Horse meat scandal

Horse meat scandal and supply chain risk

The winners

McDonalds must be feeling quite pleased – they have come out of the scandal “very confident” that there is no horse meat in their foods, due to a simple and transparent supply chain, where they work with local farmers.

The stewards’ enquiry

Contrast this with many other food brands, with a far more extended supply chain. Just one example is horse meat slaughtered in Eastern Europe, transported to a meat processing plant in France, transported to a factory in Luxemburg, then delivered to supermarket shelves in the UK. And there appears to be no point at which the “contamination” was identified, or whether it was accidental or fraudulent.

The “also ran”

But these risks are not just limited to the food industry. The Japanese tsunami led to major supply issues of electronic components; the Thai floods affected supply of hard disk drives. Just these two examples had a massive impact on the supply chains of a multitude of businesses around the world, in a myriad of industry sectors.

And who takes the risk and pays the price if it goes wrong? Largely it is the brand owner, then end of the chain, who suffers either loss of income or damage to reputation – and frequently both.

Taking the blinkers off supply chain risk

As supply chains become more extensive, geographically and in complexity, potential points of failure expand dramatically. So, brand owners would be well advised to take a more structured approach to risk management.

In an article by Forbes, prior to the horse meat scandal, they consider that poor risk management of the supply chain is a “hidden liability”. They see six key steps to assess and manage supply chain:

  • Look at the whole, not just the parts
  • Review the governance of the organization’s risks
  • Review current operating models
  • Integrate risk management into operations planning and management, both in terms of functions and workflow
  • Use a financial modelling capability for the supply chain
  • Improve risk reporting and monitoring

You can read the full article on the Forbes website.

Don’t wait for “critical”

I must say, I couldn’t agree more. We find modelling and management reporting of risk very common in critical environments, but far less so in the supply chain. Yet, as recent events show, it can become critical very quickly!