When is a horse a cow? When you don't manage the risks in your supply chain

By Sandra Rapacioli

Yes, I know that the title of this blog sounds like a bad joke, but I'm afraid it isn't.

It’s quite likely that by now you’ll have heard about the 'horsemeat scandal'. Horse meat posing as processed beef has made its way into European homes, schools and restaurants via a complex network of suppliers, retailers and horeca outlets.

Here’s a quick summary. Horsemeat was first discovered in January in frozen burgers in the UK and Ireland. And since then horse DNA has been found in other processed beef products and ready meals across the EU, including some beef products sold in the UK by Tesco (the UK’s leading supermarket), Asda, Aldi, Co-op, Findus, Rangeland, Sodexo (a supplier of food to schools and care homes), Ikea, Bird’s Eye, Taco Bell, Brakes (catering suppliers), Whitbread Group (the UK’s largest hotel and restaurant company). It has also gradually spread to most of Europe, making its way to the Swiss factories of Nestle, the world’s largest food manufacturer – this is when the horsemeat story went ‘global’.

So how did this happen? With globalisation, supply chains are becoming longer and harder to track. This has created great efficiencies but also means that managing risks in these complexly, interwoven chains can seem near impossible. But it’s essential that organisations understand their supply chains – not only to identify efficiencies but to know how sustainable their suppliers really are.

Since the horsemeat expose wholesalers and retailers have been scrutinising their systems and processes, whilst also gathering and sharing intelligence in order to learn from this episode. They are realising the importance of creating and preserving value along the entire value chain. And this is where the CGMA’s skill set comes into its own. 

It’s essential to really understand your business model, your resources and your dependencies. What does the business depend on to create value? And until you know where the vulnerabilities in your supply chain are, you can’t manage them. Are your suppliers in ‘good health’ now, and will they continue to be in 5 or 10 years time?

Sainsbury’s, a leading UK supermarket (which incidentally didn’t find any horse meat in their beef products), work very closely with their farmers in the UK to help ensure the long term sustainability of the dairy industry. In April 2007 they launched the Sainsbury’s Dairy Development Group to ensure that their farmers receive a fair price for the milk they produce as well as reward them for outstanding animal welfare and environmental standards. They also help them become more efficient and make their operations more sustainable. Sainsbury’s have invested over £40 million and have seen big advances in animal welfare and environmental standards, in turn saving their farmers money - over £10m. 

Puma, has gone even further, ‘pricing’ up the cost of nature – after all nature is a huge supplier of ‘services’ to business. In 2011 Puma issued an Environmental P&L that included an economic valuation of the ecological impact caused by water consumption and greenhouse gas emissions along its value chain.

Sainsbury’s and Puma have taken different approaches but what is key is that they both have a good understanding of their supply chain risks and are managing those risks, now. Maybe a better understanding of supply chains could have avoided the horse meat scandal?

As for me, well I’m glad that I decided to become vegetarian a few months ago!