Last year will be remembered for many things, but for businesses sourcing products from emerging economies it may well stick out in the memory as the year when the risks of poorly managed globalisation came home to roost. Following a well-publicised series of product recalls by the US toymaker Mattel, the linked issues of supply chain management and product traceability were forced into the spotlight by the media, politicians and business leaders. Let’s consider some of the implications.
The short term consequences were felt by consumers who had to return their products, by Mattel (which suffered a 27% hit to its market capitalisation) and other companies directly involved and, to a degree, by other businesses whose products were, to a greater or lesser extent, “Made in China”. Understandably, China began by pointing the finger at western companies which had managed their suppliers badly, a fair enough accusation. But also hard hit were the 750-plus Chinese toymakers banned from exporting, as Beijing cracked down in response to growing pressure from western markets to slow the flow of dangerous goods.
Nor were they the only casualties. According to a report produced by the European Commission, almost 700 more companies in the southern province of Guangdong alone were ordered to modernise their factories and boost the quality of their products within set deadlines. Such rapid action will help, clearly, but concern was also expressed about a much more fundamental issue, that of poor record-keeping in many sectors of Chinese industry. “Traceability is a key issue for the [toy] industry and China,” one European Commission official told the Financial Times.
So what is traceability—and what are its implications for manufacturers, growers, retailers and consumers? The basic idea in traceability is that consumers and retailers should be able to track back every product they buy or sell to the manufacturers or growers involved, so that questions about safety, quality, ethical or environmental performance can be easily answered. In simple terms, the ideal would be a system where anyone anywhere in the supply chain would have an X-ray view of every other part of the system in which he or she operates.
This is a tall order even for the most sophisticated retailers, clearly. So let’s start with the consumer end, to get a sense of where the longer term agenda may take us. Consumers in the developed economies increasingly worry about – or are interested in – a broad range of issues. When we produced The Green Consumer Guide in 1988, a book that sold around a million copies in some 20 foreign editions, we were mainly interested in issues of safety, health and environment. Mothers buying toys for their children may still be alarmed about toxics in paint or the perils of products that break easily, but today the sort of consumer concerns that retailers like supermarkets increasingly have to respond to range from allergies, the special needs of groups like diabetics, the growing concern about the impact of certain foods and food additives on obesity, and the often hugely challenging requirements of those wanting to buy fair trade, organic or “sustainable” goods.
Already well-informed, the next few years may well see concerned consumers gaining access to tools that help them see way back down the supply chains of products they consider buying. For example, one of us sits on the advisory board of a Californian venture capital fund. A recent technology offered for investment gave us a sense of how quickly the traceability agenda could evolve. An university-based entrepreneur was developing a cell phone combined with a bar code scanner, which consumers in the future will be able to use to interrogate all sorts of products to see who made them, where and what the related issues might be.
The next question is: what will companies that want to stay in the supply chains of major customers like western supermarkets have do in response to these pressures? As retailers like Wal-Mart in the US and Tesco in the UK begin to challenge their suppliers on everything from climate-friendly light bulbs to sustainable fish, the demands can only grow. One answer to the question is that exposed businesses will increasingly have to invest in more sophisticated supply management and intelligence systems.
One company in this field is a new Paris-based start-up, EcoVadis. It defines its business as sustainable supply-chain management, and recently completed a survey of towards 100 major companies interested in supply-chain issues. “Two years ago,” we were told by EcoVadis co-founder Pierre-François Thaler, “procurement directors where asking ‘Why?’, but now they are asking "How do we do it?" He adds that these people “are looking for tools and indicators to help them deploy responsible purchasing practices on hundreds of their suppliers."
Thaler went on to say that “80% of procurement executives we surveyed consider ‘sustainable procurement’ as a key priority—double the number we found four years ago. At the same time, however, 90 percent of them recognize that they have not met their objectives. That’s the gap EcoVadis wants to help in closing, leveraging information technology to create a simple solution to assess suppliers’ performance in relation to corporate social responsibility and sustainability.”
But what about the cost implications? Surely, purchasing executives will see this as simply one more form of insurance, which they will drop as soon as the risks are seen to recede? Not so, Thaler insists. “Certainly, procurement executives are still concerned about the additional cost of sustainable procurement, but three years from now we are confident they will be much more focused on the value creation potential. This trend is exactly the same as we saw with the Total Quality movement. No-one who is seriously committed to staying in business now worries about the cost of Total Quality. Indeed, Japanese car manufacturers, the leaders in this area, are also widely recognized now as being the lowest cost producers.”
John Elkington is Founder & Chief Entrepreneur at SustainAbility and blogs at https://www.johnelkington.com.
Jodie Thorpe is the Manager of SustainAbility’s Emerging Economies Program (https://www.sustainability.com/emerging-economies).
Homepage photo by Ethnocentrics