Where does your Supply Chain End?

Remember the horse meat scandal when everyone realised that companies don’t know where their stuff comes from? Supply Chain transparency has been a big issue for some time, even before 2013 when the horse meat story broke. The technology and processes exist to validate any supply chain; the problem is it’s an investment in relationships and money, something that has been traditionally squeezed in pursuit of ongoing efficiency drives.

Interesting to see two stories this month on this subject for two different angles:

Jeremy was talking about his experiences in the summer of 2011, when monsoon weather in Thailand caused massive floods that crippled manufacturing plants and caused a global shortage of hard drives (the world learned then that Thailand is where hard drives come from), Amazon’s infrastructure team was just starting to design its own data centre hardware, such as servers and network switches.

“Turns out it can be pretty hard to get the stuff that you need,” he said. And it wasn’t only about the hard disks. Components like the motors that spin the disks, for example, predominantly came from one supplier, whose plants were on the flood plain, they learned.

The disaster was a wake-up call for the team, which realized they had to gain a deep understanding of the component supply chain if they were to weather another incident of this scale.

Gaining that level of understanding wasn’t easy. When AWS asked local manufacturers to provide some insight into their operations, the manufacturers at first declined, and it took a lot of relationship-building to get access to the necessary knowledge, Hunter said. “We still have great relationships with those vendors today.” (Jeremy Hunter at re:Invent 2015)

As Jeremy’s account shows, we have made Supply Chain very complex now, ownership is power, you may purchase one item from someone who is managing a network of many other suppliers. It reminds me a little of pyramid selling, everyone making money off everyone in the pyramid.  Getting these companies to open up is tough and takes time and trust.

Something that McDonalds can also talk about. Steve New wrote an article for HBR called McDonalds and the challenges of a modern supply chain where he uses McDonalds’ woes to offer three lessons about supply chain transparency:

Transparency needs a long game; reputational problems don’t mend fast. Few firms have faced such reputational challenges as McDonald’s. In the 1990s, an ill-judged legal case, the McLibel trial, saw the corporation acting against a tiny environmental group in one of the longest civil cases in UK history, with terrible reputational consequences. The movies Super Size Me and Fast Food Nation cemented the view that the corporation was complicit in promoting bad health, bad environmental practice, and food that was just, well, disgusting.Faced with these challenges, McDonald’s has not been idle. It has taken on its critics and made substantial changes to both its practices and its communication. Indeed, in the UK, the official government review of the horsemeat scandal, the Elliot Review, singles out the McDonald’s supply chain for praise. In the United States, a series of documentary-style promo films with celebrity presenter Grant Imahara have tried to give customers a clear and unvarnished account of sourcing and production processes. You may still not like the firm or its products, but you can’t deny it has made serious efforts.

The trouble is bad reputations aren’t lost that easily. A generation of cynical middle-class customers have already decided that McDonald’s is a tarnished brand. Supply-chain transparency is that kind of challenge: It’s rarely the top thing on consumers’ minds, but it is an issue that sticks in the imagination. And when newer, less tarnished players like Chipotle arrive, consumers can tacitly exercise the prejudices and cross the street. The lesson for other firms: If you have problems in your supply chain, don’t let the critics get there first.

Global operations need consistent global standards. Despite the great strides that McDonald’s has made in some markets, its progress and practices have not been uniform. Last year McDonalds — and other major food companies — were plunged into a food safety scandal in China. This is a case of your defense being as strong as your weakest point. Bad headlines about foreign operations tell consumers, “This company still can’t be trusted.” And such bad news doesn’t just reduce the impact of your good work elsewhere; it means that its credibility is fundamentally undermined. So firms need to be cautioned: Supply-chain transparency initiatives are not a normal program to be rolled out region by region.

Let’s return to those videos with Grant Imahara. “Look,” they declare, “it’s real wholesome meat!” Imahara holds up great chunks of flesh from the conveyor as if to say, “Appetizing!” But even hard-core carnivores like me blanch queasily at this amount of dead animal. OK, you’ve convinced me there is no pink slime, but you’ve reminded me that this whole process is kind of horrific. That’s one of the curses of transparency of provenance: I might now approve of your food-safety practices, but you’ve just reminded me of things that, deep down, I don’t want to know. This is a paradox that firms in a wide range of industries will inevitably need to grapple with. (Question: What does an unethical shirt factory look like to a naïve consumer? Answer: Appalling. Question: What does an ethical shirt factory look like? Answer: In truth, still pretty appalling.)

Both stories detail very different reasons for supply chain transparency being business critical and although very different examples they both come down to two key areas we must get right:

1. Relationships
2. Trust

I for one am glad about that because they were the two things I loved about supply chain management in the 1990’s and they are well overdue a comeback.