The Risk-Monger

Supply Chain Shame

The Risk-Monger recently gave a student 100% on an exam – something very rare in an oral testing structure designed to evaluate on the basis of what students don’t know.

The exam was a communications simulation where the student had to represent a food company using bisphenol A (BPA) in its tin packaging while suffering under a concerted campaign from activists to abandon BPA. Despite having the scientific data to prove the safety of BPA as a protective barrier in food packaging, evidence that it was better than any alternatives in preserving food and the cheapest solution for food protection, the student opted, in this simulation, to push for an alternative to BPA and design a campaign around it. After thinking I had talked this 21-year-old into a trap, she replied: “If we can be the first company with an alternative, we will gain market advantage and a PR edge!” Within that bold statement, my student displayed a deeper understanding of the problems of supply chains than any policy-maker, academic or media analyst I know of in Brussels, hence her perfect grade.

Supply chains are not the land of cooperation in innovation and development we commonly perceive. It is a cut-throat competitive structure with little trust and an animosity that diminishes cooperation. The Risk-Monger has often noted that the real problem for industry today is not the attacks from the anti-business denormalisation activists outside, but from the cancer within – a supply chain that rarely works in harmony and tends to shoot each other in the knees to bring everyone down to size.

Some examples:

  • Ford implemented a lean supply chain policy management system commanding all of its suppliers to cut prices each year (while Ford raised their prices). The upstream producers could not afford to lose Ford’s business, but after a few years, could neither afford to keep it.
  • Apple is widely known for its design skill and resilient stock price. Most of Apple’s suppliers however are marked by meagre revenues and anemic share value. Apple has no idea how deep its supply chain even runs (last I checked, circuit boards do not grow on trees) so they have to resort to the strange “made in” label: “Designed in California (not the USA, California is way more cool!), Assembled in China”. So where is your iPhone made? Who knows! Apple certainly doesn’t.

Supply chains have become too complex for the public perception so we pretend they do not exist. We want to believe that Nike makes its shoes, Coke bottles fizzy drinks and the person answering your customer service issue is actually in the head office. When things go wrong, the brand has to man up to take responsibility, even if it was a chink in their supply chain, lest the illusion be lost. So when Toyota had a problem with their accelerator supply chain, Coke with their bottlers in India or Apple, with their manufacturers at Foxconn, rather than lose the perception of brand exclusivity by blaming the problem on the suppliers, they took it on the chin and managed it as resulting from an internal crisis. The buck stops at the retail level.

Likewise, manipulating the supply chain can be the source of competitive advantage. When I was working on the brominated flame retardant issue, I had a very disagreeable meeting with a representative from a Japanese OEM. His electronics research team had developed an alternative to bromine to protect their products from burning so any evidence about the safety of bromine (or the risks to human health of his alternative) did not interest him. It was to his competitive advantage to keep brominated flame retardants in the policy sewer – I suspect he was funding some of the research with the NGOs to keep bromine under the spotlight.

As I have mentioned frequently in my blogs, when the stench of precaution rears its ugly head, a supply chain scrambles to retool. If a substance or process is exonerated or given a clean bill of health, it is usually too late – it is in nobody’s interest, downstream, to go back to the previous approach after investing so much in a new substance or production technology (even if the technology and substances, not yet sufficiently tested in the environment, may prove to be worse). The whiff of precaution is essentially the lid of the coffin for substances and technologies, and environmental activists know this.

Brominated flame retardants are a good example of how ethically challenged supply chains can be. Is it merely a coincidence that the main legislative challenges to bromine initially originated from Norway and Washington State – two regions known for aluminium production (a non-flammable alternative, albeit, much more expensive, to plastics protected with flame retardants)? Think of that the next time you turn on your cool, but very expensive MacBook with its aluminium frame! Greenpeace’s award-winning Green my Apple campaign got the bromine out and the more expensive and equally environmentally challenging aluminium in. This is the ugly side of the supply chain most consumers don’t see, but make no mistake, Greenpeace is part of it.

A business can gain market advantage through innovation, but that is a lottery, expensive and often unsuccessful. Or one can gain advantage by attacking the perceived safety of its competitors’ products. This has a higher rate of success. As we all love a good scare story and facts are not necessary for the public to panic, the mere suggestion of a risk is enough to blackball market-share.

