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Don't Put Your Customers at Risk

In the wake of the deadly meningitis contamination, your business needs to keep its supply chain squeaky clean. It's not enough to blindly trust your suppliers, you have to check and check again. Here's how.
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For Flowering Tree Botanicals, monitoring the supply chain that goes into making its all-natural bath and body products is crucial.

Layla Colegrove, the company's chief executive, uses only United States-based companies for sourcing the ingredients such as Shea butter, olive oil, goat milk, and witch hazel that go into her soaps and shampoos. She performs regular checks that her suppliers meet U.S. Food and Drug Administration standards for production, handling, and storage. And for an upcoming line of cosmetics, she has chosen suppliers that have agreed to do regular microbial tests themselves. Colegrove also plans to hire a testing laboratory to do even more close examination of all her products in the coming months.

While that may sound like overkill, it's not. It's a sign of the new world we live in.

"It has become very important to us as a small business to make sure our products are good quality and that they are not going to harm any of our customers," Colegrove says.

You can never lose track of what's in your business' supply chain--and who, exactly, is contributing to it. Ignoring those basics can lead to catastrophes, such as the one allegedly caused by New England Compounding Center in October. The center's steroidal drug was reportedly laced with bacterial meningitis, which killed dozens and sickened hundreds after doctors used the tainted drug--because they trusted the pharmacies that provided it.

It's also a potent reminder that microscopic mishaps can permanently damage your brand--or even shut down your business forever.

Nearly every small business has a supply chain that needs careful tending. So, how do you make sure the components you put in your own product are perfectly safe, sanitary, and non-defective?

Fortunately, lots of data exists about potential supply partners. As a preliminary step, you can dig into credit reports and legal proceedings through databases such as Lexis Nexis and Dunn & Bradstreet.

To dig deeper, you may want to sign on the help of one of many companies that specialize in even broader searches that can help you get a clearer picture of a company's total risk to you. One is Briefcase Analytics, of Cambridge, Massachusetts. Another is SAP's Ariba, which provides an Internet-based service that provides continuous supply-chain monitoring.

Here's how they work: Briefcase, for example, lets companies do a comprehensive records search on any firm that small-business owners might want to enlist as a supplier. To do so it taps 600 databases in 50 countries. Briefcase then compiles a report that factors in financial strength, business integrity, labor and human-rights record, health, safety, and the environment, and the company's record on privacy and intellectual property to create a total risk score.

Such a service could have been important in shutting down NECC earlier than this year, as the company had documented operations violations stretching back to the 1990s, according to an October story in the New York Times.

"Part of this is the diligence of pharmacies," says Shanton Wilcox, a principal and North America Lead of logistics and fulfillment for the consulting firm Cap Gemini, which is headquartered in New York City. "The pharmacy is engaging with the compounding company, so are they auditing the records?"

Regularly reviewing supply chains is a relatively new concept to many smaller United States-based businesses. But the practice has gained popularity over the past five years as imports, primarily from China, have been found tainted with lead, melamine, and other poisons, or have had severe defects leading to fatalities. That's because profit motives have generally driven production in past decades, emphasizing cost containment over safety, experts say.  

"The entire supply chain succeeds and fails together," Richard J. Cellini, chief executive officer of Briefcase says. "It is only as strong as the weakest link and [European and Asian companies] have gotten this rather more quickly than North Americans companies who are more focused on cost, not risk."

Even if your company is so small that your supply chain monitoring needs are minimal, you may be particiapting as a vendor to a much bigger company, such as Walmart or Sears. Such companies have elaborate supply chain monitoring systems themselves, and you'll be asked to interact with them by entering data about your own production process. 

One such system--from Aravo Solutions, a supply-chain management company with about 100 employees, in San Francisco--contracts with companies such as General Electric and Best Buy, allowing big businesses to continuously monitor all the vendors in a supply chain to check for problems. Similar to that of Briefcase, the Aravo system queries databases that look up legal and other documents on companies to provide a risk score. It also includes things like research into commodities supplies in particular regions. That can be critical in determining if supply will be a problem at a certain point.  

While Aravo, Ariba, and Briefcase can help you get your house in order, the rest of your supply-chain monitoring system will be more internally focused on production. It is likely to be a home-grown network that taps a database, or a series of databases, that contain and systematize all of your product information, and which analyzes various points of your production. The typical system must also have in place controls that sort your different product types, forcing regular reviews by pulling samples for quality inspections.

"A robust, quality system is the crux of this whole thing," Wilcox says, and it should go beyond what regulatory agencies such as the FDA require, especially because the FDA is not staffed to fully monitor all companies.

While managing a clean supply chain is complex, some small businesses have found a way to get an extra boost from doing so. Consider the All American Clothing Co., in Arcanum, Ohio, which has found it can blend its supply-chain-monitoring efforts with a clever marketing campaign.

AACC has designed a system, using Unix and Microsoft servers and SQL (structured query language) programming, that lets the company--and its customers--identify the fields and mills in which the cotton that makes every item was grown and processed. The system operates in real time for the company, and provides an after-the-fact look for customers. Each of the company's jeans includes a "certificate of authenticity" that lets customers go online, punch in a unique identifying number, and find out about the more than 11,0000 farmers, millers and clothing finishers who contribute to the making of the 60,000 pairs of jeans AACC produces annually in the United States.

B.J. Nickol, a co-owner and vice president of marketing, says the company had to put the system in place for its own tracking and to meet FDA requirements. The side effect is that it helps the company trace potential product problems more quickly, and customers seem to love it. 

"We target a niche of customer that demands 'USA-made' and have a lot of patriotism, so they love to see who they are helping out by purchasing a USA garment," Nickol says.

 

 

Last updated: Nov 9, 2012

JEREMY QUITTNER | Staff Writer | Staff Writer, Inc. and Inc.com

Jeremy Quittner is a staff writer for Inc. magazine and Inc.com. He previously covered technology for American Banker and entrepreneurship for BusinessWeek.




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