One of the recurring themes of the New Normal is the increasing complexity of and reliance on extended supply chains with many participants beyond the Tier 1 supplier. Gibson Guitar was given a first-hand (and very unwelcome) lesson in this reality just yesterday when its manufacturing plant in Nashville was raided by the US Fish and Wildlife Service as part of an investigation into the transportation and use of endangered rainforest woods.
By all accounts, Gibson is an industry leader when it comes to establishing sustainable raw materials practices and expectations for its suppliers. Its CEO sits on the Rainforest Alliance and the company has won plaudits on its environmental practices from Greenpeace, not exactly a frequent cheerleader of Corporate America.
Since it’s safe to assume that Gibson’s sourcing practices and company ethics are rock solid, what could have happened? Without knowing the details of the case, it could be that Gibson set all the right expectations at the beginning when it put its Tier 1 supplier agreements in place but didn’t have sufficient visibility, resources or detection capabilities to see far enough up the value chain to where the real problems were.
We speak often about the 3-3-4 of Supply Risk (3 types of risk, 3-step process, and 4 component solution) and the middle “3″ is the one that matters here. Controlling supply chain risk is a three-step process (Find, Fix and Follow-through). Finding and fixing known risks (e.g. setting expectations with your supply base on acceptable material practices, not signing with uncertain vendors) can only take you so far. In order to make your risk management as sustainable as your materials policies, you need to have the right visibility, reach and alert systems in place to both be notified when something happens and streamline the process of regularly checking in on happenings up the value chain. Since this represents an immense of information on thousands of suppliers literally around the world, you MUST have sophisticated information systems in place to make it happen. Otherwise, you’d be swimming in “data” and have precious little “information” to show for it.
So, while US Chief Justice John Marshall may not have had the exact phrase “Suppliers may lie” in mind when establishing the legal doctrine of caveat emptor, that’s certainly what he was getting at in the Laidlaw vs. Organ decision back in 1817. And it is even more valid today. Unfortunately for Gibson, many consumers will likely not know about Gibson’s long commitment to sustainability and instead will only remember the headline “Gibson Guitar plant in Nashville raided by Feds”. The costs associated with lost sales, brand damage, etc are certainly more than those associated with any proactive alert system and process.