Ateneo de Davao University

E. Jacinto St., Davao City

Cadbury: An Ethical Company Struggles to Ensure the Integrity of its Supply

Chain

A Written Analysis of the Case

Presented to the Faculty of School of Business and Governance

Ateneo de Davao University

E. Jacinto Street, 8000 Davao City

In Partial Fulfillment of the Requirements for the Subject

2-205 Strategic Management and Business Policy

Presented to:

Mr. Prince Christian P. Mianagua,MICB,MBA

MIS Instructor

Presented by:

Cachuela, Althea

Dalisay, Jennifer Mae

Ferido, Derick Gabriel

Lim, Alyana

Rabara, Jhon Ray

 I. Executive Summary

Chocolates have always been a low-cost product enjoyed by many, most

especially kids. During 2000 and 2001, child labor in Cote d'Ivoire, one of
France’s extensive colonies in Western Africa, was made known to the public
when a journalist exposed a story tackling not the extent of enslavement and
mistreatment, but the flow of the supply chain where child labor was rampant. It
was reported that children were sold by their parents for a trivial amount of
money. Children were held in slavery and were obligated to work for a job that
does not pay them. Children were also abused, deprived of proper nutrition, and
denied an education.

The case study showed how child labor became a prevalent problem in
chocolate companies and producers. Cocoa farmers earn less than $2 per day
on average, below the poverty line. To keep their prices competitive and at the
same time meet the overflowing demands, they commonly resort to the use of
child labor as the production process of cocoa farming requires intensive manual
labor. Moreover, children were manipulated into believing that their efforts would
be rewarded fairly. With this revelation, the United States House of
Representatives passed legislation necessitating the Food and Drug
Administration (FDA) to create a standard requiring companies to provide
evidence that the chocolates are following labor standards and once proven, they
are required to label their chocolate as “slave-labor free”. However, several
chocolate companies have protested as it was hard to strictly monitor nearly 1.5
million small cocoa farms in West Africa and it seemed unrealistic. Also, this
labeling could greatly affect the sales of chocolate companies that could
holistically impact the income of a country. To avoid such labeling and further
consequences, the chocolate industry agreed to the protocol that would give
chocolate producers, authorities, and local farmers four years to eradicate all
ongoing abuses and therefore develop a certification process.

With this, there is still an ongoing effort to continuously make ethical and
sustainable efforts to abolish child labor. Cadbury continuously strives to make
changes to be able to regain its reputation and have integrity to its overall supply
chain.

II. Problem Statement

The allegations of slavery in the cocoa supply chain hit the venerable
British firm of Cadbury Schweppes particularly hard. The firm faces an ethical
dilemma concerning their supply chain as it is impossible to ensure that all of
their farms comply with labor standards, considering its number which is
estimated to be in millions. Considering this, how can Cadbury:

1. Ensure that their farms, as the primary source of their raw

materials, can follow and implement the child slave free policy

2. Track whether the produced cocoas are legally manufactured in

compliance with its sourcing standard and,

3. Establish an effective internal standard for a stern compliance from

its constituents
III. Objectives

The case places an emphasis on the continuing mission of Cadbury

Schweppes to uphold its established values and implement these same
standards on their suppliers as a leader in its industry. With this, the study has
the following objectives for the benefit of Cadbury Schweppes:

1. To be able to further implement the protocols against forced labor and

child slave labor

2. To be able to manufacture chocolate that are tagged as “slave labor free”

3. To be able to create a sustainable supply chain

Situational Analysis

S W

- Cadbury’s culture had been - Many consumers located in the

deeply rooted in the religious UK associate all chocolate with
traditions of the company’s Cadbury which relates Cadbury
founders, and the organization and the child slave labor on Cote
had paid close attention to the d’Ivoire.
welfare of its workers and its
sourcing practices. - It is hard to strictly monitor
compliance of any labor standards
- Cadbury, a company that had since there are millions of small
done much to improve its supply cocoa farms that serve as their
chain supplier.