  • Opportunistic food producers and supermarket chains are using the mere scent of a genetically modified organism to increase sales;
  • Baby product producers have created an adjective called “BPA-free” to panic poor mothers (as if it means chemical-free to the easily influenced);
  • And then my favourite fear-enriched term for utter meaningless opportunism: “Organic”. The food supply chain is largely built along a myth that natural is safe and synthetic is not – favouring niche food suppliers and retailers who have panicked populations with their self-serving and unscientific advice (not to even mention the strains they are putting on global food security and the right of children in developing countries to escape poverty, enjoy childhood and go to school).

The real problem, and one the Risk-Monger raised many years back, is the lack of communication and cooperation among actors along the supply chain. I have seen too many cases of how little trust there is between the upstream and the downstream in the chemical industry. I used to find the hostility of the language tone in the chemical safety data sheets alarming. They are often written by chemical engineers who think that the people using their products are complete idiots. To be honest, I have seen episodes to justify this perception. REACH was conceived by policy-makers who have no idea how supply chains work (and I think I know how that story is going to play out – spoiler alert: it does not end well for the consumer!).

My best personal experience on how dysfunctional the chemical “value” chain is, occurred when I was working on Chemistry for Europe at Cefic, charged with reorganising the sector group structure in the wake of REACH. I red-flagged two sector groups managing the same chemical substance as an opportunity for fusion – one grouping together the substance producers, the other made up of its end-users. My attempts were futile – the groups, to put it lightly, couldn’t stay in the same room (upstream had issues of use and post-use, downstream had issues of price and availability and they were intent on blaming each other for the problems they faced).

Still, the concepts of product stewardship and Responsible Care were meant to create an atmosphere of care and cooperation across the chemicals supply chain. From the 1980s, this urgency was recognised, moving the LCA concept from gate to grave to today’s cradle to cradle approach. But the market speaks louder and industry outliers (both upstream and downstream) have upended efforts to enhance the supply chain cooperation. Voluntary initiatives from Vinyl 2010 to VECAP have been both voluntary and short-term initiatives. They have made significant achievements but are not enough.

There is an urgency since groups like Greenpeace have recognised the supply chain weakness and are able to score some easy wins (the bright side is that it is making Greenpeace lazy and cynical). Many of Greenpeace’s success stories have been achieved by targeting supply chain weak spots that companies could easily do without. It may look good on social media pages and fire up their troops, but hardly does anything for the environment.

  • By attacking Mattel via a campaign affecting ten-year-old Barbie lovers, the goal of Greenpeace was to get Mattel to stop sourcing from Asian Pulp and Paper (APP) – essentially punishing APP for not giving Greenpeace the respect they felt they deserved. Add the same strategy against APP with KFC or Danone but with different logos.
  • A palm oil producer ignores Greenpeace on their blurry concept of sustainable palm (which producer? There are many!). Greenpeace, more than anything else, does not like to be ignored so they attack its clients: Nestlé, Unilever or P&G.

There is no love lost in the supply chain worth a long Greenpeace PR onslaught so the companies simply change their suppliers and the activists can present themselves as taking on the mighty pillars of big business and winning. See Greenpeace’s modestly named victories page. As we approach the holy month of December for fundraising, we can expect Greenpeace to present another meaningless supply chain attack in order to pick up some more low hanging donation fruit.

Then there is my favourite group of policy bandits: Corporate Europe Observatory. A recent campaign, that must have been outsourced to an intern visiting Brussels for the summer, simply counted all of the times industry reps contacted Commission officials to show how widespread the lobbying is. I suspect it had never dawned on CEO that these industry lobbyists were more frequently than not lobbying against the views of other industry actors in the supply chain, leaving policy-makers confused by the myriad of positions. Don’t measure the lobbying, measure the influence. A supply chain that is not on the same page (most industry supply chains), has no influence. Any lobbyist group, whether it is industry, NGO or government, is more effective if they can present a common position and speak with a single voice. Industry supply chains are nowhere near that state.

It would be useful if there were another form of supply chain management (besides that of finding competitive advantage or cost reduction). For the last few decades, except for a few innovation success stories, open communications has been sadly lacking. There is a profound need for more cooperation, coordination and, simply put, interaction. Instead, the supply chain has been more and more off-shored to China (and worse, managed by intermediaries like buyers or technical coordination consultants who have zero commitment to markets or producers). Outside of price and quality within the demanded timeframes, is there really any commitment at all within a global supply chain?

This is a shame.

 

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