Supply chain control key to product safety
Managers at some of the world's largest multinationals are facing one of their biggest problems in recent times - product safety. And it seems no quick fix is in sight.
Some quality scares this year involving pet food, tainted toothpaste and substandard toys have not only exerted pressure on overseas companies and their mainland suppliers, but also soured diplomatic relations, notably between the mainland and the United States.
Beyond the spats fuelled by a series of product recalls and contamination scares, the irony at the micro level is that relentless cost-cutting efforts have introduced flaws in the supply chain that are returning to haunt them. This time around, the cost is not just in monetary terms.
How does one salvage tainted corporate images and prevent recurrences? Costs are likely to increase for many companies.
Much of the problematic food products stemmed from substandard ingredients. Executives say getting multinationals to step up on-site monitoring of vendors and suppliers to ensure that they meet specifications is the only way.
'Don't ship anything you would not feed your children,' said Tyson Foods vice-president and country manager James Rice, who is based in Shanghai. It boils down to increasing vigilance on companies. The crux, added Mr Rice, is to know where products are manufactured and what they are putting into them.
Based on survey data presented at the recent CEIS Annual World Food Business Summit in Shanghai and global consultants A.T. Kearney, 95 per cent of mainland consumers rank food safety as 'very important'. Most are willing to pay a premium for safe food.
How reassuring such statistics are to managers is questionable in an increasingly globalised and competitive marketplace where cost is almost everything. Multinationals are constantly on the lookout for new production bases in Asia as the costs of mainland labour and raw materials rise.
However, there is simply no room for lapses and complacency, as the Mattel crisis has shown.
Mattel last month recalled almost 19 million mainland-made items, including dolls, cars and action figures, after some were contaminated with lead paint and others had small, powerful magnets that children could swallow.
Things came to a head when Cheung Shu-hung, the boss of Mattel contractor Lee Der Industrial, hanged himself after running up US$30 million in debts following the recall of flawed toys his factory made. Cheung, a Hongkonger who had an unblemished 15-year record working with Mattel, bought tainted paint from a mainlander that he considered a 'friend' for some years.
Last week, Toys 'R' Us announced it was recalling thousands of mainland-produced colour sets, citing excessive levels of lead in the black watercolour paints.
It also terminated its relationship with Funtastic, a unit of Hong Kong distributor FPL Group. The sets were produced by Danxiang International Trading in Ningpo and distributed by Funtastic.
Anne Chen, head of Chinese consumer products and retail practices at Bain & Co, said keeping a close tab was key.
'Even after the probational period, it's prudent to establish a system of third-party routine spot checks of suppliers,' Ms Chen said.
Proctor & Gamble, for one, keeps stringent contracts with suppliers and conducts regular as well as sample checks.
Outsourcing was minimal, its mainland spokesman said.
A.T. Kearney believes that fixing the food safety process can only be accomplished by co-operation among manufacturers, retailers and distributors on common standards. Government also needs to ensure enforcement to build a national supply chain, which would cost about US$100 billion over 10 years.
City University associate professor Chan Yan-chong advocates that companies establish a system to measure outsourced contractors.
'Getting your customers sick is not a bargain,' said Jim Morehouse, A.T. Kearney's senior partner.