What You Should Do About Tainted Goods from China and Other Global Supply Chain Risks

If you and your company are part of the global economy, it’s essential that you monitor the work product of your suppliers and business partners overseas—early, often and forever.

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Thu, July 26, 2007

CIO — The government warnings about tainted imports from China are ominous: poisonous chemicals found in toothpaste in July. Detained imports of farm-raised Chinese seafood and lead paint in Thomas the Tank Engine toy trains in June. Contaminated pet foods in May.

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While much government attention focuses on the problems in China, experts say the emergence of these deficient goods highlights the risks associated with today’s global supply chains. The far-flung networks of suppliers and transportation systems connecting them to their destinations present a new set of challenges.

Longer supply chains mean more participants, and with that, come bigger risks. “There are more people that companies need to watch and make sure they trust,” says Yossi Sheffi, professor of engineering at MIT and an expert in risk analysis and supply chain management. Supplier visibility is a problem for many organizations, according to Mark Hillman, a research director at AMR Research, who says many companies operating globally don’t know every player in their supply chain as well as they should. In addition, increased speed means decreased time for product checks. Goods rarely stagnate in warehouses, so there is less opportunity to conduct quality checks, says Sheffi.

Such threats to the supply chain increase the importance of security, which like any other type of risk management, can be a hard sell. Getting it in place can be costly, and ROI is hard to justify, unless, of course, something goes wrong. The key to selling security, experts say, is to emphasize the collateral benefits—the kind of ROI that will be realized regardless of disaster. A 2006 Stanford report, which studied the supply chain behaviors of 11 logistics companies that are considered innovators in supply chain security, outlines some of those benefits: improved efficiency, better customer satisfaction, better inventory management, and reduced cycle and shipping time. (See a copy of the study here.)

Below are some of the most common supply chain risks according to Sheffi and Hillman, and ways you can manage them through security, resilience and vigilance.

What Can Go Wrong in a Global Supply Chain

The unexpected loss of a supplier: According to a study conducted by AMR Research in 2006, the number-one concern across industries is supplier failure and continuity. It’s particularly difficult to keep track of suppliers that may go out of business with little forewarning when you outsource, says Yossi Sheffi, an MIT professor and supply chain risk expert. “Suppliers in the U.S. or Europe are easier to manage than those in the bowels of China.”

Geopolitical problems: A terrorist attack in the area of a major port can cause significant disruptions or shut down service altogether.

Damage to the brand: This could be related to product safety or counterfeiting, says Sheffi. “A company’s suppliers might be using child labor or sweatshops, or stealing intellectual property and copying the brand.”

Natural disasters and diseases: A hurricane near a major port, a disease outbreak (such as avian flu) or any other natural event over which there is limited control.

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