- Observers noted that “in the public - Farms were not under the control
eye, and also among its of the chocolate manufacturers;
employees, Cadbury Schweppes hence, they couldn’t strictly
still has a strongly ethical enforce labor standards and
reputation which owes a great compliance.
deal to the persistence of the
Quaker legacy.

- The Cadbury Brothers were the

first firm to introduce the five-day
week. Employees were given the
opportunity to attend courses and
the company provided extensive
medical care and recreational
opportunities. Employee work
committees were established to
discuss issues with management.

- Using its leverage in the industry,

Cadbury also engaged the United
Nations and other development
organizations to look at how the
policy agenda was created and
how it translated from the
government level to farm level.
Cadbury sought to play a role in
the way industry helped deliver
those policies, or aligned activities
on the ground to support those
policies.
 - Cadbury argued that it had done a
great deal to improve the lot of all
of its suppliers. In January 2008,
Cadbury launched the Cadbury
Cocoa Partnership, a £45 million
investment to secure the future of
cocoa production in Ghana, India,
Indonesia and the Caribbean. The
partnership was to oversee a 10-
year program addressing socio-
economic factors affecting the
long-term sustainability of cocoa.
The program focused on
community-centred activities that
lead to improved conditions in
rural areas that support a
sustainable cocoa supply chain.

O T
- Cadbury Schweppes could lead - With the media reports concerning
the industry in creating a more child labor, consumers and the
sustainable standard that government were left reeling,
suppliers are upheld to just like potentially leading to patronage of
the system they created to audit other chocolate companies.
their own suppliers.

- Cadbury agreed to run the - Market competitors will be on the

acquired business, Green and rise once they have proven that
Black, as a stand-alone their supply chain does not involve
entity. We like to think that over child labor
the years people have come to
value the Cadbury - The boycotting of all chocolate
quality as well. They will gain company that was not certified as
from us and we will gain from being “traffik free”
them.
- Friends of the Earth
protestors lined the London streets
denouncing the leading chocolate
maker and distributing candy bars
with fabricated labels warning of
environmental degradation caused
by palm oil, a minor ingredient in
Cadbury’s chocolates.
 Strength-Opportunities Strategic Weaknesses-Opportunities Strategic
Options Options

- Cadbury as part of the chocolate - Farms which is their source of

industry was able to view how the cocoa are not under control of
policy agenda was created and chocolate manufacturer like
how it translated from the Cadbury with this it is hard to
government strictly implement the policies and
level to farm level, also they standards and monitor, but
portrayed a big role by delivering Cadbury as a stand-alone entity
the policies and aligned activities can turn this as an opportunity to
on the ground to support the invest in their own land so they
policies. With this Cadbury can can be guarantee that they have
pioneer in the industry in control in their own farm and can
producing more sustainable strictly implement the policies.
standards.

Strength-Threats Strategic Options Weaknesses- Threats Strategic

Options
- Cadbury has been known for its
religious traditions and how it - Cadbury should strengthen its
prioritizes the utmost welfare of its monitoring system to be able to
employees. Having been able to minimize the issue of child labor.
establish this good and By having a strong monitoring
respectable reputation, it should system, they could easily
continuously develop and do eradicate cocoa sources that go
efforts that maintain this against the labor laws and only
reputation. This is achieved maintain those that are strictly
through continuous effort in following the policy. With this strict
abolishing child labor through compliance of labor laws and
strengthening its monitoring policies, this could prevent the
system and strictly create threat of competitors that are
standards on choosing a cacao certified or labeled as “traffik free”
source. Thus, it could help avoid or “slave labor free” that can
the negative possibilities of greatly impact the sales of each
boycotts and generalizations from company.
consumers that could lead to loss
of sales in the market.

IV. Strategic Alternatives

Alternative 1: Cadbury spearheads the industry push to audit suppliers to

ensure that their practices are sustainable and in compliance with Human Rights.

