January 28, 2009

How much risk is in your supply chain?

As most of you know I believe that the downstream risks buried in supply chains represent the next big frontier in risk mitigation. Not vetting a vendor sufficiently or creating a methodology to measure, monitor and collaborate with the organizations that comprise your supply chain sets your company up for problems.

Here are a couple of great examples.

Corpedia Sues LRN. With full disclosure, LRN is a valued partner of EthicsPoint and I have the utmost respect for my friend, Dov Seidman, their Founder and CEO.

On December 28, Corpedia, a competitor of LRN, filed a lawsuit against LRN for trademark infringement and unfair competition for LRN’s use of Corpedia as a Google® key word search term. Over the course of the past few years I have had several of EthicsPoint’s competitors use our trademarked name for this purpose, and usually a simple phone call or a cease and desist letter resolved the situation. This is an unfortunate event for those of us in the ethics business, regardless of who’s right or wrong; we shouldn’t have to resort to lawsuits.

Although I am unaware of any dialog between Corpedia and LRN regarding this matter, I am familiar with the fact that very often third-party web optimization firms are engaged to direct this type of marketing effort. The decisions that are made about what words to buy, how to sponsor the links, how to structure the ads, etc. is left to the outsourced firm and the only measurement by the client is the number of leads generated from the activities.

A good friend of mine, Patrick Kuhse, weaves a great a story about why people and organizations get into trouble. Patrick speaks from experience: he is a convicted white-collar felon having spent four years in a Federal Prison. Before serving his time, he was an international fugitive from justice which landed him, with some help from Interpol, in a Costa Rican prison for a while too. Today, Patrick is an international speaker on the topic of business ethics and critical thinking skills. He also dedicates a lot of his time talking to college students about not making some of the same mistakes he did. Patrick has summed these up into his “8 Critical Thinking Errors that can Wreck a Career.” One of these is titled Seeming Unimportant Decisions.

Again, without being knowledgeable about the specifics of the Corpedia/LRN case, I can foresee this being another example of why organizations need to better manage and audit vendors and supply chain; as the organization is almost always responsible for the actions of their vendors and supply chain. Could a seemingly unimportant decision not to review the key search words being selected have led to a multi-million dollar lawsuit – not to mention the business distraction this litigation undoubtedly generates?

The Peanut Butter Nightmare. Earlier this month, Peanut Corporation of America (PCA), a peanut processing company and maker of peanut butter for bulk distribution to institutions, food service industries, and private label food companies, announced a voluntary recall because their peanut butter was potentially contaminated with Salmonella. PCA's products aren't sold to grocery stores. PCA only sells peanut butter to institutions and food manufacturers. So this potentially dangerous peanut butter is now in candy, cookies, ice cream, etc. PCA is a part of the supply chain for General Mills, Clif Bar, Kroger, Kellogg and 81 other companies – including a number of nursing home food service facilities.

Consequently there have been a number of deaths attributed to this matter and hundreds of people reported ill. The FDA has identified four different strains of salmonella in the plant and said “the Peanut Corp. of America plant had shipped products that the company's own initial tests found to be positive for salmonella. They retested and got a negative reading.”

Without question this is an unfortunate situation and it is unlikely that this will end well for any of the parties involved. The shelf life of peanut butter and the mixing and intermingling of the product in processed foods truly makes this a nightmare.

My question for you – How do you know that your supply chain is acting ethically?”


1 Response to "How much risk is in your supply chain?"

Sarah Williams said... February 5, 2009 at 2:26 PM

Devils in the Details. Monetarily speaking its a good idea to put your supply chain under the microscope because it never looks good when you're saving cost at the risk of the public's well being. But to add to that I would ask, "What risks to the environment and to people that aren't your public eye, is your supply chain hiding?" In a world where being green and being an ethical company is growing in value, shouldn't that too be a question?
Something to blog about I guess. Thanks.

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David Childers
of EthicsPoint

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