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Horsemeat, Trust and the Integrity of Supply Chains

Fri, March 01, 2013 4:16 PM | Deleted user
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As if the Libor scandal wasn’t bad enough, we open the paper to read about the betrayal of trust at Burger King, Tesco, IKEA, Nestle and Aldi regarding DNA traces of horsemeat in Europe. Over here in the U.S., a new nationwide study released recently by Oceana found that 33 percent of seafood tested was mislabeled, according to Food and Drug Administration guidelines.

Assumptive trust has been proven wrong in these examples. The sellers of the products have perhaps been deceived by their suppliers. The buyers of these products have been deceived, perhaps unintentionally, by the sellers.

These examples raise some important questions about trust. On what basis should a retailer trust their supplier? Is a contract enough? Should they check every shipment from the supplier to ensure that the quality is up to standards – adopting trust but verify protocol, which is essentially no trust. Should there be an industry regulator that ensures minimum standards among suppliers? Will buyers of the product be willing to pay for these added quality control costs?

The uproar that has followed suggests that deception is the most grievous crime that's been committed against consumers, so the companies need to ensure that their integrity is not compromised.

Mattel faced similar issues when it had a massive recall of toys due to toxic lead paint that had been used by a Chinese supplier that was not adequately monitored. The answer in that case was that Mattel had an obligation to make sure that the products it was selling met basic standards for safety. A failure to do so would damage not only Mattel, but also the image of the entire industry. This has happened in banking post global financial crisis and Libor scandal.

The answer for the horsemeat and fish trust issues is similar. The leading companies in the industry must make their organizations and supply chains trustworthy. This may involve requesting regulations of the industry as a whole, as Mattel and other toy companies did, to make sure that they meet minimum standards and that they are enforced. Also, Burger King, Tesco and other companies need to re-work their supply chains to ensure that they have long-term relationships with trustworthy partners and that these relationships involve mutual trust and collaboration to meet stakeholder expectations. These relationships should start with clear contracts and some monitoring but should evolve to high trust partnerships where there are mutual attempts at continuous improvement, transparent sharing and collaboration. Squeezing suppliers and driving unreasonable price reduction that benefits one partner at the expense of the other will lead to an eventual betrayal of trust somewhere in the supply chain. We, as consumers, need to support this – we need to buy from retailers that provide us with evidence that the supply chain is trustworthy. Companies like Nordstrom, Wegmans, Publix, Whole Foods, Costco and QuikTrip Convenience Stores, have demonstrated that they have built high trust organizations and that they deserve our business. This may not be the case with other companies. We cannot do our own DNA testing on the products we buy, but we can be more careful in discerning trustworthiness among those with whom we transact.


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