This week, there were two significant announcements involving major Japanese consumer electronics companies. They both had common themes, namely needs to grow revenues and profitability, as well as better compete within the new emerging global economies. They plan to do so by outsourcing design and production outside of Japan, and in my view, these announcements are yet another data point in the new structural changes involving  post-recession global supply chains.

Hitachi Ltd., suffering from its worst annual profit loss in the company’s history, is turning to an outsourcing strategy to produce its televisions for the U.S., European and other markets.  This move is part of a major re-structuring announced on July 1.  According to a Wall Street Journal article (subscription may be required), the move is an effort to stop the bleeding within its television unit, which accounted for most of the current $1 billion-plus loss at Hitachi’s digital products division.

Like other Japan based consumer electronics companies, Hitachi had previously differentiated its television products with in-house design and sourcing of major components as well as final assembly production.  The latest restructuring calls for a move toward outsourced sourcing of components and contracted manufacturing. Potentially two Hitachi-owned television assembly plants in Mexico will be sold, and a television plant in the Czech Republic will be leased out.  Hitachi will only manufacture products in Japan to support its local Japanese market.

On another front, in order to compete more effectively in the new developing economies, Panasonic Corporation is planning new lines of appliance and electronics offerings tailored to appeal to ultra-cost conscious consumers.  A separate Wall Street Journal article (subscription may be required) indicates that these products will be locally designed and manufactured within targeted regions, with razor-thin product margins.  Similar to the Tata Nano automobile, while product features will include the bare minimum, local designers will target innovation and simplicity, providing the most attractive price and feature point for these new emerging consumers. Panasonic’s efforts reflect an admission that these margins cannot be achieved by its original Japan centered sourcing model.

In my editorial opinion commentary that I was invited to write for the 21^st Century Supply Chain Blog Expert Series, I noted that in the forthcoming post-recessionary growth cycle, for certain products, the most cost efficient value-chain can trump the more costly product innovation focused value-chain.  The latest moves from both Hitachi and Panasonic are I believe, are yet another acknowledgement of this evolving trend.

The benefactors will be designers and contract manufacturers who reside or operate in the new evolving economies.

Bob Ferrari

Today’s Wall Street Journal (subscription required) included an article, Nestle Unit Restarts Cookie-Dough Facility, which provides some mixed messages.  Supply Chain Matters has provided previous commentary regarding the events and supply chain implications associated with the recent recall of Nestle Toll House Cookie Dough and other products because of suspected E.Coli contamination.

 The latest chapter outlined in the Journal article indicates that the U.S. Food and Drug Administration (FDA) is wrapping-up its investigation of the incident, and further indicating that the E.Coli sample found in a packaged product sample within the Nestle Danville Virginia production plant “didn’t match the DNA fingerprint of the strain that has caused at least 72 illnesses in 30 states.”  David Acheson, an FDA associate commissioner, indicates in the article that the FDA is not likely to figure out how the dough became contaminated, and has authorized continued production of product at the Danville plant. A Nestle spokesperson is also quoted as indicating that more than 1000 tests were performed on environmental and other samples within the production facility and its equipment with no E.Coli found.  Dr. Acheson is later quoted as indicating that FDA investigators suspect that wheat flour as a “plausible” source of the contamination, since it is the only dough ingredient that could be contaminated by animals such as deer. These same investigators however have not been able to verify E.Coli at the flour mill that Nestle utilized.

Let’s recap the Nestle situation and what have we learned from yet another incident of contamination within food supply chains.  Three weeks after the initial announcement of the voluntary recall by Nestle on June 19, regulators and Nestle have determined that the actual source of the contamination cannot be verified. While flour is suspected as a source, a decision was rightfully made to move on with production.  Wisely, Nestle has decided that it will label all new production with the term “New Batch” and include the usual warning for consumers to not consume cookie raw and uncooked dough. But as I pointed out in my original posting, the current reach of social media and the Internet has already associated the words of E.Coli and Nestle Toll House together in numerous content entries.

Similar to what occurred in the salmonella contamination found in peanut butter and paste, and traced to Peanut Corporation of America, a raw ingredient to multiple other food products permeated itself throughout these supply chains, leading to eventual product recalls in the hundreds.  In this latest incident, if wheat flour is indeed suspected, how many other product supply chains are now vulnerable? 

This week, the White House food panel established in March declared that the federal government is shifting its focus of food regulation to preventing outbreaks before they occur.  The latest demonstration with the Nestle Tool House cookie dough incident doesn’t seem to reflect that the FDA has gotten the message as yet.  If flour contamination is suspected, what other measures are be taken by the government.  As for the industry itself, what added measures are individual foods companies initiating to be more diligent in inspecting raw ingredients, particularly wheat flour.

Regarding Nestle, they will have to do better than just re-packaging of the product.  There needs to be a very comprehensive and visible inspection process surrounding all future production, packaging and distribution. This is a challenge to not toss over the wall to marketing.  The brand has suffered a setback, and in my view, marketing alone will not mitigate this problem.

As consumers, how confident are you in the overall quality of food products?

As supply chain professionals within the food industry, do you feel that management is actively supporting increased inspection and quality initiatives?  Does management also actively support supply chain risk mitigation team efforts?

What have we learned from this latest incident- that much more work remains on all fronts. In the meantime, please urge your families and friends not to consume any uncooked, raw dough products.

Bob Ferrari