Recognition of Problems

ABC Company had to encounter few operational problems that hinder the overall performance
of the organization and those are more vulnerable to be strategic issues of the organization in the
future unless they were not addressed with effective solutions immediately. After analyzing
entire supply chain, production process & design and the organizational working cultural
environment of the ABC Company following issues are identified;
1. Less supply of raw material (selected issue for future analysis)
2. Inability to fulfill the customer demand on organic products
3. Quality issues due to outsourced production
4. Human resource related issues due to operational expansions and automated operations.

1. Less supply of raw material

Coconut as the main raw material of the ABC Company, will not be availableduring the whole
year at the same capacity hence there will be seasons where the coconuts are harvested at
bimonthly intervals. The general distribution of production throughout a year is shown in below
Figure.

Figure XX: Intra-annual variation of coconut production

Source: Coconut Research Institute

At present ABC Company fulfills 95% of the raw material requirement from external local
suppliers and rest of 5% from their own plantation estates. The major portion of coconut
holdings in Sri Lanka (nearly 75%) belong to smallholders while the rest belong to the estate
sector where both private and government companies hold ownership.The main coconut growing
area consists of three administrative districts within the “Coconut Triangle”: Kurunegala,
Puttalam and Gampaha which contains 57% of the total coconut lands. The Southern Province is
identified as the “Mini-Coconut Triangle” and comprises the Galle, Matara and Hambantota
administrative districts which contain around 12% of the coconut cultivated lands. The remainder
is distributed throughout the country except for the central upcountry where coconut is not grown.
According to the existing demand for coconuts in Sri Lanka, the coconut industry here requires
around 3.6 billion nuts but the level of production is only between 2.5 to 2.8
billion. Approximately two third of the coconut production in Sri Lanka is consumed locally and
the balance one third is used for coconut based industries and exported to various destinations as
value added products. 
Year Unit 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
3,08
Production nuts Mn. 2,808 2,940 2,513 2,870 3,056 3,011 2,450 2,623 2,792
6
hectares
Total Extent 395 395 392 441 455 440 452 499 503 506
‘000
Replanting /
5,93
Under Planting hectares 1,517 4,299 4,541 5,796 4,919 5,362 8,824 7,548 5333
1
(g)
14,40 15,12 10,18 6,84
New Planting (h) hectares 1,553 4,814 23,668 30,771 9,240 8,000
8 1 3 2

Table XX: Coconut Production Statistics

Source: CBSL Annual Reports

However following reasons are recognized as main causes for less supply of coconut harvest in
Sri Lanka which directly impacts towards the sustainable operations of coconut processing
industries such as ABC Company.

a. Increased household consumption and wastage

The Sri Lankan coconut industry is currently facing increased demand domestically for fresh nut
consumption as a result of population growth. The coconut has significantly been a part of Sri
Lankan life for centuries due to its close intimacy to the day-to-day lives of the people and
coconut is an essential component of Sri Lankan cuisine, nutrition and rural livelihood. It is the
second most important food in the Sri Lankan diet after rice. High consumption derived from
growing population has reduced the raw material available for processing industries such as
ABC Company.
Waste effected at domestic coconut consumption had caused damage to supply line of coconut
industry. Due to this, around two third of overall coconut production is used for domestic usage,
around 35% is wasted from that portion due to inefficiency at coconut milk extraction. It is better
to popular coconut power and milk coconut in the country as well. However, using of powered
coconut or milky coconut by domestic house wife is still remain at a very low level. In addition
coconut water, coconut shells, coconut husks which are coconut based raw materials wasted in
the household consumption of coconut without being utilized or value addition.

b. Climate changes
Coconut is a rain fed perennial crop. Coconut production showed a notable decline of 9.5% in
2020, as a result of the lag effect of insufficient rainfall received by major coconut growing
areas. Almost all the coconut growing districts in the country are currently experiencing a
reduced and unpredictable rainfall in terms of amount and distribution. This leads to an increase
in the air temperature, which has unfavorable effects on coconut production.

Coconut Production Vs. Annual Rainfall

3500

3000

2500

2000

1500

1000

500

0
2011 2012 2013 2014 2015 2016 2017 2018 2019

Production (Nuts Mn.) Annual Rainfal (mm)

Chart XX
Source: CBSL Annual Reports

c. Shortage of labour
Labour availability is another issue in both the plantation and processing sectors, for both skilled
and unskilled work. Wage rates are increasing but still labour shortages persist. Increased
mechanization in the processing sector is possible. In the cultivation sector, pickers are the major
issue (Pathiraja et al., 2010).

d. Coconut land fragmentation

The breakup of coconut plantations into smaller blocks and the use of this land for alternative
uses is known as coconut land fragmentation. Increasing population pressure has aggravated the
situation so that the comparative profitability of keeping land in coconut production has been
reduced. Inefficiencies in utilization of lands for coconut cultivation and shortage of lands in
traditional areas also negatively impacts towards the less supply of coconut nuts.

