The MBA oath says in part, “My decisions affect the well-being of individuals in

Question

The MBA oath says in part, “My decisions affect the well-being of individuals inside and outside my enterprise, today and tomorrow.” This echoes what John Mackey of Whole Foods has in recent years called conscious capitalism.

One example of a large firm reorienting toward this approach is PepsiCo. In the last few years, PepsiCo has been contracting directly with small farmers in impoverished areas (for example, in Mexico). What started as a pilot project in PepsiCo’s Sabritas snack food division has now spread to over 1,000 farmers providing potatoes, corn, and sunflower oil to the firm. Pepsi provides a price guarantee for farmers’ crops that is higher and much more consistent than the previous system of using intermediaries. The farmers report that since they have a firm market, they are planting more crops. Output is up about 160 percent, and farm incomes have tripled in the last three years. The program has benefits for Pepsi as well. A shift to sunflower oil for its Mexican products will replace the 80,000 tons of palm oil it currently imports to Mexico from Asia and Africa, thus slashing transportation and storage costs.

Questions

a. What are the benefits of this program for PepsiCo? What are its drawbacks?

Explanation / Answer

The benefits by offering the local farms appears reduce the transportation cost and import from Mexico rather Asia which helps to stabilize the supplier channel with consistent processing and scheduling operations. It creates less environment impact and reduces the unpredictability on the PepsiCo budget planning. This opportunity gives PepsiCo to develop a close network with local farmers by educating them on the right usage of the fertilizers and disposal of pesticide containers. It generates greater benefit for the stakeholders by having good local economies. Also, Sunflower crops improves the quality of the soil, needs lesser water for the growth and healthier when compared to Palm oil. But this could have drawback for PepsiCo because Sunflower oil has different taste when compared to Palm oil and may lead to reduced product sale. At the same time increase in the product cost and loosing the product focus may have repercussions on losing the loyal customers.

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