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Lecture 6

MGT353H5 Lecture Notes - Lecture 6: Dairy Product, Alternative 3, High High


Department
Management
Course Code
MGT353H5
Professor
Jas Parhar
Lecture
6

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Martin Ishtayev 1000651680
ODHI Case.
Executive Summary
The Ontario Dairy Herd Improvement Corporation is a non- profit organization, which provides
milk-testing services for Ontario dairy producers. Physical facilities include a head office and
computer system located in Guelph, as well as milk testing labs in Kemptville and Woodstock.
Ontario DHI’s mission is to maintain an organization that will deliver an accurate, timely and cost-
effective milk testing service and promote improvements in the efficiency and profitability of dairy
production in the province of Ontario.
ODHI has been facing several problems. Although ODHI has a moderate financial surplus, the
number of members subscribing to the services has been declining at about three percent per year
for the past five years. Moreover, government funding did not keep up with inflation. This led to the
increase in fee paid by the members. As a result of higher prices, members were discontinuing the
services offered by Ontario Dairy Herd Improvement Corporation. John Meek, newly appointed
general manager conducted a market research through in depth interviews and mail surveys. Based
on the results, ODHI has to decide on pricing the service for different customer segments in the
market.
In response to these problems, ODHI should choose alternative 1, which inclined on cutting cost in
3 different ways, for customers who are significantly price-sensitive and are looking for substitutes.
Ontario DHI also has a second option that imposes a use of advertisements as a source of extra
revenue for customers that are using it because their family used it or because it helps them manage
dietary issues for their herd. Alternative 3 or “Do nothing” option will be used for the loyal
customers that don’t mind paying the high prices as they appreciate and recognize the need for the
milk-testing program. Price-concerned customers should be provided minimal service at low rates

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while the loyal customers should be given full service at current prices. The other customers will be
given moderate service with certification at reasonable prices. Direct promotion is used for loyal
customers while price focused advertising will be used for concerned customers. Coupons, discounts
and promotional services is going to be used for customers that see some value in the service and are
willing to pay reasonable prices. Circuit supervisors will be assigned to the full service. For the
moderate service, supervisor will only assist the owners or person who is primarily in charge.
Owners will be responsible for collecting and sending the sample to the test labs.
PEST Analysis
In 1990, there were over 9300 dairy farms in Ontario housing almost 450,000 cows. The farm-gate
value of milk produced exceeded 1.3 billion dollars. At the retail level, dairy product sales in
Ontario exceeded 4 billion dollars. The number of dairy herds in Ontario on a milk-testing program
had declined from about 7100 in 1985 to 6000 in 1990. Moreover, a continued decrease was
projected.
Through the process called genetic screening, average milk production per cow increased
dramatically in Ontario over the past 10 years. This trend is likely to continue into the future.
The Ontario Milk Marketing Board regulates the Ontario dairy industry (OMMB). They limit
production by issuing quotas on the amount of milk that farmers can ship to local dairies. OMMB
pays farmers for the amount of milk shipped and gives premiums for higher levels of protein and
butterfat content. Production levels are continually monitored and the cows with poor results are
either checked for health or removed from the herd.
Company Analysis
ODHI, farmer owned non-profit organization that provides milk testing to farmers. The company
was maintaining 300 staff members in 1990 in order to run it’s operations. Main focus of the
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company is to improve profitability of Ontario farmers and at the same time deliver very effective
and accurate milk-testing service to various segments of farmers in dairy production industry. The
core product is essentially an udder health.
Company managed to shorten turnaround time over past 5 years by streamlining operations and
more technically advanced equipment in data processing center and laboratory, as well as introduce
new detailed reference guide format – 3 ring binder became more informative and easier to use. In
addition to what was mentioned previously, Udder Health Testing was considered a great
management idea by farmers and actually had led to an increase in number of subscriptions.
However, it was not enough to offset the major decline.
ODHI has four core programs and some optional services that farmers could choose. The basic
difference among the four core services is in the objectivity and accuracy of the information
generated.
Programs are as follows:
Program name Objectivity Accuracy Per Herd ($) Per Cow ($)
Supervised High High 286.69 6.20
Official AP High Good 239.96 5.10
Unofficial AP Fair Fair 195.21 4.16
Owner - Sampler Low
(Biased)
Low 102.11 2.71
Regarding the financial statements, the organization was able to improve their overall surplus for the
year of 1990 as opposed to the year of 1989. Event though “other fixed expenses” were doubled,
ODHI were able to make enough revenue from milk-testing in order to cover extra costs and have
extra revenue to create the surplus. (Exhibit 1)
Competitor:
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