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The New Year’s Eve Crisis

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LETTER OF TRANSMITTAL

To

Mike Valenti,

President, Michael’s Homestyle Pasta,

Hartford, Connecticut.

Date: 31 December 2001

Subject: Report on the analysis of issue faced by Michael’s Homestyle Pasta

With reference to your request for preparing a report suggesting immediate course of action to be taken regarding the Salmonella contamination at Southern Pasta Company, a report has been enclosed which analyses the situation, states the core problem, the appropriate options available to you and their criteria for evaluation, and final recommendation with proposed action plan. It is recommended that you call the clients and let them know about the contaminated batch.

Yours sincerely,

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EXECUTIVE SUMMARY

Mike Valenti has discovered that a salmonella contaminated batch has been delivered to an

important client. The new venture has made Mike’s company the only major player and thus it

is important to keep that advantage by not losing important clients.

He has to decide on a course of action which should not only solve the problem at hand, but

also address the basic underlying problem of clash of cultures of the two companies.

It is recommended that Mike should call the client restaurants as it is a step towards addressing

the present issue as well as the root problem

Word Count [102]

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CONTENTS

SITUATION ANALYSIS

After knowing about delivery of Salmonella contaminated pasta to a major client of Southern

Pasta Company (SPC), a company acquired by Michael’s Homestlye Pasta(MHP) just three

weeks ago, Mike Valenti has to decide his courses of action. He cannot incur heavy financial

losses and trying to contain that would mean risking lives of innocent customers.

The stuffed pasta is a specialty product and with the acquisition of SPC, MHP is the only major

player in the market. Thus the customers are dependent to a large extent on these two

companies. The customer dependency is validated by the fact that the client did not terminate

contract with SPC after the May 2001 recall.

In spite of holding an advantage over the restaurant chain, Mike has to worry about stuffed

pasta being taken off the menu. The client was one of the major reasons for Mike’s interest in

SPC and accounts for 14% sales. Thus any action taken should take into account the importance

of continuing this account.

There has been no food poisoning report from the restaurants after the May recall, although

the quality of product supplied by SPC is suspect. So it can be concluded that the restaurants

have robust standards for cooking.

Mike also hasn’t been able to spend enough time at Tampa. Thus the process of welding the

culture of two companies has been affected. This can be seen as reason why Jones came

forward only after 3 weeks when he developed a little trust in the new management. The

employees at SPC are used to following orders, ethical or not, and used to working under an

authoritarian management. Thus the difference in two cultures can be seen as the underlying

root problem, while the issue at hand being just a symptom of the problem. So whatever

decision is to been taken has to solve the contaminated batch issue as well as address the basic

problem of clash of the cultures.

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PROBLEM STATEMENT

What course of action would be consistent with MHP’s working culture and lead to minimum

financial, legal and reputation risk for Mike Valenti and his company?

OPTIONS

Do not call the client restaurants and trust their cooking standards

Call the clients and let them know about the contamination so that the necessary cooking

standards can be maintained

CRITERIA FOR EVALUATION

Financial Implications

o Short term : Losses for the particular batch in question

o Long term : Possibility of losing the client

Legal implications

The reputation of the company

Ethical and social responsibility towards the clients as well as the final consumers.

The decision should be consistent with the culture of MHP and address the underlying

problem of difference and conflict of cultures in the two entities

EVALUATION OF OPTIONS

Do not call the clients

The New Year’s Eve is among the largest sales day for the restaurants. It would be only

conservative to assume that all the dishes might not get proper cooking time in spite of

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robust standards, due to high traffic. Thus the possibility of no outbreak in this situation is

possible yet unlikely given the large number of restaurants serving the contaminated pasta.

In case there is no outbreak, there are no financial, legal or reputation risk to be looked at.

But in case there is an outbreak then SPC has to share the responsibility with the

restaurants. The short term financial loss implies sharing the settlement amount to be paid

in case of a lawsuit. The long term loss could be losing the client. If the client discovers that

the Mike did not inform them even after having the knowledge of the contamination, they

will terminate their contract with SPC.

Legally, Mike has limited liability and if any one were to get sick, the liability can be placed

upon the previous owner. But here again if anyone was to testify against Mike, say one of

his managers, that he was aware of the contamination, he can have serious legal

ramifications for his inaction in case of potential deaths. Also the reputation of Mike and

MHP would go for a toss.

Irrespective of an outbreak or not, not informing the client would affect Mike’s effort to

bring MHP’s culture into SPC. It would send a signal to Jones (and others possibly aware of

the situation) that Mike isn’t different from his previous employer. Mike would never get

the same appreciation from SPC’s employees as he gets from the MHP’s and thus will find it

difficult to develop a similar healthy working culture.

Call the clients

Letting clients know about the contamination gives them a chance to make sure that they

cook the food as per the required norms. But the restaurants may decide to not use the

contaminated batch and ask for a refund for the same. There is a possibility of them taking

the pasta out of their menu or looking for another supplier. But since they did not switch

from SPC after the May 2001 recall, it can be assumed that they have no other potential

suppliers. Also they would be willing to give Mike a chance given his track record.

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There wouldn’t be any legal implications in this option. There would however be implication

for Mike’s and MHP’s reputation, which is now integrated with that of SPC. Since this is a

business to business service, the FDA will have limited intervention. Still there is possibility

for local press releases, but this should not do permanent damage to the restaurants and

SPC’s image.

Most importantly it will set an example for everyone at SPC. By doing the ethical thing Mike

will instill confidence among his managers and workers. He can differentiate himself from

their previous employer and start welding MHP’s culture with that of SPC’s.

RECOMMENDATION

Based on the evaluation, Mike should call the client. There is possible financial risk in both

options but Mike’s moral stakes should outweigh other implications. His effort to mitigate the

clash of cultures between his two companies is also best served by calling the clients.

ACTION PLAN

Call the client restaurants. Since time is running out it should be made sure that all

restaurants are contacted before dinner time.

Communicate to the client how this was brought to Mike only hours ago. Also ensure him

that proper checks will be installed from now on.

Check for contamination in stored batches and destroy the contaminated lot.

Look for other possible causes of contamination and mechanize the process as in MHP as

soon as possible to avoid complete shutdown in case of FDA inspection.

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