One of the many consequences of globalisation is the increase in both the size and scale of supply chains. While they undoubtedly provide business benefits in terms of cost savings, supply chains can also put a company at substantial danger if not managed competently.
Given the importance of the supply chain, maintaining control is essential in minimising production disruption and associated reputational risk.
Dr Christos Tsinopoulos, of Durham University Business School, explains that some of the recent high-profile supply chain scandals have highlighted the extent to which the supply chains of larger organisations can cause public relations disasters.
“The horsemeat scandal is an excellent example of such phenomena, where smaller or not very well-known meat suppliers caused major PR catastrophes to the large supermarkets,” he says.
While safeguards can be put in place after the event, it’s always better to prevent problems before they happen
“Other large companies have suffered similar cases, whether this has been down to quality faults, for example Toyota’s recent product recalls, or corporate social responsibility mishaps, such as the alleged mistreatment of employees in Apple’s supplier Foxconn.”
These stories made the front pages of newspapers around the world and are a stark reminder to any chief executive that they are ultimately responsible for all aspects of their company’s operations. As such they must be sure that they have sufficient safeguards and procedures in place to manage risk in the supply chain.
While the horsemeat scandal was indicative of the importance of sourcing and traceability, the lessons can be applied to any sector involving the movement of physical goods.
Craig Sears-Black, UK managing director of supply chain solutions provider Manhattan Associates, explains: “As retailers balance cost and quality, supply chains have become longer than ever. Accurate, actionable data across the supply chain helps. Collaboration between producers, transport service providers, distributors and retailers improves agility and efficiency.”
However, while safeguards can be put in place after the event, it’s always better to prevent problems before they happen.
Sue Loney, casualty underwriting director at global insurer RSA, says that confidence is built over time using established suppliers and this can create more opportunity for the manufacturer to positively influence their supplier.
“Remedies against suppliers may be available in contract and suppliers may have insurance policies in place to respond to the financial consequences of a failure,” she says. “However, it is often the case that local insurance coverage is insufficient to respond appropriately and financial limits may be inadequate, and in any event the reputational harm will have been done.”
While most chief executives understand that keeping the consumer on side is vital, it is easy to forget how easily customers can be alienated.
Steven Thompson, head of consultancy at crisis advisers red24, cites the examples of international recalls, such as McLaren buggies in the United States and Europe, and Toyota cars globally. He compares these reactions with those over both the recent milk powder scandal in China and the horsemeat saga.
“While the consumer will be willing to accept the occasional manufacturing failure, as in the first two cases, they will not accept the fraudulent activity associated with the second two,” he says.
Public awareness of supply chain failures can obviously be managed through a public relations blitz, but this is not the answer. The mea culpa approach is all well and good, but the consumer needs to see that something beyond a PR exercise is actually taking place.
Tesco was quick to put up posters in-store and take out prominent full-page newspaper advertisements following its recent meat withdrawals, but it has to change its culture and practices towards the supply chain that saw its sales – and brand – suffer damage.
Meanwhile, those supermarkets widely acknowledged to have stringent and transparent supply chain risk management procedures in place, such as Sainsbury’s, the Co-op and Waitrose, have all seen sales rise after the horsemeat disgrace. Food for thought.
