

Annual profit of £6 billion

More than 20 different products

From the small pastry shop in 1946, Ferrero has become according to Forbes (http://www.forbes.com/2009/05/06/world-reputable-companies-leadership-reputation-table.html) the world’s most reputable company as of May 2009. As shown by the history of Ferrero, the growth of the company has been outstanding; this is mainly due to the passion and commitment of its owners and employees as well as the development of its unique brands and its commitment to develop its own production machinery to maintain its strategic edge.

Ferrero group dedicate a lot of their time and money into other schemes such as –

‘Opera Sociale’ set up as a group to help and welcome retired employees and give them a sense of belonging.

‘Social Enterprises’, Ferreros commitment to enhancing the living conditions and develop the populations in some of the poorest areas in the world.

‘United Kinder of the World’, is set up to enhance the health and development of children and young people.

‘Kinder + Sport’, developed to promote a healthy lifestyle and encourage sports. Since 2007, ‘Kinder + Sport’ has involved more than 6 million children worldwide in activities in 17 countries.

Has you can see Ferrero’s success isn’t just measured by the amount of awards it has won or the amount of profit it has made. I believe the level of success that Ferrero has achieved can be seen on the faces of the people and children that the company aid as well as the commitment by all employees.

The company Moto of ‘Work, Create, Donate’ is a clear target of what the company aims to achieve and clearly they have achieved this, thus successful.

Organisational Structure

The table below displays the number of employees and how it is subdivided; these figures are taken from the CSR Report 2009,

Number of Employees

As of 31/08/2009

Workers

12,993 (60%)

Employees

6,067 (28%)

Executives and Officers

1,724 (8%)

Managers

771 (4%)

Total

21,555

Type of Contract

As of 31/08/2009

Indefinite Contracts

17,460 (81%)

Fixed Term Contracts

4,095 (Including seasonal workers 11%, interns 1% and fixed term contracts 7%)

Total

21,555

44% of employees are women and 56% are men. 83% of staff are based in Europe

The Ferrero Company is based around a Functional Structure with their main Headquarters being in Italy. The Ferrero board will meet and discuss initiatives and business and then forward on their decisions to each Director of each separate sub company i.e. Ferrero Belgium & Ferrero Germany. The companies are run in a mirror image scenario, each sub company will have its own HR team, Production team, marketing and purchasing team. However each sub company will run exactly like each other in respect of what product they are producing, how the HR Function is run and where they get their produce. The only difference will come from the marketing team because each country has a different social network and need.

The Ferrero Company also works on ‘Standardising inputs and outputs’ model. Each sub company are standardised to what they produce, how they produce it, how the HR Function is run, where they get their produce and how their staff are trained. Ferrero have endorsed a huge training package for all employees run by the ‘Ferrero Learning Lab’ which encompasses several training packages to cover all aspects i.e. Managerial, Nutritional and technical. With this standardisation approach, Ferrero have been able to offer exactly what they do national but globally, without any major issues and disparity.

PESTEL Analysis

FERRERO Pestel Analysis

Political

Negative

Positive

With any company dealing globally, the risk of countries becoming unstable and possible war is always going to be a risk to production and distribution worldwide.

Ferrero has grown considerably since 1946; this has been possible due to the rapid increase in the European Union, from starting out with 6 members it has now grown to having 27 member states. This growth has allowed for the harmonisation between several countries and its overseas distributions and has allowed for easier expansion through standardised strategies.

Ferreros continued support to its Social Responsibilities, mainly that of its support to third world countries has allowed for an excellent relationship and reputation world wide, this has assisted Ferrero with its continued growth throughout these countries.

Economic

Negative

Positive

Increase in VAT rate and import costs may have an affect on consumer purchasing and may increase the price on products due to both these increases.

Price increase on products may not affect sales due to extremely strong brand reputation with the consumers.

Ferrero and Mars have teamed up on a joint distribution initiative, both products will be distributed to the same warehouse and then both distributed out together. This will decrease the distribution costs.

Social

Negative

Positive

Sales of confectionary products as a whole decrease during summer months. (see graphs below)

Kinder Surprise egg utilises Multi Generational Marketing and has become a collectible item worldwide. Each country produces its own toys in respect to its countries niche at the time. E.g. Super mini Smurf parade issued in Germany.

It is a well known fact that more chocolate is sold at Christmas and Easter than any other times and will continue to do so.

The reputation institute in New York awarded Ferrero 1st Place as the company with the best overall reputation with the consumer public.

Excellent long term relationships with suppliers.

Technological

Negative

Positive

Ferrero implemented the SAP Extended warehouse development application which will increase distribution, decrease wastage, increase production, increase distribution timeliness and maximise storage capacities.

Ferrero have developed at least 50% of their own production machinery and technology in order to hold a strategic advantage over their competitors.

Environmental

Negative

Positive

The prospects of global warming will always be an issue with regards to growing and producing its raw materials i.e. Cocoa, palm oil and sugar cane.

Ferrero prides itself on its contribution to protecting the environment and is actively contributing to saving energy and increasing raw material production. The Corporate Social Responsibility report 2009 details all contributions and future projects Ferrero have implemented and are implementing. The 5R recycling project by Ferrero on all packaging it produces helps the environment and the company’s reputation.

Legal

Negative

Positive

The Kinder Surprise Egg was banned in the USA since 1997 due to the Consumer Product Safety Commission deeming it being a hazard to small children because it may contain a choking hazard. The Egg also falls foul to the US 1938 Federal Food, Drug and Cosmetic act which prohibit embedding “non-nutritive items” in confections.

Ferrero counter acted the US Laws by producing and selling the Kinder chocolate without the surprise, this was again a huge success. The Kinder Surprise egg however, is still sold illegally around the US by shops importing them in from other countries. The law as made the Kinder Egg some what a highly sort collectible in the US and as indirectly assisted in the marketing of the egg.

This graph below shows the average sales of the Sugar and Chocolate sales throughout the year (calculated in weeks). As mentioned in the PESTEL Report the summer moves takes a clear dip in sales.

The graph below shows Ferreros annual turnover in 2006 driven by season. The red line represents the average sale during the year. As you can see 80% of sales were achieved out of the summer months and only 20% during the summer months.

Resources

Strategic Capabilities

Tangible Resources

Intangible Resources

Unique Resources

Core Competencies

Produce 50% of its own production machinery and technology

Ferrero have production plants and offices worldwide

Excellent worldwide reputation

Powerful brand name with the Kinder Surprise and TIC TAC mints

Kinder surprise has become a collectors item worldwide and will continue to do so

The new implementation of the new distribution and warehousing IT software

All employees are motivated and made to feel like part of the Ferrero family

High level of training provided

Developed their own unique product the chocolate and hazelnut paste ‘Cremino’

Teamed up with Mars to increase distribution speed and cut cost and help cut down CO2 emissions

Excellent Training and Human resource management

Unique ties with raw material sources worldwide

Multi generational marketing

Coursework 2

CW2 will be focussing on Ferreros ‘Value chain’, ‘Supply chain management’, ‘SWOT Analysis’ and I will be make my own conclusions and recommendations on Ferrero