Kraft shuts plants and axes 8,000 jobs
Kraft Foods Inc. is in the middle of its plan to cut 14,000 jobs and close 40 plants by the end of 2008.
Kraft takes this move due to the increase in resent years of the price of raw material of cheese, coffee and other ingredients; specially, they are the main material for Kraft.
The increase in the prices of raw material will lead a shift in Kraft’s supply. As the cost to produce increased, Kraft had to make the choice: weather to pass the increase cost to the consumers or cut the cost of the company to keep the price unchanged. In other words, weather to raise the prices of its productions or produce less. As we can see in the article, Kraft Foods Inc. chose to cut its cost to produce to keep the price as the same as before. There was another factor that forced Kraft to make this decision to cut jobs and close plants. That is the slow down of the sales. It means there was a surplus of the supply. Therefore, Kraft’s move will reduce its output as well as save spending to meet the equilibrium of the market.
1 comment:
It is easy to speculate what decision Kraft should have made to compensate for the rise in cost of their ingredients. But think of what would happen if Kraft decided to up their prices rather than lay off workers and close plants. Kraft is know for cheap, easy to make (and far less than gormet) food. If the price of Kraft products suddendly jumped, it is plausable that the total sales of kraft products would fall signicantly. In the end, which is better for the company. Obviously kraft believes that the answer is laying off workers and keeping prices low.
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