In mid-December, Supply Chain Matters published our commentary: How Events Can Change in a Matter of Months- Time for Chipotle to Openly Demonstrate Resolve. In our posting, we outlined from a supply chain lens the crisis that Chipotle Mexican Grill was involved in after hundreds of consumers were sickened by a series of varying incidents ranging from E-coli outbreaks to norovirus that date back to last summer.
In our commentary, we declared what most consumers and general media have since concluded that Chipotle needed to rebuild trust in its brand and in its restaurant and supply chain food handling practices. We called for, among other actions, a temporary nationwide suspension of all outlets to perform top to bottom cleaning and rigorous employee training at each and every Chipotle outlet.
Yesterday, all Chipotle restaurants were closed for four hours during traditional lunchtime hours in order for all employees to participate in a company-wide meeting concerning food safety.
Thanks for listening.
According to reports, yesterday’s company-wide meeting included a briefing addressing the improved “farm to fork” food safety efforts that are being implemented, an announcement of paid sick leave to insure that sick employees stay home when they are ill, and a series of changes related to food preparation practices and protocols. There are a host of new protocols being implemented to include more preparation of food at central kitchens, DNA based testing of supply chain ingredients before being shipped to restaurants and new ways of marinating meats. In essence, Chipotle has little choice but to revert to a model of more centralized food supply chain control to restore trust and added food safety for the chain’s brand. Further announced was $10 million set aside to help smaller local farmers meet the restaurant chain’s new food safety standards and protocols.
The U.S. Centers for Disease Control (CDC) concluded its investigation of the recent nationwide E-coli outbreak last week without any conclusive findings. That was not good for the restaurant chain since it leaves consumers with additional doubts. The Wall Street Journal recently reported that behind the scenes, Chipotle disagreed with health officials on the likely source of the infection. While officials suspected some form of produce, Chipotle concluded it was imported Australian beef that must have been contaminated. But that does not fully explain the outbreaks not related to E-Coli infection.
The economic cost of Chipotle’s food crisis has also become far more visible. Sales at existing restaurants fell 14.6 percent in the fourth quarter while stock has fallen more than 25 percent in value since October. New costs incurred to mitigate food safety risks are yet to be totally quantified. This is yet more current day evidence that a supply chain focused disruption or snafu does and will directly affect both shareholder and brand value.
This crisis remains ongoing and Chipotle must now convince it’s once loyal customers that it serves safe food with integrity.
This author recently conducted an interview with Chloe Demrovsky, Executive Director at Disaster Recovery Institute International (DRI), a noted foremost authority on business continuity and risk management. Our interview generally touched upon a trend toward lack of consumer trust in food related supply chains which has been come about from a new resurgence of food, drug and other related product recalls or food safety incidents. While discussing the implications of these trends on food supply chains, we could not avoid discussing the ongoing Chipotle situation.
Ms. Demrovsky stressed how important and difficult it can be to restore consumer trust in a brand once it has tainted by unfortunate incidents. She also reminded me of how important it is for businesses to have business continuity and supply chain disruption plans in-place before any crisis occurs. We both touched upon business media reports that are concluding that for the past few months, Chipotle has been playing defense, trying to respond to one report after another. Any organization, especially those associated with food, needs to be prepared as to how to respond, and how to protect consumers and the brand when a major snafu or incident occurs. In helping companies with business continuity planning, DRI advocates a thorough risk assessment that includes both internal and external dimensions, coupled with a business impact analysis as cause and effect impact.
Consumer trust is hard won, but also hard to get back when consumers believe that trust has been violated. Consulting firm Deloitte recently partnered with the Food Marketing Institute and the Grocery Manufacturers Association (GMA) on a recent survey of 5000 consumers nationwide regarding food buying decisions. One of the stated conclusions of this survey was that consumers not only want toxin and pathogen-free food but also more transparency from food producers and retailers about food safety. Another stated finding of this survey was that consumers want accountability and transparency across the entire food supply chain. Other food safety concerns identified by respondents included clear information on ingredients and sourcing, clear and accurate labeling, added visibility to the nutritional content of food.