Cadbury shares the knowledge that it gained with the rest of the industry
to establish an audit procedure that ensures the practices of suppliers are
sustainable and will comply with human rights. It can also ensure that suppliers
comply with various other social issues as well like providing a livable wage and
gender equality. The benefits would be a better perception of the chocolate
industry with Cadbury at the forefront, being a shining example of the standards
that the industry will adhere to. The cost and the exchange of information on the
other hand would mean that Cadbury will have to relinquish control of some
intellectual assets that it has developed for itself as well as having to fund the
initiative in its early formative stages.
Alternative 2: Cadbury establishes its own farm to ensure that their practices are
sustainable and in compliance with Human Rights.

One of Cadbury’s dilemmas was not having complete control over their
cocoa bean suppliers including their ethical standards and practices. This leaves
Cadbury no choice and makes them continuously involved in any allegations and
ongoing issues that are circulating around the chocolate industry. This leaves
them in no exception to any generalizations and issues as they source raw cocoa
just like how other chocolate companies do. By establishing their own farm,
Cadbury can improve and increase their yield and quality while gaining complete
control over their supply chain. In this way, the organization can ensure that the
entire chocolate manufacturing process adheres to the standards. Holistically,
they can clear any allegations and issues towards child labor and prove that they
maintained strict measures to abolish any kind of practices against the law. They
can prevent any involvement from any issues in the chocolate industry since they
are able to make their own farm that they can fully control.

Alternative 3: Cadbury creates a special division to guide and visit the farms
which supply it.

As a stand-alone entity, instead of acquiring land for the farm, the

company will invest it in the creation of a special division whose main purpose is
to create a standard policy when choosing a supplier to ensure no policy or law is
being violated. This division will only accept suppliers that passed their protocols
and standards; hence, ensuring quality and the welfare of everyone. Cadbury
and the farms which supplies for the cocoa needed in Cadbury will have to enter
in a new agreement that Cadbury uniquely created a special division for the
assuring that the standards set are followed. The advantage of forming a special
division is that Cadbury can assure their customers and the potential investors
that the standards are followed and they can prove that they are Child slave free,
while the disadvantage of this alternative is its costs, as Cadbury needs to hire
new employees specifically assigned in that division, also the salaries expenses
and other expenses for the employees travel to conduct assessments whether
the farm violates any standards, and another disadvantage for this alternative, it
would take time in forming the division itself as they would find suitable person
for the job.

Alternative 4: Cadbury increases chocolate prices to reflect the increased price

of cocoa beans

As the cost of cocoa beans increases to compensate well workers in the

farm the prices of the chocolates sold will also increase, which will indicate that
workers are paid right and will result in slave labor free work. The advantage of
increasing the prices assures that workers in the farm are also compensated well
and no standard has been violated, while the disadvantage of increasing the
prices would lower the demand for the chocolates and customers will prefer to
buy lower priced products. This could create a ripple effect in the industry where
other brands will have no choice but to emulate the work done by Cadbury and
increase the price paid for the cocoa beans but at the consequence of alienating
the consumer in the lower-income segments.
V. Recommendation to Management

With the main issue concerning child labor within Cote d'Ivoire, the researcher's
best recommendation shall be embodied to alternative 3 which suggests that Cadbury
shall create a special division whose purpose is to guide the direct suppliers and
oversee the farms to ensure that human rights standards protocols are not violated
whilst conducting their operations. This division shall consist of an internal supervisor
who will look after the overall supply chain process of the partnering third party to verify
that they adhere to ethical standards. The organization shall impose specific policies,
systems, and standards to the suppliers on the manufacture of chocolates. The goal is to
coordinate with them the guidelines and protocols to follow. Moreover, they will also
conduct regular and unannounced inspections to sift through typical movement within
the farms. This way, management can ensure that cocoa manufacturing within their
suppliers and the entire chocolate-making processes do not involve child labor or any
unethical practices. At the same time, they would be able to test if the farmers are strictly
adhering to the terms and conditions located in the contract.

