As the Peanut Corp. of America scandal rolls on, a new bit of information has thickened the plot: Chinese organic peanuts may have been the source of another Salmonella outbreak at PCA back in 2006. Now that China is part of the story we have a full blown worst practice example of stupidity in the global supply chain.
AMR Research's quarterly Supply Chain Risk data came back just last week and a preliminary look into the new data shows that when asked “What is the primary risk associated with sourcing and manufacturing in China?” 136 companies surveyed said:
- Product quality/safety/fear of contamination--45%
- Rising material costs--10%
- Rising environmental compliance costs--10%
- Rising labor costs--9%
- Political unrest--9%
For comparison, consider the top supply chain risks associated with manufacturing and sourcing in the US. The top three are:
- Lower consumer spending-- 49%
- Volatile energy costs-- 41%
- Regulatory compliance--35%
China-sourcing may have given us low, low prices, but we are finally beginning to see the many hidden costs of this approach. A year ago when oil starting going up, we saw wave 1 of the hidden costs of globalization as transportation suddenly began eating up profits. In wave 2, which is now becoming clear, the hidden cost of poor product quality is beginning to bite. I predict wave 3 will be fuller realization of the cost of stolen or damaged intellectual property; we’ll see that next year as pirated content, counterfeit brands, and hijacked patents slashes earnings.
Let’s just hope the really big one never crashes: Wave 4 could be an angry mob of citizens disenchanted with the boom that left them behind. The China meltdown I predicted following the Olympics may not have materialized yet, but disgruntled workers are already starting to stir with factories shutting down without warning. I wonder how sanguine they and other “low-cost” country populations will be after five or six quarters of serious global recession. In fact, C.J. Wehlage, who leads our high-tech industry practice, thinks companies should be planning exit strategies in this down economy.
Sourcing with Respect; Selling with Integrity: HP gets it, PCA doesn’t
We have a long way to go in working with our fellow humans around the world as the global supply chain links us all together. Sourcing with respect and selling with integrity are disciplines we had better master if the potential power of the supply chain is going to do us any good. For an example of how to do it right look at Hewlett Packard, which has sourcing policies that have long been ahead of the pack and whose global sales footprint shows an appreciation of local style that works. In fact, the company's program manager for supply chain and social responsibility, Bonnie Nixon-Gardiner, is a role model for those dealing with these issues. Ms. Nixon-Gardner and I both spoke at last year's Stanford University's Responsible Supply Chain Conference.
Bringing it back to peanuts, the guys in Georgia with the salmonella factory did both of these things exactly wrong: Shipping peanuts 12,000 miles from poor China to a plant in the heart of America’s peanut fields to save a buck, and then knowingly shipping tainted product to customers in the USA to make a buck. We reap what we sow.