Chipotle management is now planning to launch an extensive nationwide marketing plan to convince consumers that Chipotle outlets will be the “safest restaurant to eat at” and that the chain’s goal is to reduce risk of another infection outbreak “as near zero as possible.” The Wall Street Journal recently disclosed (Paid subscription required) an interview with a former Chipotle operations executive. According to that executive, Chipotle’s stated mission of “food with integrity” was always the prime emphasis, and when translated to supplier management; “they’d never talk about food safety. It doesn’t mean it wasn’t checked, but the discussion was always about the story behind the supplier and keeping up with growth.”
A director of the University of Georgia’s Center for Food Safety indicated to The Wall Street Journal that claiming the risk of another outbreak is near zero is: “really going out on a limb.”
Supply chain risk mitigation is not a marketing exercise, it is rather a comprehensive plan addressing area of supply risk, internal process shortfalls or vulnerabilities, and action plans to resolve such risks.
We would instead offer one further recommendation to Chipotle. That would be weekly and monthly management updates on progress obtained in the mitigation of food safety risks both within each and every restaurant and within the supply chain. That is not marketing but rather management’s efforts to continually inform consumers as well as shareholders on what is being done and how progress is being measured and achieved. Restoring consumer trust in a badly damaged brand is not a marketing challenge. Now is the time for straight talk not marketing spin.
© 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.
We wanted to make all of you aware that the Institute for Supply Management (ISM) will be conducting the Supply Management Conference of the Year, ISM2016, from May 15-18, 2016 in Indianapolis, Indiana at the Indiana Convention Center.
The themes chosen for this year’s ISM 2016 conference is: Proactive-Disruptive-Productive and includes a great line-up of speakers, sessions and networking opportunities.
Former President and CEO of Ford Motor Company, Alan Mulally, is a featured keynote speaker. Mr. Mulally will share his experiences as a dynamic change agent incorporating skills of positive attitude, team-building and business outcomes based decision-making. He will address the principles that took Ford’s supplier
relationship quality rankings from near-dead last to being close tothe top among automotive manufacturers.
Former corporate lawyer and negotiations consultant Susan Cain, author of the best-selling book, Quiet: The Power of Introverts in a World That Can’t Stop Talking, will address why introverts are capable of great achievement.
Susan Schwab, former U.S. Trade Representative and current Professor of Public Policy at the University of Maryland will lead a discussion on the ISM Report on Business® and the future of the economy. Ms. Schwab was integral in the initial launch of the Trans Pacific Partnership (TPP) trade negotiations and she will further address how the TPP relates to the future of supply management.
New this year are Customizable Experiences learning tracks that include:
The Emerging Professional– tailored for attendees with 1-8 years of work experience seeking to accelerate certification, expand professional networking and work experience opportunities.
The Corporate Executive– tailored to corporate teams of five or more supply management professionals which will include hands-on team-building sessions, exposure to future up and coming talent, and exclusive access to keynote speakers in an Exec In forum.
ISM 2016 Educational learning tracks for this year are:
Do– Concrete examples of success stories from industry leaders.
Don’t– What the opposite of supply management best practices including mistakes to avoid.
Direct– Covering a broad spectrum of issues, strategies and processes impacting direct materials spend.
Indirect– Helping to identify key characteristics of several indirect spend categories, areas of value creation, savings and other relevant metrics.
People– Insights on the tools, resources, innovations and solutions needed to enhance talent management strategies and individual career management.
Tools– Addressing tools, templates and processes for risk management, innovation, sourcing and procurement practices.
Risk– Examination of risk assessment practices, operational blind spots and gaps, vulnerabilities that pose the greatest risk.
Rewards– Exploration of rewards that can be realized from diversity, sustainability, supplier innovation and business growth.
Senior purchasing and supply executives speaking within these learning tracks include corporate names such as Becton Dickinson, Chevron, CH Robinson, Dell, DuPont, Google, IBM, McDonalds, Miller Coors, PepsiCo, Siemens, Unilever, among others.
For more detailed information on ISM 2016 learning tracks and sessions, you can visit the dedicated conference website.
There is also an incentive for early registration that attendees can take advantage of.
If you register now, you can obtain a 40 percent discount and obtain a complimentary copy of Alan Mullally’s book on his experiences leading Ford. The discount offer expires after February 29.
