Welspun Egyptian Cotton Problems – Supply Chain Provenance Hits the Headlines

According to reports this week, Egyptian Cotton bedsheets supplied by Welspun India to retail clients have turned out not to be from Egypt after all. But at least it is cotton, not horsemeat …  Egyptian cotton is seen as top quality and commands premium pricing, hence the temptation for players in the supply chain to deceive.  The major US retailer Target has severed their ties with the supplier, accusing Welspun of passing off cheaper product for the last two years.

Welspun chart

Chart from moneycontrol.com

It is no joke for the firm or its shareholders, who have seen the company’s value drop 50% on the Bombay Stock Exchange, a loss of value of some $740 million.  Welspun has said it will audit its supply chain, and one suspects that the firm may try to blame suppliers for the “mistake”. The company is in the process of engaging one of the “big four” auditors to carry out the review.

“Our customers rely on us to maintain the highest standards of quality and compliance, Welspun remains committed towards this. We have been very particular about our quality standards, so we are taking this issue very seriously, " said the MD of Welspun India.

Here is another case to add to the long list of firms that have come undone with reputational issues connected to supply chain risks. We suspect the audit will show that one or more of Welspun’s suppliers have been lying over the provenance of the cotton. But it is simply not good enough for Welspun to hand off the blame in that way.

Today, buyers and buying organisations are expected to show that they have taken all reasonable steps to verify the provenance and background of critical materials that are being purchased. Buyers need to evaluate not just the basic supply chain quality and robustness issues, but need to also consider the ethical approach (or otherwise) of those key suppliers, and where appropriate dig down into their supply chain.

Now if Welspun can show they were doing all of that, and if for instance it turned out to be real criminal deception by their suppliers, then they might come through this relatively unscathed.  But if it is shown that they didn’t ask the right questions or make the right checks – or of course if they were complicit in the deception – then they will be in trouble.

There are a couple of other interesting points here. There is the question of how Target found out that the cotton was not Egyptian, and one suggestion is that they used DNA testing – if true, that’s a fascinating addition to the quality assurance toolbox. The incident also got us thinking about Blockchain possibilities in terms of establishing provenance. We’re in the early days of Blockchain technology, but my colleague Jason Busch talked about the possibilities at the Baltimore ISM / Spend Matters Tech Summit in March, and there is an interesting article here if you want to know a little more. (The organisation behind that website -  Provenance -  is one we need to look at more closely too).

We will keep an eye on the Welspun story and report on the findings of the audit no doubt in a few weeks’ time.

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