The biggest single supply chain theme in the news these last months has been transparency.
In the interconnected world we now find ourselves in, one in which products, parts or ingredients travel half way round the planet in a day, and news or gossip travels all the way around the globe a million times over in minutes, we need tight control over our supply chains.
Why? Because retailers are highly vulnerable to legal and public pressure for pretty much everything that happens in their chain. Child labor, ‘modern-day slavery’, products that cause harm; when it’s regulators or Joe and Jane Public and their friends who decide to turn their ire on a target the consequences can be catastrophic.
Why visibility across your supply chain is key to containing or preventing reputational damage
Slavery in the supply chain has been an issue largely because of new laws and initiatives that make companies responsible for the things they sell. The US state of California passed the ‘Transparency in Supply Chains Act’ in 2012, the UK the ‘Modern Day Slavery Act’ in 2015 and the Obama administration revised the Tariff Act of 1930 in February this year to close a loophole that allowed goods produced by forced labor to be imported into the US.
It’s one area where few businesses, if any, have protested against additional regulation and compliance measures. It’s not just the potential fines. It’s not just the reputational damage, such as that suffered by several high profile supermarkets and restaurant chains that garnered unpleasant headlines after being linked to the use of forced labor in Thailand’s prawn industry. It’s also that the overwhelming majority of businesses simply don’t want to be complicit. Transparency and traceability are central to efforts to combat illegal labor practices.
Retailers are highly vulnerable to legal and public pressure for pretty much everything that happens in that chain.
Buying from suppliers accused of damaging the environment, cruelty to animals or poor pay and working conditions might not be a compliance issue, but it could easily become a brand management one.
Campaigners typically target those high-profile, consumer-facing businesses that are clearly the most vulnerable to public pressure. But wholesalers and producers believe they’re too low profile to be affected, think again. If a well-known retailer or restaurant chain finds itself in the midst of a PR crisis, cutting ties with a tainted supplier is a natural response and an effective way of trying to contain the situation.
Traceability is fast becoming as important a consideration as demand planning, automated replenishment or promotion management.
Then there’s tracing components or ingredients when things go wrong. Chipotle Mexican Grill prides itself on quality and fresh ingredients, positioning itself up-market from many ‘fast food’ outlets. So when it suffered a spate of food contamination problems last year, the most serious stretching across 11 US states and hospitalizing 21 people, it saw an almost immediate and shocking impact on its bottom line. It didn’t help that it struggled to identify the source of the problems and contain the outbreak. Comparable sales fell by over 29% during the first quarter of 2016, while its share price dropped from $750 in October to just over $400 three months later. The company effectively saw its value almost halved in one quarter from around $21.9Bn to $12.8Bn. Try explaining that one to your shareholders.
Investing in great supply chain transparency could well be the bargain of the century
Supply chain management software is developing at an astonishing pace. Traceability is fast becoming as important a consideration as demand planning, automated replenishment or promotion management. Of course cutting inventory and spoilage and improving availability yield immediate, bottom-line results, while preventing tainted items entering the chain is more akin to an insurance policy – something one looks to in the hope it’s never needed.
A supply chain system can’t make strategic decisions for you (let alone ethical ones), but it can give you the data you need to make them. It can help identify the source of a product faster, analyze the various options before you and forecast the impact of any changes in the chain that might result from them.
A supply chain system can’t make strategic decisions for you (let alone ethical ones), but it can give you the data you need to make them.
Whether it be highlighting a compromised producer and sourcing a replacement product elsewhere or trying to track down the origin of food contamination, if you can track your orders, you can react faster to contain and mitigate any problem. Ideally we’d all avoid such issues in the first place but when that’s not possible examples like these illustrate the importance of a transparent, accountable supply chain.
Ultimately preventing supply chain screw-ups is a simple case of cost benefit analysis. In the simplest terms, i.e. total market value, a series of food poisoning incidents cost Chipotle over Nine Billion Dollars. That’s sufficiently scary that I put it in bold.
A simple calculation shows that investing in great supply chain transparency could well be the bargain of the century.
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