Category Archives: Risk Management

Stop Blaming the Supplier! Melamine in the Milk is Your Fault!

Research reveals that only 6% of procurement managers and directors have ever been made aware of unethical activity in their supply chain. (Source: EY.com)

As much as we’d like to believe that only 6% of supply chains have unethical activity, given that almost 86% of North American companies have a supply chain reliance upon China alone for key parts1, that’s a pipe dream. Depending on how rigid you want your definition of ethical to be, I’d guess that the number should be closer to 60%.

So why is it your fault if your supplier does it? Simple. It’s because less than half of your organizations do any due diligence in their supply chains! Only 48% of UK firms do any due diligence at all! Even worse, 14% of respondents to the EY survey did not even know what third-party due diligence meant, for crying out loud! You have to do due diligence and you have to ask tough questions and someone who can be trusted has to do a site visit to major suppliers at some point. If you do all this, and the supplier lies through their teeth, then, while your company may still be held financially responsible, it won’t be held criminally responsible and ethically you will know you did all you could (except cut the supplier loose before they did the unethical act, but at least you can cut them loose as soon as they do).

This is why you need good supply chain visibility, document management, and CSR monitoring. There are companies that do this, including Resilinc, Integration Point, and Ecovadis. (See the Vendor Post Index or Resource Site for more.) Reach out and get these types of solutions if you don’t already have them. They will be worth it.

1 Supply Chain Disruptions, Ted Landgraf, Above the Standard Procurement Group, July 15, 2012

Supply Chain Security Pays – Why Are You Still Not Doing It?

Recent studies have show that just one in six organizations have continuity plans in place 1 and that of the 43% of organizations that implement supplier codes of conduct, only 25% of these organizations perform even minimal monitoring 2. In other words, organizations are not implementing proper security-based risk management plans, even though they have a 98% chance of experiencing a major supply disruption in the next 24 months. And of the one in six organizations that are implementing security plans, only one in four of these organizations are making the effort to make sure their suppliers are conducting business in a proper, low risk way.

This is despite the fact that we’ve had hard data for over seven years that demonstrates the solid cost reductions for those organizations that invest in supply chain risk management and security. As outlined in this 2006 Sourcing Innovation Post on Quantifying the Value of Supply Chain Security Investments, the benefits of investments include:


  • Improved Product Safety
    38% reduction in loss; 37% reduction in tampering

  • Improved Inventory Management
    14% reduction in excess inventory; 12% increase in on-time delivery
  • Improved Supply Chain Visibility
    50% increase in data access; 30% increase in data access timeliness
  • Improved Product Handling
    43% increase in the automated handling of goods
  • Process Improvements
    30% reduction in process deviation
  • More Efficient Customs Clearance
    49% reduction in cargo delays; 48% reduction in cargo inspections
  • Speed Improvements
    29% reduction in transit time; 28% reduction in delivery time windows
  • Resilience
    30% reduction in problem identification, response, and resolution times
  • Higher Customer Satisfaction
    26% reduction in customer attrition; 20% increase in new customers

Just do it already!

1 The Weakest Link, UK Plc’s Supply Chain; Zurich
2 Safe Supply Chains Help Produce Sustainable Business, Zurich and Rockwell Automation, 2012
3 Innovators in Supply Chain Security: Better Security Drives Business Value, Stanford Global Supply Chain Management Forum and IBM, 2006

The Wheatland Hop Was 100 Years Ago Today

And while it may sound like a new dance craze, it was actually a riot that took place during a strike on the Durst Ranch in Wheatland, California that resulted in four deaths. It was among the first major farm labour confrontations, blamed on the radical syndicalist trade union of the Industrial Workers of the World, and a * example of what an organization can expect if it tries to take advantage of poor workers in developing, and more importantly, emerging countries or, even worse, workers at home by trying to force interns and low-salaried workers to work long hours for little pay and no benefits.

As per the Wikipedia entry, in the summer of 1913, Durst advertised for temporary workers with a promise of ample work at high rates of pay for every hop picker that arrived on the farm by August 5. In this particular year, the supply of willing workers almost doubled the demand, and Durst slashed pay rates. To make matters worse, not only were workers on his farm making roughly half of what workers on other farms were making (for toiling twelve hours a day in fields that could reach 110F / 44C), but the workers were forced to live in tents on a barren hillside that they had to rent for 75c/week when they made, on average, $1.50 a day with drinking water a mile away and unspeakably unsanitary toilet conditions. And to add insult to injury, Durst retained 10% of the earnings until the end of the harvest, and only paid it out if the workers stayed until the end of the harvest.

It was only a matter of days before a temporary local chapter of the IWW was organized that demanded a better pay rate per lb of hops picked, worker supervision of measurement of the hops, provision of drinking water in the fields, improved toilet facilities, and assistants to help women and children load and unload heavy hop sacks. Durst responded that toilet conditions would be improved, water would be provided in the fields, and one worker could be allowed to witness the weighing process. The local chapter of the IWW then threatened a strike. Durst responded by calling the sheriff (who could not do anything for lack of an arrest warrant). By the end of August 2, a mass meeting for all of the workers was planned for August 3. On the 3, with a mass meeting underway, Durst went into town to gather authorities to put down the revolt. The sheriff, a number of deputies, and the district attorney was pulled into the ranch.

