Management in Action Chipotle’s Operational Problems Make People Sick Steve Ells
ID: 428122 • Letter: M
Question
Management in Action
Chipotle’s Operational Problems Make People Sick
Steve Ells, Chipotle’s co-chief executive officer, founded the company in 1993. It has expanded to more than 1,900 locations and over 59,000 employees.
Chipotle was built on the idea that is possible to deliver a fast-food experience relying on “high-quality raw ingredients, classic cooking techniques, and distinctive interior design.” In other words, fast-food service would resemble a fine dining experience. This idea morphed into the marketing slogan “Food with Integrity.” Chipotle’s commitment reflects the company’s “devotion to finding the very best ingredients we can—with respect for animals, farmers, and the environment.”119 Its marketing messages claimed that its fresh ingredients and naturally raised meat were better than those of competitors and better for all humanity. The goal was to position the fast-food chain as a healthy choice.
Healthy Choice?
Chipotle encountered a crisis in 2015. It began when 234 customers and employees were infected with a norovirus at a Chipotle in Simi Valley, California, in August. According to the government’s Centers for Disease Control and Prevention (CDC), a “Norovirus is a very contagious virus that can infect anyone. You can get it from an infected person, contaminated food or water, or by touching contaminated surfaces. The virus causes your stomach or intestines or both to get inflamed. This leads you to have stomach pain, nausea, and diarrhea and to throw up. These symptoms can be serious for some people, especially young children and older adults.”120 The virus is often transmitted when people fail to wash their hands after using the bathroom.
Sixty-four more people became sick in August and September from salmonella-tainted tomatoes eaten at 22 outlets in Minnesota; nine were hospitalized. In November, norovirus was found again, this time in people eating at a Chipotle’s in Boston. One hundred forty Boston College students became ill, along with 16 students and three health care professionals who came in contact with infected people. The source of this outbreak was a sick employee who was not sent home after reporting to work.
Then 55 people were infected with the E. coli bacteria in 11 states. The majority of cases were found in Oregon and Washington in October 2015, and 21 people were hospitalized. In December, the CDC verified that 5 more people in three states had contacted a different and rare type of E. coli. The common factor across the cases was eating a meal at a Chipotle Mexican Grill restaurant.121 All told, public health officials estimate that about 500 people around the United States became sick after eating at Chipotle.122
The inconsistency between the marketing theme of “Food with Integrity” and the food-related illnessesPage 587 tainted the company’s reputation and business results. Bloomberg Businessweek reported that Chipotle’s stock dropped 30% between August and December 2015, and sales dropped 16% in November.
Did Chipotle’s Supply Chain and Work Processes Contribute to the Problem?
Chipotle uses about 100 suppliers for its meals, as well as local farms from which the company prefers to get its fresh produce. Local farms are within 350 miles of a restaurant and contribute about 10% of the produce. Meats come from various sources in the United States and Australia. “Chipotle began importing beef from Australia two years ago because it could not find enough domestically raised grass-fed beef to meet growing demand,” said CEO Steve Ells.123 The company also employs high-end commissaries to prepare some food items. Bloomberg Businessweek noted the source(s) of E. coli came from somewhere in this supply chain.124
According to CNN Money, “Neither Chipotle nor the CDC has been able to determine what specific food is the cause of the disease [E.coli]. The CDC said that ‘a common meal item or ingredient served at Chipotle Mexican Grill restaurants in several states is a likely cause of this outbreak.’”125 The CDC also said Chipotle had been very cooperative during its investigation, but “when a restaurant serves foods with several ingredients that are mixed or cooked together and then used in multiple food items, it can be more difficult for epidemiologic studies to identify the specific ingredient that is contaminated.”126
Although the company has standards and protocols in place for handling and processing food, some think Chipotle did not go far enough. A Forbes reporter concluded that “Chipotle is a company so out of control and negligent that it repeatedly endangers the public.” He based this harsh conclusion partly on a statement the company made in a report to the Securities and Exchange Commission. Chipotle said, “We may be at a higher risk for food-borne illness outbreaks than some competitors.” The report also stated that these illnesses were more likely “due to our use of fresh produce and meats rather than frozen, and our reliance on employees cooking with traditional methods rather than automation.” The reporter concluded by wondering “whether Chipotle’s ‘traditional methods’ include employees’ neglecting to wash their hands before preparing foods, which is how norovirus is usually spread.”127
The Company Makes Operational Changes
The company closed its stores in Oregon and Washington in November 2015 to determine the cause of the E. coli outbreak. CEO Ellis visited the Today show in December and “apologized to everyone who’d fallen ill, and announced a comprehensive food-safety program that he said would far excel industry norms.” He never explained why the company had not instituted more rigorous safety standards, but he noted that Chipotle “will shift more food preparation out of restaurants and into centralized kitchens.”128
Before reopening the restaurants in Oregon and Washington, Chipotle took the following actions:129
Confirmed that no employees in these restaurants were sickened.