You can either register directly at: www.ISM2016.org or double click on the ISM 2016 Conference icon. Please include the promotional code: ICON16! to take advantage of this limited offer.
A U.S. government cyber security official has warned that there has been an increase in attacks that penetrate industrial control system networks over this past year and that increased diligence is required. This warning does not bode well for current B2B focused Internet of Things (IoT) focused technology vendors hoping to capture increased market interest.
Within our Supply Chain Matters 2016 Predictions for Industry and Global Supply Chains (Now available for complimentary downloading in our Research Center), we predicted that IoT initiatives would continue to dive into the realities of line-of-business strategy and deployments. Included in these realities is the current lack of consistent global-wide standards addressing data security concerns.
In a published Reuters report, the Director of the Department of Homeland Security’s Industrial Control Systems Cyber Emergency Response Team (ICS-CERT) indicated: “We see more and more (cyber attacks) that are gaining access to that control system layer.” Overall concerns have been raised from last month’s incident in Ukraine when a power outage occurred from a cyber attack alleged to have originated in Russia, the first known power outage caused by a cyber attack. According to Reuters, security specialists attending the recent S4 conference in Miami Florida indicated that the Ukraine incident has caused U.S. firms to ask whether their systems are vulnerable to similar incidents. At that conference, in an on-stage interview, the ICS-CERT director observed: “I am very dismayed at the accessibility of some of these (industrial) networks…”
From our lens, IoT technology vendors should best be directing their 2016 efforts and support in the area of industrial network security safeguards as well as insuring consistent security protocols and standards. Line-of-business and manufacturing teams working on IoT initiatives should obviously have data security weighted high on their initiatives.
We continue with our Supply Chain Matters series outlining in more detail, 2016 Predictions for Industry and Global Supply Chains. These predictions are provided in the spirit of assisting industry supply chain teams in setting management objectives for the year ahead as well as helping our readers and clients to prepare supply chain management and line-of-business teams in establishing meaningful programs, initiatives and educational agendas.
The context for these predictions includes a broad cross-functional umbrella of supply chain strategy, planning, execution, product lifecycle management, procurement, manufacturing, transportation, logistics and service management.
Our predictions series includes a re-look at all that occurred in the current year, a reflection of future implications, and soliciting input from clients and other supply chain and blogosphere observers. Unlike others, we incorporate a lot of thought and perspective into our annual predictions and take the time to actually scorecard our annual predictions at the end of the year.
Readers are welcomed to review our complete listing of all ten 2016 predictions for industry and global supply chains.
In our Part One posting, we dived into Prediction One that addressed what industry supply chains should anticipate in global chain activity and Prediction Two, what to expect for inbound commodity and component costs as well as unique challenges for sourcing and procurement teams in the coming year.
Part Two of our in-detail predictions explored Prediction Three, turbulence and continued change in global transportation / logistics, and Prediction Four, the growing supply chain talent and skills gap requiring organizations to be more innovative and resourceful.
In this posting, we explore certain industry-specific challenges occurring in 2016.
2016 Prediction Five: Our Noted Supply Chain Industry-Specific Challenges
Each year when we publish our annual predictions, we include a specific prediction addressing what we feel will be industry-specific challenges dominating business and media headlines in the coming year. In 2016, challenges will remain in B2C Online Retail, Commercial Aerospace, Consumer Product Goods (CPG) and Automotive industry sectors. We have added a further 2016 industry challenge, that being current efforts to deploy more sustainable and health conscious agriculture and food based supply chains.
B2C and Online Retail
In 2015, global retailers continued to be challenged in emerging and traditional markets and in permanent shifts in consumer shopping behaviors. Industry CEO’s continue to openly admit that this is one of the most challenging eras for the retail industry. The byproduct of the late 2014 U.S. West Coast port disruption was retailers having a discernable overhang in inventories entering the 2015 fulfillment surge quarter.
While penning these predictions, the final online tally for 2015 is yet to be determined, but at the close of the 2015 Black Friday and Cyber Monday weekend, trending clearly points to a permanent shift in consumer sentiment towards online buying preferences in the order of double-digit shifts. By mid-December 2015, reports began to reinforce that online orders were far more than originally anticipated with major parcel transportation provider FedEx and UPS networks falling behind in delivery commitments. Once again-finger-pointing among carriers and online retailers broke out as to which party exhibited accuracy of forecasting.