Creating a special division to supervise the overall activity of the suppliers

addresses not only the issues raised, but also ensures that the chocolates produced by
the entity are of high quality. As a result, not only will it ensure that moral standards are
followed throughout the supply chain, but it will also result in a good reputation for
Cadbury. The contract agreement will benefit Cadbury and its suppliers because it will
lay the groundwork for how they must collaborate to achieve an ethical workflow.

From a short-term perspective, the alternative may prove to be costly and

tedious. It will surely take a significant amount of time and resources to establish the
division. Hiring people who are willing to work overseas may also be subjected to
various legal restrictions due to strict travel criteria, required documents, and the like.
Various processes may be undergone first before the division can fully operate.

In the long run, however, the establishment of a special division will allow for a
good buyer-supplier relationship if agreements and programs are carried out ethically by
both parties. Allowances can be made for transactions that require negotiation as a
result of this. Furthermore, both the farms and the organization can gain recognition for
adhering to ethical standards, resulting in a favorable reputation. As a result, more
potential customers and investors will be drawn to the company. Over time, the
organization can also ensure that the quality produced by its suppliers improves day by
day. Transparency, as well as a more organized and focused process, will be achieved
within Cadbury company.
VI. Implementation

The graph shown above is the proposed chronological framework for the chosen
alternative:

I Division Establishment
II Managerial Outsourcing
III Employee Outsourcing
IV Contract Drafting
V Direct Supplier Orientation
VI Program Implementation
VII Annual Operational Accountability Reports

Division establishment & Managerial Outsourcing

To implement the chosen alternative course of action. The entity must first
establish the division itself. It must specify the scope and the nature of its operation as a
special division. Given this, it also must elect or to choose the most appropriate
personnel who shall supervise the operations of the division. He / She must be equipped
with both managerial and supervisory skills to oversee the operations of the division
internally and externally.

Employee Outsourcing

After establishing the division and electing the right person to supervise, finding
employees that are suitable and knowledgeable of the work in the division. Employees
hired must know the standards by heart and must be able to check whether all the
necessary points in the contract are followed by the suppliers and are able to analyze
the data gathered. Also, employees hired must be willing to work in different places,
outside their city or even outside their country.
 Contract Drafting & Direct Supplier Orientation

Contract is needed for both the direct supplier and the organization to concur on
terms and conditions regarding the protocols and standards to follow. This is to ensure
that all requirements are laid down before agreement is made. There would be an
update of the terms and conditions of the contract with its current direct suppliers. The
updated contract would entail a stricter version of the way farmers hire and treat their
laborers. The updated contract includes the minimum number of employees required,
age limit, appropriate number of working hours, and just compensation in accordance
with the labor laws. It would itemize the specific requirements needed to ensure they
comply with the basic labor laws, and no one is abused or taken advantage of. After the
revision, there would be a direct supplier orientation. The revised contract would be
presented highlighting the crucial changes and requirements. When current suppliers
agree to the updated contract and commit that they can follow the terms and conditions,
they can now sign the contract. With their agreement and commitment, current suppliers
can continue supplying to Cadbury and enjoy the benefits of having a secured contract
and partnership with the company.

Program Implementation

At this stage, all agreements are put into effect. The organization puts all the
necessary action plans in place to achieve the desired outcome and produce positive
results. The division will monitor and supervise the supplier’s farm and conduct
necessary inspections to ensure that human right standards are met. Moreover, it will
also direct suppliers in producing the highest quality goods possible.

Annual Operational Accountability Reports

After collecting the data required for the report by the end of the year, it is further
analyzed and reported to the top management to determine whether all of the standards
have been met. The goal of which is to track progress and ensure that programs
established throughout the process are completed.

INSIDE CADBURY: CHOCOLATE SECRETS UNWRAPPED