Bad products are not worth supply chain & logistics costs

Roger OakdenGlobal LogisticsLeave a Comment

Berries - Strawberry, Currant, Blackberry, Raspberry

Know your imported products supply chain risks.

If your business imports products, there are additional supply chain risks, depending on the country, that must be identified and managed.

In Australia, frozen berries (strawberries, blueberries, raspberries etc.) are being pulled this week from home larders, school canteens and supermarket shelves. The reason is Hepatitis A, contracted when consumers eat the thawed berries.

The Hepatitis A virus in food products is caused by either sewage contamination of farm irrigation water or lack of hygiene in the packing factory. These are known and detectable areas of risk, but what can go wrong when the risks are not managed.

The objective of Logistics is to provide availability; if the product is not available due to a product quality problem, that is a logistics challenge (with the Quality department) to correct.

In this case, the product was packed in China, with berries grown in China and Chile. As an aside; based on the retail price of fresh blueberries, the ex farm price is about $A4 per kilo – in Chile, maybe less. The cost of shipping in reefer containers from Chile to China, then China to Australia, plus the refrigerated storage costs and inventory holding costs makes a logistician wonder whether the company undertook an analysis of total landed costs!

Companies that import from China should place a high risk rating on those products. Examples of earlier product ‘scares’ in China have been contaminated milk powder for babies and toxic compounds in paint for children’s toys.

Analyse your imported products supply chain risks

So how did the Australian company treat the potential risks in their supply chains? It has stated that it did not test for Hepatitis A because no commercial testing facility in Australia is capable of identifying the virus. That said, the company must have considered the likelihood of an outbreak of Hepatitis A as low.

But did it take account of the likely consequences if an outbreak did occur? The cost of the recall, the bad publicity for the company and the likelihood of a legal class action by affected consumers will be high. Does this indicate that the company did not undertake a supply chain risk analysis for its imported products?

Consumers expect that the products they buy are ‘fit for purpose’. If you are importing products from countries with a low level of industrial and health regulation and enforcement, the supply chain risks increase and are your responsibility.

The example frozen foods are ‘high risk’, because there is no process (like cooking) that removes a contamination. Even sample testing at the point of receipt does not guarantee 100 percent clean product. This means the company buyer must ensure supplier contracts contain clauses concerning the elimination of any toxic items from the process, good agriculture practices and high level hygiene arrangements in production.

However, clauses in contracts only provide some legal protection for the buyer. To ensure compliance, the contract must state the operating and cleanliness standards required in the assembly/packing factory. Also, that the buyer company (or their representative third party auditing firm) can inspect any element of the total process and product at any time.

For farms or small suppliers, the buyer firm must work with the assembler/packer to implement programs that improve processes at small establishments where hygiene standards are often not understood.

All this take effort, time and cost. It means that products imported from ‘low cost countries’ (LCC) are not so ‘cheap’, but the cost of prevention reduces your supply chain risks and lowers your total landed costs.

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About the Author

Roger Oakden

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With my background as a practitioner, consultant and educator, I am uniquely qualified to provide practical learning in supply chains and logistics. I have co-authored a book on these subjects, published by McGraw-Hill. As the program Manager at RMIT University in Melbourne, Australia, I developed and presented the largest supply chain post-graduate program in the Asia Pacific region, with centres in Melbourne, Singapore and Hong Kong. Read More...

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