Upon arrival, shortly after the mass meeting had begun, the sheriff and his men tried to arrest the leader of the of the local IWW chapter, but workers intervened. In response, one of the law enforcement officials fired a shotgun into the air, which was taken as an act of aggression and which prompted a full-fledged riot and an attack on the sheriff, the deputies, and a district attorney.

Unfortunately, instead of being a warning siren for other farm and ranch owners that used migrant workers, it was only the first of other bitter strikes between California growers and farm workers that would take place over the next couple of decades.

In a nutshell, Corporate Social Responsibility is more than just good PR, it’s good business.

A Customs Audit is Coming Your Way – Are You Ready?

As per this recent post over on the C.H. Robinson blog, the U.S. Customs and Border Protection (CBP) is stepping up enforcement of customs compliance. It’s not just looking for fraud, but for poor record-keeping, mistakes, and uncorrected discrepancies that will allow up to impose fines of up to $10,000, penalties of up to 8 times the value of the loss of duty on dutiable items, and penalties of up to 80% of the value of non-dutiable items which allow the CBP, and the U.S. Government, to fill its coffers at your expense. Just like ignorance of the law is no excuse, neither is an innocent mistake.

And while you can’t prevent an audit, you can prevent a fine and a penalty by making sure you don’t make any of the nine-common trade-related errors the CBP will get you on and, in a few cases, taking extra steps to limit what can be held against you. To minimize fines and penalties,

  • Report Manufacturing Assists which are dutiable (at cost).
  • Have a system and process in place to verify the mainfest immediately after the ship is loaded.
    If there are additional, missing, or damaged items, and the price is modified, the price you are actually going to pay needs to be reported.
  • Be sure not to include dutiable costs! While you will be refunded duty overpayments, you can also be fined $10,000 for a record-keeping error!
  • Don’t screw up the country of origin. It’s not necessarily the exporting country. It may ship from China, but it could be manufactured in Myanmar and Vietnam.
  • Get the HTS code right. Hire a consultant or acquire an import trade tool if you have to, because if you get this wrong, here’s where the 8X penalty comes into play!
  • If claiming Free Trade, make sure you have the arguments, documentation, and, if they exist, previous determinations or rulings to back it up.
  • If you are re-importing goods into the US (HTS 9801 & 9802), be sure to have tangible proof of US manufacturing and a full chain of custody that demonstrates no advance while abroad.
  • Don’t screw up the amounts claimed in a related-party transaction.
    Just because you trade goods for $1 does not mean this is the value you can claim when calculating duty.
  • Keep exactly 5 years of records. You have to keep five years, or get fined, but if you have more than 5 years, you are just giving the CBP more records to go through to find problems.

Will this completely eliminate your risk? No, but it will greatly reduce it!

If You Are In Food and Beverage, You Can Not Afford NOT to Have Supply Chain Visibility!

As per this recent article in Inbound Logistics, product recalls cost the U.S. economy $7 Billion annually, and the average product recall costs $10 Million. That’s Ten Million US Dollars that will disappear from your bank account if you are faced with a recall and are unable to quickly and effectively recall product. This is an incredible risk to your viability, and a real risk for the vast majority of companies that struggle with real-time visibility and managing inventory across a network of suppliers, distributors, and manufacturers.

Every day of recall delay results in lost revenue and lost consumer confidence, and, if you’re talking products with salmonella or e-coli poisoning, additional lost lives. The first empties your bank account, the second dries up your revenue stream, and the third can shut you down if consumers decide they do not trust your brand anymore (even if the regulators chalk it up to an accident and allow you to continue operating with additional monitoring and safety precautions).

Ten years ago, given the dearth of supply chain visibility solutions and the cost of extended enterprise ERP systems that could manage your inventory and talk to supplier systems through EDI, you might have had an excuse to not have such a system as it would have cost you 10 Million to acquire and implement such a solution and millions in annual maintenance costs to maintain it. Given that serious incidents, like supply chain disruptions, were much rarer than they are today, the cost savings just weren’t there (and by the time you extracted the relevant data and sent the message out to the affected parties, who probably had to be faxed, the damage was done, the news was on TV, and the opportunity to prevent a significant number of injuries and death wasn’t there).

But today, when you can acquire such solutions for six figures and completely map the supply chains of the suppliers who account for the majority of the goods you buy, and all critical or perishable items, there is no excuse. Properly implemented, these systems can track the complete chain of custody for any item manufactured, stored, or shipped within the supply chain and when (not if) a recall is needed, a simple query will pull up the inventory location by item, batch, and lot — anywhere, and at any time.

In addition to the quick location of an affected product, the system allows a manufacturer to focus in on contaminated or faulty batches, instead of recalling an entire product line because the affected product cannot be isolated quickly enough. So not only is the supply chain more visible, but actions can be taken on a more granular level – allowing a company to minimize the impact to the revenue and reputation with minimal effort and cost. As Nike would say, Just Do It.