e. Vulnerability of coconut to pests and diseases

Coconut plantations are affected by different pests and diseases. Some major epidemics have
been observed in recent years. For example in 2006, a leaf wilt disease (a phytoplasma disease)
spread over the southern part of Sri Lanka (Wijesekara& Fernando, 2013). Nearly 336,000
coconut palms were affected by the disease (Pathiraja et al., 2013) and most of these palms were
removed to prevent the spread of the disease to other parts of the country. This disease is still not
eradicated from the area and coconut production is adversely affected. Coconut mite attack is
another disease in the dry and intermediate zones. The disease control measures are inadequate
and difficult to practice in plantations. The nature of the damage is shrinking of coconut husk
and small nuts. The estimated loss is 1-3 percent of the nut production (Peiris et al., 2003). Red
weevil attack causes plants to die by boring into the stem and destroying the phloem tissues. This
weevil attack is difficult to control.

In addition to above major reasons, the contraction in nut production and supply side
disturbances that emerged due to the COVID-19 pandemic and the banning the import of
chemical fertilizers will be adversely impacted towards the coconut related industries with future
consequences.

2. Inability to fulfill the customer demand on organic products

Day by day customer demand for organic products is increasing in global context. However
ABC Company was unable to fulfill each and every customer orders placed for organic coconut
based products due to the less supply of organic coconut harvest in Sri Lanka and the higher
export demand.
As organic production is new concept to Sri Lankan farmers, there is a less number of
organically grown coconut plantations and trusted suppliers in Sri Lanka. Though ABC
Company is also organizing several farmer awareness campaigns and support services on
promoting organic fertilizer as a support for government initiative on this, Company found that it
is hard to change minds of traditional farmers who are highly dependent on chemical fertilizer.
As a result of that ABC Company is currently struggling to match the higher demand for the
organic products with less supply of organic coconut nuts in Sri Lanka.

3. Quality issues due to outsourced production

Due to the high volume of export customer orders on high value adding products; coconut milk
and powder, desiccated coconut, coconut chips, coconut milk, coconut cream, coconut butter,
coconut flour, ABC Company had to outsource some of their processing of products mainly
coconut oil and virgin coconut oil to local reputed suppliers in order to match the capacity.
However some local suppliers failed to fulfill orders on time with specified quality in order to
match the order deadlines of export market. Increased lead time and some quality concerns of
outsourced product deliveries caused unfavorably for company performances in export markets
with customer order cancellations, customer dissatisfaction and increased rivalry as customers
switch their orders to competitors. Ultimately irresponsible behavior of those outsourced
suppliers of coconut oil and virgin coconut oil, negatively affects for bottom line of the ABC
Company and competitive advantage of the organization.

4. Human resource related issues due to operational expansions and automated

operations.
Issues emerged due to the outsourcing strategy of manufacturing coconut oil and virgin coconut
oil, ABC Company has planned to expand their business to manufacture coconut oil and virgin
coconut oil in large scale to match increased demand. Considering the complexity of the project,
economic impact and riskiness of the project, ABC Company is not intended to recruit new
manpower for managerial level positions at the moment. Therefore company has empowered the
job functions with additional responsibilities of the existing employees in order to carry out the
extra work generated due to new expansion projects.However this situation has negatively
influenced for the work life balanceof the existing employees and some employees even couldn’t
manage their previous job responsibilities successfully. Also this situation has increased
employee job stress and labour turnover and reduced the job productivity and efficiency as well.
In wider angle, company decision not to recruit any managerial level employees to cover up
additional work created due to operational expansions may economically benefit to the
organization as it save huge manpower cost and administrative costs. However, this
economically beneficial decision has adversely impacted in social aspects as it hinders the
opportunities in new job creation and reduces the social welfare of existing employees by
creating extra job stress to their minds.
Additionally ABC Company has undertaken operations automated process where some man-
powered production processes will be replaced by the technologically advanced machineries.
Definitely this will cost advantageous for the organization as automated processes will add more
efficiency for the operation and save more manpower cost. On the other hand, loosing
operational level jobs for employees will create more social issues in their lives.

Selected Problem & Justification

By considering all issues mentioned above, we have selected “Less supply of raw material” as
the most vulnerable issue faced by the ABC Company which directly impact towards the
survival of the organization. This issue is discussed in more detailed manner in early chapter by
highlighting major five reasons.
i. Increased household consumption and wastage
ii. Climate changes
iii. Shortage of labour
iv. Coconut land fragmentation
v. Vulnerability of coconut to pests and diseases

High riskiness of these causes and short-term & long-term negative consequences towards
stakeholders (discuss in next chapter) of the ABC Company drive authors to select this issue for
further analysis.
Lack of supply of main raw material-coconut has created going concern threat to the ABC
Company and currently management of the company is looking for strategic options to such as
diversification of product portfolio into other local crops, importing coconuts and Development
of improved coconut cultivars and mass propagation of seeds.