We predict more challenges for the retail industry in the coming year, unfortunately to include some high visibility bankruptcies. We also suspect that strategies to predominately route online orders to centralized customer fulfillment warehouses may have contributed to carrier network congestion because of the locations of these centers.
We believe that more integrated Omni-channel fulfillment capabilities will trump customer engagement Initiatives in 2016 in the ability to synchronize fulfillment execution with network-wide inventory policy and management with logistics and transportation cost implications.
Industry dominants Airbus and Boeing are both entering an unprecedented phase of ramping-up each of their individual global-based supply chains and ecosystems to make a dent in multi-year order backlogs over the next 3-4 years among new aircraft programs.
The implication for the commercial aerospace ecosystem is the ability to support a production cadence of nearly 100 per month or 1200 completed aircraft per year by 2019 with very little tolerance for disruptions or system component delays. That is a tall order for an engineered to order, high tolerance and quality centric industry eco system. The cracks were already showing in 2015 and there will be more in 2016. In June of 2015, key suppliers for both Boeing and Airbus were communicating their concerns about supply chain ramp-up plans and were urging the OEM’s to proceed cautiously.
We foresee a rather fragile commercial aerospace supply chain in 2016-17 with many increased risks and concerns. We expect the smaller industry OEM’s to be the primary victims of any supply disruptions.
Despite an improved economy and more optimistic consumers, the automotive industry continues to have its own unique set of challenges that will obviously extend into 2016. An unprecedented level of industry-wide product recalls has taxed service management and repair parts supply chains which will overflow into 2016. In 2015, the most visible driver was the ongoing series of recalls related to defective airbag inflators produced by supplier Takata that involved a multitude of global brands in 2016. The headline will shift to Volkswagen and its needs to address thousands of diesel-powered vehicles with illegal air pollution monitoring devices and software, which continues to impact the reputation of its brand.
Another concern for 2016 will center on China’s automotive sector where significant overcapacity amidst declining domestic demand will likely force more global exports. GM is expected to import its first totally Chinese manufactured vehicle, a small SUV, into the U.S. market in 2016.
In 2015, initial buzz on the possibility of Apple getting the automobile business persisted. We concur with Fortune Magazine’s published prediction in November that Apple will likely buy Tesla to springboard entry into the industry as well as acquisition of a fully operating, vertically integrated supply chain. If this occurs, it will be game-changing in the notion of a software company producing automobiles. Google (Alphabet) is likely another potential player.
The bottom-line for the automobile industry in 2016 will be innovation in quality assurance, combined software and hardware innovation, alternative energy and Internet-of Things technologies. Automakers again run the risk of complacency in the current environment of unprecedented low prices of gasoline and diesel fuel, opting to promote higher margin trucks and luxury vehicles over those of more increased fuel efficiency and range. The theme for 2016 is which automakers spur more innovation and which focus on short-term profitability needs.
Consumer Packaged Food and Beverage Goods
Since 2014, we have included CPG in our industry-specific challenges for the coming year amid permanent changes in consumer tastes. The year 2016 we be no exception, but this time, the stakes and the pain levels are far higher.
Consumers continue to shift their food shopping preferences away from traditional processed foods staples in favor of niche food providers that offer more perceived healthy foods containing natural and sustainable ingredients. This trend has become quite discernable and is reflected in financial results and negative growth now being experienced among many large and termed “Big-Food” global producers with iconic food brands. CPG firms continue to work frantically to create alternate choices either through acquisitions of up and coming natural foods providers, by developing new internal product creations, or both.
Declining profits and meager sales growth continues to spawn activist equity investors to influence certain CPG, food and beverage firms to consolidate. We predict further M&A announcements in 2016, possibly involving blockbuster global brands. As a consequence, the industry is now consumed by zero-based budgeting and significant supply chain focused cost-cutting techniques. Industry leaders and past veterans point to experiencing one of the most dynamic, challenging and disruptive periods ever seen in the industry.
