Horsemeat and supply chain risk management – are retailers to blame?

800px-Sainsbury'sMoortownI did have a smile at the headline on the Supply Management website last week, following a session at the CIPS annual conference.

'Difficult to point fingers at retailers over the horse meat scandal', says Sainsbury's head buyer”.

Let’s think of a few more potential (imaginary) equivalents, shall we?

How about “Difficult to point fingers at newspapers for the phone-hacking scandal, says News of the World editor”?

 “Difficult to point fingers at oil firms for Gulf of Mexico leaks, says energy firm boss”, perhaps?

OK, we’re being facetious here. And Neil Bradford, interim head of procurement at the supermarket group, was making some fair points. There are limits to the amount of product testing that can be done – that’s very true, you can’t do a DNA check on every meat product that comes though the warehouse doors. Simply impossible from a practicality and cost point of view.  And there is no doubt that much of the blame in the case of the horsemeat scandal appears to rest with a few unscrupulous individuals, somewhere down a complex supply chain.

But equally, the retailers can’t walk away from their  responsibilities. And Supply Management reported Bradford as saying “you can’t mitigate against criminality in the supply chain”. Well, no, that’s not true. The definition of mitigate is “make less severe, serious or painful”.  Not eliminate or remove. So, whilst you can’t fully mitigate against criminality and remove the risks, you certainly can mitigate to some extent.  For instance, in this case:

·         You can do a reasonable amount of product checking.

·         You can carry out random, no-notice inspections of supplier plants and indeed critical sub-contractor facilities.

·         Even when you’re in a dominant market position, you can offer fair prices to suppliers that enable them to make a reasonable return.

·         You can understand cost structures well enough to ensure that the supplier can produce to your required price without being “forced” into criminal or inappropriate behaviour.

·         You can develop long term relationships with key suppliers, making it less likely that they would risk that through actions for short-term financial gain.

·         You can make it clear to suppliers that any inappropriate behaviour will result in their exclusion from the supply base forever.

I would argue that all of these – and there are more – will mitigate the risk of criminal activity in the supply chain. Not remove it, but mitigate it. (We have also seen evidence that Sainsbury’s hasn’t always identified other supply chain related risks very well, so it would actually be interesting to understand their risk process in more detail).

But what you certainly shouldn’t do is ignore the risk of criminality in the supply chain because it is just “too difficult” to consider. And I’m sure that’s not how Sainsbury’s really  see it.

(Declaration – I own a few Tesco shares. And Justin King, Sainsbury’s CEO, was a colleague of mine at Mars many years ago, and I think he is one of the most impressive CEOs in the UK given  what he’s done at Sainsbury’s – his achievement is still underrated). 

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