The recent raiding of the Gibson Guitar plant by the U.S. Fish and Wildlife Service and seizure of alleged illegal wood is the latest manifestation of sub-tier supplier risk. And it couldn't have happened to a more environmentally-conscious company. Gibson Guitars has made a huge effort to buy sustainable tonewoods from certified suppliers. While Gibson has said that its suppliers must have lied, it is still hard to understand how authorities had reason to raid the plant, and yet Gibson had not been informed or tipped off by any sources that it may have been buying illegal wood. This situation shows how tricky supplier risk can be. The certifications may have lulled Gibson into complacency. And why not?
I wrote about a similar situation (Where’s the Beef….From), that occurred last summer after a 3-year investigation by Greenpeace culminated in three UK supermarket chains (Tesco, Asda and Marks & Spencer) being accused of buying meats from the hundreds of illegal farms across the Amazon region that were destroying the Amazon rainforest. Cattle-raising is considered one of the biggest reasons for rainforest deforestation. Several Brazilian meat processors were being prosecuted by the Brazilian government. In addition, the shoe manufacturers, Clarks, Adidas, Nike and Timberland were also inadvertently involved in buying leather coming from the same illegal sources.
So what does this say about supplier risk? When elements of the supply chain are deceptive, it's hard to uncover the risk despite good intentions. The CEO of Gibson Guitar seems to have been doing everything right in his efforts to buy sustainable woods. The question is: did the company ever plan for such negative occurrences? According to an article in the CPO Agenda last spring about a study of 150 companies done last spring by Oliver Wyman and the CPO Agenda, most companies have unstructured risk management processes (respond ad hoc to risks as they occur) or are reactive (defined as "companies have predefined processes to respond if a risk rears its head") about purchasing-related risk. Far fewer are being proactive (defined as "companies establish approaches and contingency plans to anticipate and counter their highest priority risks; they are highly competent at downside protection"). This is on a scale that ranges from unstructured, reactive, proactive to cross-functional and value creating. Only four companies fell into the cross-functional category and none into value-creating.
Being blindsided by ugly supply chain surprises is likely to continue, as not all situations can be prevented. Gibson Guitar does not appear to have a process in place to respond to this situation and certainly its process to prevent it failed. But this is not unusual given how relatively few companies are truly proactive about supply risk.
- Sherry Gordon