Expanded testing of fresh produce, raw meat, and dairy items before restocking restaurants.
Implemented additional safety procedures and audits in all its 2,000 restaurants to ensure that robust food safety standards were in place.
Worked closely with federal, state, and local government agencies to ensure that robust food safety standards were in place.
Conducted additional deep cleaning and sanitization in all its closed restaurants (also to be done at all restaurants nationwide).
Chipotle went one step further by hiring Mansour Samadpour, head of IEH Laboratories & Consulting Group, to develop a broader and more extensive food safety program. Bloomberg Businessweek concluded that Samadpur’s plan includes “changes at every step of Chipotle’s system. More food will be prepared ahead of time, out of sight at commissaries, and transported to 19 distributions centers. … Produce will be screened for pathogens in small batches using what Chipotle calls high-resolution DNA-based tests.”130The company also instituted the following operational changes:131
Cheese will now arrive in restaurants pre-shredded.
Ingredients like onions will be macerated with lemon or lime juice to kill germs.
Sixty samples of every 2,000 pounds of steak will be tested before the meat is sent to stores.
Tomatoes, cilantro, and other ingredients will be chopped in centralized locations rather than in stores, so they can be tested.
What Next?
Chipotle is actively trying to attract former and new customers. The company is offering “burrito giveaways and free chips with guacamole or salsa.” It also launched an advertising campaign including direct-mail coupons. Company executives “described the early giveaways as a success and said the gap between free versus paid entrees had narrowed. The company also announced plans for more freebies.”132
Page 588
Operationally, the new safety standards will be too expensive for small, local farms to accommodate, leading to less use by Chipotle of local produce. A blogger noted that “the decision to move away from the chain’s preference for local produce, when available, for its burritos, salads and rice bowls is a significant shift for the fast-casual chain, which has prided itself on providing fresher ingredients than its competitors.”133
Time will tell whether the operational changes at Chipotle bring its customers back.
FOR DISCUSSION
1. Which of the six reasons that control is needed are apparent in this case? Explain.
2. What levels and areas of control were ineffectively used by Chipotle? Discuss.
3. If you were charged with creating a balanced scorecard for Steve Ellis, what SMART goals (see Chapter 5), would you use as standards to assess performance in the four categories in your scorecard? Develop one SMART goal for each scorecard category.
4. To what extent does Chipotle use the PDCA process? Explain your rationale.
5. Which of the keys to successful control systems are being used by Chipotle? Explain.
6. What are the most important takeaways from this case? Discuss.
Explanation / Answer
Q1.) Which of the six reasons that control is needed are apparent in this case? Explain.
A. I would say that both 1.) adapt to change and uncertainty and 5.) to deal with complexity are apparent in this case. UPS adapted to uncertainty by learning before that they needed to be ready for more business during the holiday seasons. They adapted to this by making sure that they had planes on standby ready to be used for hush orders. They dealt with complexity by hiring a certain person who can handle complex situations. Making sure you have a strong person to handle complex times is important for any company to have.
Q2.) To what extent does the process Scott Abell use to manage shipments of packages during holiday periods follow the control process in figure 16.3?
A. Scott Abelluses the steps in control process almost perfectly. He establishes standards, measures performance, compares performance to standards, and takes coercive action when necessary. When a package like a turkey would get to its destination like it was supposed to, they would not need to use the steps of control. But if the turkey does not reach its destination, they would need to take action and use the steps of control by figuring out how to get the package delivered efficiently and at least costly as possible.
Q3.) If you were charged with creating a balance scorecard for Scott Abell, what smart goal would you use as a standard to access performancein the four categories in your scorecard?
A. For the financial perspective Abell’s goal was to make a 10% profit during the holiday season. For customer perspective, they needed to get reviews from the customers on how the holiday season deliveries went and then work to improve them. For innovation and learning perspective, they need to find out a few areas that need work within the company and work to improve them. For international business perspective they need to find a way to make shipping smoother and faster during rush season.
Q4.) To what extent does UPS use the PDCA process?
A. UPS uses the PDCA process by using the data from deliveries and other services from the year to help determine how the year and even years following will be. They also use it to maybe be ready for some unforeseen circumstances.
Q5.) Which of the keys to successful control systems UPS is using?
A. UPS uses the second key to a successful control system. They are timely, accurate, and objective. They are timely when it comes to most orders by making sure that rush orders are rushed to be delivered on time. They need to be accurate when it comes to the data and where packages need to be delivered to. They are objective because they are running their control systems fairly and impartially.
Q6.) What are the most important takeaways from this case?
A. I think that the most important takeaway from this case it that companies need to make sure that they plan ahead and accordingly to make sure that they are ready for the times when control is most needed. In UPS’s case they need to make sure that they are completely prepared and ready for the holiday season each year and to be ready and prepared for rush orders during that time.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.