In 2016, the winners or survivors will be those who can lead in product and process innovation and gut-wrenching transformation satisfy consumer preferences more healthy foods, while dealing with the significant distractions and de-moralization brought about by ZBB or other wide-ranging cost cutting initiatives. We further predict the food quality will suffer and there will be yet another uptick in highly visible food related product recalls in the coming year.
The True Organic, Green and Sustainable Food Supply Chain
We are adding this industry sector to our unique industry challenges in 2016. Today’s consumers demand healthier food choices and more natural ingredients, are more interested in knowing where their food originated, the ingredients within food and how food is produced with sustainable methods. They are clearly holding well-known iconic food and restaurant brands accountable for increased commitment to this effort.
Throughout 2015, well known producers, food service providers and suppliers were compelled to respond. Brands such as Costco, Hershey, Kellogg, McDonalds, Nestle, Tyson Foods, Yum Brands and others have all embarked on initiatives directed at curbing the use of antibiotics in animals, artificial food coloring within food, and higher quality standards for suppliers. Yet, do consumers and providers realistically understand the significant challenges and timetables for these efforts?
There are clear realities to the challenges of this ongoing transition. In April of 2015, The Wall Street Journal noted that the increasing need among consumers for more organic foods is literally: “hampering the growth of one of the hottest categories of the U.S. food industry.” Farmers, dairies and ranchers face significant costs and risks in attempting to convert from conventional to organic farming or animal production techniques. “While organic produce or livestock can command prices as high as three to four times that of conventional food, farmers generally have to sell their food at conventional prices during the transition.”
In other words, the entire food industry and respective shareholders need to come together in concerted efforts in 2016 and beyond to address realistic timetables and consumer expectations as to when true organic, green, sustainable and socially responsible foods will be available in adequate supply and at more affordable prices. Providers and originators of meat, grocery and produce products will require financial incentives and economic resources to make such transitions over reasonable time periods. The other obvious concern is food safety. When massive scale methods are removed that focus on the use of harmful drugs, genetically modified methods of farming or raising animals in quicker time periods, what will be the near-term impact on food safety?
Thus in 2016 and beyond, all of the stakeholders associated with food supply chains need to move beyond press releases, marketing and rhetoric, and address a comprehensive set of plans, expectations, incentives and realistic timetables for when fully green, sustainable food supply chains will provide supply in the volume required to meet global needs, and in adhering to all required food safety standards. We believe and anticipate that this will be an effort suited for global bodies and regulators such as the United Nations, World Health Organization or industry consortiums. More overt actions and incentives need to come forward or these long-term commitments will slip even further.
Keep your browser pointed to Supply Chain Matters as we continue dive into each of the above 2016 predictions in more detail. In our Part Two posting we will explore Prediction Three- continued turbulence in global transportation and logistics, and Prediction Four- the widening of supply chain talent and skills gaps.
In the meantime, share your own predictions over and above those that we have outlined. Utilize the Comments section associated with this posting or email us directly with your predictions at: feedback <at> supply-chain-matters <dot> com. We will share all contributed predictions in a final predictions of this 2016 series.
Bob Ferrari, Founder and Executive Editor
©2015 The Ferrari Consulting and Research Group and the Supply Chain Matters® blog.
Content appearing on Supply Chain Matters® may not be used by any third party without written permission of the author and our parent, The Ferrari Consulting and Research Group.
Supply Chain Matters Book Review: The Power of Resilience- How the Best Companies Manage the Unexpected
From time to time Supply Chain Matters will feature book reviews which we believe would be of value and a learning asset to our extended global supply chain management community of readers.
In this particular posting, we share our review of: The Power of Resilience, How the Best Companies Manage the Unexpected. The author, Yossi Sheffi, is a well-known thought leader among the global supply chain management community serving as the Elisha Gray II Professor of Engineering Systems at the Massachusetts Institute of Technology (MIT) and Director of the MIT Center for Transportation and Logistics. He has authored a number of previous books including: The Resilient Enterprise: Overcoming Vulnerability for Competitive Advantage and Logistics Clusters: Delivering Value and Driving Growth. Professor Sheffi was gracious to this blog by previously contributing a guest commentary related to his Logistics Clusters book.
