The following posting can also be viewed and commented upon on the Kinaxis Supply Chain Expert Community web site.

Readers of the Supply Chain Matters blog often know how often we have been highlighting incidents of supply chain risk related to product recalls originating from contamination or bogus materials.  The incidents have been far-reaching, ranging from the ongoing massive recall incident involving multiple models of Toyota vehicles to numerous incidents of contaminated or bogus products entering various industry supply chains.  One common aspect of many of these incidents is when certain products originating from specific suppliers are the source of the contamination and the effects rapidly cascade to other multiple product-related supply chains.  Past incidents include peanut products, pistachios, drug compounds and more recently cracked pepper that coated certain salami products.

The most recent real-time incident involves the suspected contamination of hydrolyzed vegetable protein (HVP), which is an ingredient incorporated in many food products.  On March 4th, the New York Times reported that thousands of processed foods, from soups to hot dogs, contain this flavoring ingredient that is suspected of being contaminated with salmonella.  The specific supplier named was Basic Food Flavors of Las Vegas Nevada, and the original discovery was made by a customer upstream in the food processing supply chain. The U.S. Food and Drug Administration (FDA) inspected the Basic Foods plant in February and uncovered salmonella in the company’s processing equipment, which led the company to voluntarily recall all of its HVP product produced since September 17, 2009, over five months worth of production.

The article notes that most affected products are safe because cooking, either before or after sale, eliminates the risk.  But that in no way eliminates the risk if your particular product does not completely meet that cooked criteria, or erring more on the side of caution prevails in terms of risk to the consumer.  As even more real-time evidence to this situation, yesterday Procter and Gamble voluntarily recalled two specific flavors of its very popular Pringles potato chip product because they contained this same suspect HVP ingredient. I have no doubt that there may be other recall announcements coming.

Once again, the important take-away reinforced by these ongoing incidents is the critical importance that both supply chain traceability and risk mitigation have become as required process capabilities, and how important technology helps in supporting such capabilities.  An overdependence of regulatory agencies to discover and track the actual sourcing of contamination often implies that the supply chain has already been impacted by an incident.  This mandates the need to be able to quickly and efficiently trace where certain products were manufactured, and to which customers or retail outlets they were distributed.  It also implies the ability to be able to quantify the overall risk involved and the ability to quickly quantify, assess and implement risk mitigation plans.  Having a supply chain planning system that can perform what-if analysis and quickly re-plan for alternative ingredients is rather fundamental, as well.

Our community often looks to P&G as the benchmark in world class supply chain capability.  It should therefore be no surprise that within days of the original announcement, P&G was able to trace what specific end-products were or were not at risk, what lot numbers were involved, and was able to transmit important information to consumers on a dedicated web site. 

Successful risk mitigation occurs when proper planning, process, and information technology enablement are in place.  Too often, the negative effects come when they are not in place.

 Bob Ferrari

Earlier this week, Procter and Gamble released its “Designed to Matter” annual sustainability report.  The report, which can be downloaded here, provides an excellent reference for how sustainability goals can be established and tracked across the extended supply chain. It also notes the value of internal employees in contributing innovative or novel ideas in addressing sustainability goals.

P&G has produced a sustainability report since 2002, and not only tracks its internal goals and initiatives in each area of sustainability, but also reports on the green impact of its individual products it sells to consumers.

Internal supply chain and other initiatives have led to a cumulative 53 percent reduction in waste disposal, along with a 52 percent reduction in water and energy usage.  That is fairly impressive.  If you read through the detail of the report, you can note that P&G has shifted its European transportation strategies to leverage more use of rail, setting a goal to move from 10 to 30 percent rail movements by 2015.  In North America, intermodal transport has increased by 30%, saving 11 million liters of diesel fuel.

Contrastingly, in consumer product offerings, P&G acknowledges that while green products have proven to be attractive, the majority of consumers are unwilling to sacrifice value or quality in order to have a more eco-friendly product.  My translation is that in the current global recessionary environment, price apparently trumps green. 

Our community should shout out a loud applause to P&G in its obvious long-term commitment toward sustainability in supply chain.

Bob Ferrari

If any of you have ever participated in a writing for impact class, the first tenet often taught is to always begin an article or paper with an eye-catching statement that can grab the readers interest.  I came across an article related to Procter & Gamble featured in the Business Courier of Cincinnati which had an opening sentence that absolutely drew my attention.  “Procter & Gamble Co. is undergoing the most aggressive expansion in its history, with plans to build 19 production plants over the next four years, almost all in emerging markets.” Wow!  Not only was this the first truly positive business article I’ve seen these past weeks, but it absolutely reinforces the belief that while severe recession brings caution, it should not stop any company’s strategic supply chain thinking. 

The P&G investment plans are a recognition that this company’s long-term growth lies in emerging markets, and that supply chain investments in emerging markets  infrastructure lay the groundwork for supporting this growth.  The quote from P&G’s global product supply officer, Keith Harrison, is worthy of reflection.  “What we’re really creating is a roadmap.  What speed we’re driving down that road is a different question.  But at some point P&G will be a $120 billion company. When we are a $120 billion company, I want to know what kind of supply network I’m going to have in place.” 

This is bold thinking and savvy planning, worthy of a world class company such as P&G. 

Readers should also take note that P&G couples a supply chain risk management initiative in support of this expansion.  The article notes that P&G already has people on the ground paving the way for risk identification, mitigation, or business recovery planning.

In my mind, a company such as P&G should always be on your radar screen as a benchmark for world-class supply chain management.

Bob Ferrari

In early June, I utilized Supply Chain Matters to pose a question, namely that with the sustained high prices of energy, have we reached an inflection point in the energy vs. global product sourcing equation.  (See Energy Prices- Have We Reached That Inflection Point for Global Supply Chain Strategies?).  I offered my view that we have reached a point where the unabated higher costs of crude oil, diesel and aviation fuels will result in structural change in the interrelationships and flow of goods across global supply chains.

Over on Spend Matters (no affiliation), Jason Busch recently made reference to my post and added the following advice to his readers: “While I don’t think that we’ll ever go back to a Spend Management environment focused just on local sourcing, I do believe we’re about to enter a new era where global price equations don’t necessarily make sense-that is, unless the impact of rising global prices is simply inflated away…” 

And in the blog Purchasing Transformation, a European site sponsored by IBX, author Andreas Bernhard in his last post on this subject made the following observation: “The right mixture of capitalism, inventive talent, reasonable politics and smart purchasers will hopefully lead to a good answer to the peak oil problem.”

 To add further specific corporate evidence, I ran across a Financial Times article last week (Oil costs force P&G to rethink supply network) which outlines that fact that consumer goods leader Procter and Gamble has already launched a comprehensive review of the existing design of its entire supply chain in response to rising energy costs. The vice president of global supply chain, Keith Harrison made the following observation: “I could say that the supply chain design is now upside down.  The environment has changed.  Transportation costs are going to create an even more distributed sourcing network than we would have otherwise”.  The study is reported to include the assessment of trends for sustainability and packaging, regional consumer demand patterns, and expected changes in the global operating environment under various scenarios of energy costs.

Summer brings certain vacation and down time to reflect on the year thus far and to ponder strategy for the second half of the year.  If your organization has not already done so, I urge you to influence the “C-suite” to sponsor a new evaluation of global supply chain network and sourcing strategies that were developed in previous times of cheaper energy.  Scenario planning and response management may well be one of the keys to surviving unprecedented times. The “tipping point” for global distribution has arrived, and organizations need to be prepared.

Bob Ferrari