Management: Why Supply Chain System Fails?

Management: Why Supply Chain Management System Fails?

By:

Vijay Sardana

Large number of players has entered into food supply chain with various business models. Most of the retailers are however talking about quality. But in their outlets the quality of supplies of fresh fruits and vegetables is not what they claim. The global as well as domestic supply chain makes food safety and quality system more challenging.  

The growing incidences of food safety hazards in last few years were not good from food safety point of view. There have been a number of high profile recalls traced to imported tainted ingredients and contaminated seafood, domestically produced fresh vegetables and ground beef contaminated with E. coli O517:H7 and Melamine incidents in dairy, confectionery, bakery products and processed products.

These are clear indications that supply chain managers were either ignorant about food safety concerns or are not serious about food safety issues. That is why these defective and risky products have penetrated the system so deep and wide. We should think of a situation; what will happen to food system in any country and what will happen to company’s goodwill if someone does these things deliberately. Food Supply chain can be tempered with antisocial elements as well.

Focus on Supply Chain Integrity:

It is high time that business houses and supply chain managers must think on the following issues for retaining consumer confidence and profitability.

It is a fact that many foods recalls have been linked to safety and quality problems in the supply chain. Media attention has however focused mostly on the international supply. What about domestic supplies and why local media is not picking up the issues as aggressively as it is happening world over? Is it due to ignorance of media or lack of commitment towards society by media or it is a non-glamorous subject?

In the era of globalisation of food supplies, it is impacting both the consumer and the food processor. Companies can source products and ingredients internationally depend upon quality, cost and the ability to source products from suppliers all the year-long.

The global supply chain however adds complexity to an already fragile and complex system of food safety, quality and logistics.

If companies are not able to ensure supply chain integrity and food safety it will be difficult for them to retain market leadership.

Quick fix solutions will not work for long:

When food safety issue occurs in supply chain, the classic response is to tighten the specifications or increase incoming inspections; unfortunately these actions do not address the root cause. Both of these strategies create more problems. Tightening specifications tends to spoil relations between the customer and the supplier. The supplier questions why the specifications are being tightened when all quality assurance (QA) tests indicate that the product in question meets the required specifications. This may increase rate of rejection in suppliers and with increase the cost without adding any tangible benefit to the supplier or buyer. This will become a serious issue in competitive market place. This forces some unethical suppliers to manipulate the process and raw material source and creative energy goes in finding more ways to adulterate to avoid detection. Melamine in dairy products was one such case. Mixing of cheaper oils into expensive edible oils is a common problem. When it comes to preservatives and chemicals, many companies also use carry-over argument to hide their wrong intentions.

A short-term correction may also involve increasing the level of inspection and potentially adding a step to remove unacceptable product, thus ensuring that the incoming product meets purchasing specifications. Sometimes, this short-term correction becomes a long-term strategy.

Inspecting and sorting is not an effective long-term strategy, because they do not mitigate the root cause of the problem. Moreover this solution is costly and does not add quality to the lot. Sometimes, it is like sorting good products from the garbage. Even if incoming inspection is used as part of the receiving process, the processor may need to add in-process inspection and sorting steps during production to ensure that the final product meets end-product specifications. This is not a right way of doing business and to ensure public health. Business pressures will force the companies to avoid this expensive exercise.

Purchase department accept poor quality material for various reasons:

If an incoming lot fails the inspection process, the plant must decide what to do with the lot. Business questions that arise include whether to return the lot or to accept it with some concession because of the need to meet the production schedule. This strategy may have unintended consequences. Repeated concessions can erode the specifications, essentially diminishing them to an unacceptable level. Once this occurs, it is difficult to return to the written specifications. Moreover, there is no evidence that concessions and discounts improve food safety and quality? Acceptance of poor quality packaging, poor quality raw material and poor quality chemicals used for processing are common example in industry.  Many times purchase department feels that they are now relieved but unfortunately they are exposing themselves in market place and in the eyes of competition. There cannot be more sabotage to the company’s goodwill than accepting and using sub-standard inputs and raw materials for making product under company’s brand.  

It raises Question of credibility:

I fail to understand why purchase department should accept sub standard material when company is paying for good quality. This can only happen when either purchase and quality team is incompetent or they have some ulterior motives to hide the facts.

Due to these reasons supply chain fails and sub standard products move to market and company’s goodwill suffers.

How to fix supply chain problems:

1.    Well laid out system and quality morns should be in place.

2.    No one should have discretionary power other than person who is responsible for the brand building and profitability of the plant.

3.   The biggest problem is when the terms and conditions of the suppliers are either weak or do not specific how the rejection will be handled.

4.    Very often suppliers request, please accept the material against certain deduction in payment. This is very dangerous trend because he has passed on the defective material to customer with least cost to him but now customer has to deal with the defective material. Very often it is more expensive to handle this material than the expected cost saving which purchase team is trying to justify.

Example:

• Wrongly designed packaging material, leaking jars or tins, or badly printed packaging material if accepted even at half the cost. How it is going to help the company? What will be the implications of these junks in the markets for the company? 
• What was the motive or interest of the purchase team to accept this material needs to be investigated and questioned.
• This failure of supply chain managers can even cost existence of the companies. 

 Options before decision makers:

• Please look into the functioning of your purchase department and find out from Quality department how often rejected or defective material was accepted and why?
• Who authorized the acceptance of sub-stand material and why?
• What was the implication in production department due to these defective products and raw materials?
• What was the implication of this decision in market place?
• What was the cost of market returns or rejects by the customers?
• Please ensure there must be proper record keeping, verbal information may hide more than it discloses.

These questions will help you in fixing your supply chain problems.