Monday, June 22, 2015

Ignore Sustainability in Supply Chain at Your Own Peril – The Case of Nestle

I can’t recall anybody saying NO to “Maggi”, a ready-to-eat noodles brand in India. I remember eating “2- Minutes Maggi”, when our hostel mess used to be closed on account of summer vacation and now I see my children savoring its taste with pleasure. Its recent advertisement campaign ‘Meri Maggi – 2 minutes mein Khushiyan’ celebrated the everyday spontaneous happy moments that Maggi has been creating for consumers - wherever, whenever, whoever! Its popularity cuts across sections, region or age divide. If you have travelled to India, I am sure you would be able to recall its bright yellow packets found on the shelves of mom-and-pop shops across the country. To say the least, it was one of India’s most iconic brands till yesterday. But not any longer!

Last fortnight has been abuzz with “Maggi”, though for wrong reason, in Indian media be it print or visual. Reportedly, “Maggi” brand of ready-to-eat noodles, manufactured and sold by Nestle, has been found to contain dangerously high levels of lead in some samples. Its sale has been banned across several states by respective states governments. Nestle share price has witnessed severe beating at Mumbai Stock Exchange. Its brand value has been so diluted that its tag line “Good Food - Good Life” no longer emanates the same confidence. Nestlé has been forced to recall all of its wildly popular instant noodles in India after this unsavory revelation. According to the Wall Street Journal, this exercise would entail recall of 400 Million packets of Maggi, weighing 27000 Tons, would need 2500 trucks for transporting these packets from warehouse to cement plants for pulverization and incineration and would take 40 days to accomplish. This would also mean loss of 98.47 billion calories, when several million people are struggling to meet two squares of meals. Such a colossal waste of resources!!!

This is not the first instance of supply chain risks arising out of sustainability concerns that has been reported in world media. This is also not the last incident rocking the business world. The debate would go on for sometimes whether Nestle was at fault for sourcing raw materials from vendors because such dangerous levels of lead cannot come in “Maggi” during manufacturing process but from raw materials. But are not you responsible for your supply chain? To put simply, Nestle failed to identity ‘hot spot’ in its supply chain arising out of sustainability concerns and take adequate measures to address those concerns. No organization can afford to overlook risks in its supply chain that have negative impacts on environment, human health and society. The only way to insulate itself from such risks is to identify those risks and work together with vendors to mitigate those risks. Otherwise, chances are Nestle saga will repeat again.

It makes immense business sense for industry to proactively focus on sustainability concerns in their supply chain in view of heightened consumer’s awareness and regulatory challenges. However, actually doing this is not without challenges, especially when business has increasing gone for global sourcing in its quest to reduce cost. This has resulted in many global supply chains leading to SMEs in Asia. But the SMEs in this region have largely remained indifferent to sustainability concerns. In such situation, business is in serious peril of inheriting environmental risks from less environment-conscious suppliers. On the other hand, when buyers undertake sustainability reporting initiatives to improve suppliers’ sustainability quotient, the suppliers may get suspicious of such a move unless, the buyers integrate them suitably into their sourcing strategy. Thus, to avoid turbulence in the supply chain, the cost advantage of sourcing from this region needs to be balanced against the associated risk from losing the market in view of increased sustainability concerns of consumers and environmental regulations.


Business needs to revisit and reconfigure its sourcing strategy to improve supplier’s sustainability performance and simultaneously make its supply chain more efficient and cost effective. I know it is easier said than done. I recall, Jason Pearson, Executive Director of Sustainable Purchasing Leadership Council (SPLC) making a suggestion to businesses to resolve this issue while delivering keynote speech during SPLC Summit 2015 in Seattle this year.  He said the issue is complex and no solution is possible when purchasers and vendors try to find out solutions while working in silos. A solution can emerge only when they join hands and start a dialogue to find out a win-win solution. Therefore, let us start conversation with our vendors to avoid a repeat of the Nestle fiasco!!!

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