If you have been a long time reader of this blog, you have undoubtedly read of the many disruptive events that have impacted industry and global supply chains, along with some of the consequences. Events would include Hurricane Katrina that devastated New Orleans and the U.S. Gulf Region in 2005, the 2011 devastating earthquake and tsunami that impacted Japan and the severe floods that impacted Thailand that same year. Other events we have noted, such as additional earthquakes, major factory or warehouse fires, natural disasters and product recalls continue to uncover the vulnerabilities and dependencies among today’s globally based supply chains. In this new book, Sheffi provides with in-depth case studies that illustrate how companies have prepared for, coped with, and demonstrated resilience following such disruption, along with important learning related to the encroaching threats facing today’s supply chains. Further included are the business processes, corporate culture and technology tools utilized to prepare and learn from disruption. Indeed, the interconnectedness of global economies, the lean aspects of multi-industry supply chains today, and the implications of vast arrays of information amplified by all forms of media imply that unexpected events in any corner of the globe can ripple through the supply chain and affect customers and shareholders.
This blogger, analyst and consultant thoroughly enjoyed reading this book which I managed to read cover-to-cover on a recent roundtrip coast-to-coast plane ride. The book immediately captures interest, flows from chapter to chapter and compels one to read more. I highly recommend this text to current or aspiring senior executives and supply chain leaders as a must-read regarding the mitigation and response to supply chain risk. I especially applaud Professor Sheffi for incorporating supply chain social responsibility strategies under the umbrella of risk, which it should be.
The first five chapters of this book provides various insightful case studies of companies that experienced and responded to risk events including Cisco, General Motors, Intel, Medtronic, Procter & Gamble, Western Digital and others. These case studies bring out the importance differences among business continuity planning (BCP) and business continuity response (BCR). There are examples of risk metrics such as Value-at-Risk (VaR), Time-to-Impact and Time-to-Recovery, very similar to those defined in the latest releases of the APICS Supply Chain Council’s Supply Chain Operations Process Framework model (SCOR).
Chapters 6 through 11 address the strategy, preparation, communication and supply implications of supply chain risk and resiliency. Sheffi observes: “Building a resilient enterprise involves two broad categories of options: building redundancy and building flexibility of supply chain assets and processes.” Chapter 8, Detecting Disruption, explores methods for incident monitoring, mapping the supply chain for vulnerabilities, monitoring suppliers, and a rather important section related to leveraging social media in risk detection and response. Chapter 9 is a rather important read since it explores means for securing the information supply chain and the tendencies of cyber criminals to exploit supply chain partners as targets of information security vulnerability, as was the case of the Target credit-card hack where penetration vulnerability came from the stolen login credentials of a regional store refrigeration maintenance services vendor.
Chapter 12 addresses today’s “new normal” of disruption and risk along with methods to benefit from longer-term implications. In the final two chapters, Professor Sheffi explores the growing dependency on all levels of suppliers, including those in the lower-tier of industry supply chains. Sheffi notes: “Supply chain risk management is in a race between the fragility of complex supply chains and the resilience created by better risk management.” In Chapter 13, an argument is made that systemic supply chain risk, one that can bring an entire industry to a halt, has not occurred because of the combined efforts of today’s more responsive supply chains. Sheffi opines:
“Thus, it’s hard to conclude that modern global supply chains show evidence of true systemic risks. Companies have developed efficient response mechanisms, and the same globalization trends that could create disruption risks for specific companies that use suppliers from faraway lands may also contribute to the prevention of systemic risk by spreading manufacturing capacity around the globe. Most important, global capacity for manufacturing and distribution is large, and while it is crucial for any company to prepare and respond effectively to disasters, there are always others ready to take its place if it fumbles.”
We quoted that entire passage because upon reading and contemplating the book’s case studies, we were not as sure regarding this conclusion. While many firms have been able to eventually overcome supply and services risk, the open question is scale and timing of supply continuity. Customers, consumers and activist investors are far more impatient and unforgiving today, and the clock speed of business and industry change may not tolerate forms of extended supply chain disruption. However the one conclusion that is clear is that speed, resilience and flexibility are indeed the most important capabilities of any supply chain.