Supply Chain Integrity:

PREVENTING WEAK LINKS from Here to There

Supply chain is not simply a system that delivers the final

product or service to the end customer, says Jim West,

Managing Director, PricewaterhouseCoopers LLP. It is also an

expression of your brand values and an extension of your

brand image. Here’s his advice on how to better assure that

your supply chain is one of integrity.

GMA e-Forum: Who would argue, Jim, against putting resources against supply chain integrity? Yet your report, “From Vulnerable to Valuable,” notes that it is one thing to demonstrate the financial benefits of cost-reduction activities, and another to make a business case for investments that improve the resilience of supply chains.

socially, ethically. You know your direct supplier is an integrity-rich company.

 

The problem is, your suppliers have their own suppliers of goods and services, and so on down the line.

Jim West: It is difficult, but it can be approximated. What, for example, is the cost of a loss of production? If a supply chain problem interrupts production, you can figure out what the down time is going to cost you, and you can do a cost/ benefit analysis of potential efforts to reduce the chances of supply chain interruption. If it’s a CPG product, you can also approximate the lost sales or market share if a supplier cannot meet your delivery expectations.

The challenge is achieving a pervasive program, so that from beginning to end, integrity is assured. Obviously, you can’t do that yourself. No company could. What you can do is try to make sure that your suppliers institute the same kinds of checks, safeguards and quality assurance reviews that you have, and that they do with their suppliers, and so on down the line. No company at the top of the chain can do it all; the burden must be shared across the entire supply base.

On the other hand, if you suffer a disruption, the impact is easy to calculate. Companies that have had an incident find it much easier to quantify the dollars (costs, lost sales, etc…) for a business case (though we are not recommending waiting until you suffer an incident) that affects your reputation and shareholder value.

 

GMA e-Forum: Companies have tried to prevent food safety disruptions long before the recent melamine and spinach scares, and now we have a new one: peanut butter. The companies involved are surely tearing out their hair, because they must think they have all the preventive measures in place, and yet it happened again. How should we think about this?

Jim West: What we typically see is that the source of the problem is not the direct supplier. Typically, the company with which you do business with directly is a fine, upstanding organization that has never had an issue. You have talked with its management, worked with them, and toured their facilities to see that they’re clean –– hygienically, financially, environmentally,

In short, while you may have a good and robust supply chain integrity program for your suppliers, you have to work with them to assure that the two-tier and below are on the same page, with the same kinds of programs.

GMA e-Forum: In recent years, “globalization” has been the watchword. It almost seems that CEOs weren’t considered “with it” if they didn’t look to source abroad. Now, your report notes that more than 4,000 product recalls were administered by regulatory agencies in 2007, up from fewer than 500 recalls in 2000. The CPSC said that most of its 2007 recalls were of imported products and that “the large majority” came from China. What do we do about China and other developing-country suppliers?

Indeed, if one were to arbitrage the cost of using US ingredients and manufacture against the cost in reputation, supply chain disruption, the indirect tax cost your study mentions, and the legal costs of winding up with melamine in your dog food or baby food product, would the savings be worth it? Is it time that companies reconsidered, shifting sourcing and manufacturing back to where most of the