Hardly a month goes by without a multinational tied to a supply chain scandal. Particularly in the consumer goods industry, large multinationals have been making the news for all the wrong reasons (e.g. slave labour in Thailand’s seafood industry).
For organisations working in Africa, poor transparency in the supply chain can have serious implications for the reputation of your company. This could include slave labour on cocoa farms (e.g. Cote d’ Ivoire); health care professionals dealing with the health risks of counterfeit products (e.g. Nigeria); textile companies struggling with child and force labour practices (e.g. Madagascar); or technology companies making use of “conflict minerals” (e.g. Eastern Congo).
South African companies have also not been spared. In 2013, a Stellenbosch University study identified that 60% of supermarket meat tested included DNA of animal species not listed on the food labels, including water buffalo and donkey. Researchers became interested only after the extent of the United Kingdom’s (UK) horse meat scandal became apparent.
Beyond the brand implications, legislation is also getting tougher with companies paying lip service to infringements. The United States (US) Dodd-Frank Act came into effect in 2010, to ensure products aren’t tied to “conflict minerals.” In February this year, the US Trade Facilitation and Trade Enforcement Act and more recently the UK Modern Slavery Act became law. Both countries’ laws focus on forced and child labour.
With legislation comes the need for auditing. Organisations outsource private auditing to inspect factories and identify supply chain infringements. Apple recently declared that they audit 100% of their supply chain for the use of conflict minerals tied to the Eastern Congo. Nonetheless, a recent University of Sheffield study, questioned the effectiveness of audits for detecting, reporting or correcting labour and environmental challenges in supply chains. Subcontractors are often overlooked and auditors often serve their clients or organisations by turning auditing into “a business.”
Labelling has also received renewed interest. South African chains have been quick to highlight local place names or displaying South African flags. However, whether the boerewors (sausage) comes from Piet De Jager’s Grabouw farm in the Western Cape or from a water buffalo abattoir in Thailand, is hard to determine. Food traceability technology has still some way to go in South Africa; and African consumers have yet to hold executives to ransom to scrutinise audit (if any) reports.
Some observers also question the impact legislation will have on small and medium sized enterprises (SMEs). For large multinationals in the spotlight such as Apple, traceability is imperative to their brand strategy and an achievable goal (Apple audits 242 smelters and refiners). Furthermore, small farm-to-fork speciality stores and restaurants have a major incentive to provide visibility to clients with local sourcing. However, mid size organisations are often not affected by legislation. For example, the United Kingdom’s Modern Slavery Act, only targets companies with a total turnover of £36 million or more.
However, with increased legislation, consumer advocacy and media attention, the importance of supply chain audits will continue to grow as supply chains get longer and more complex. Technology such as Radio Frequency Identification devices (RFID) will play an increased role. According to Allied Market Research, food traceability technology is expected to surpass the $14 billion dollar mark by 2020.
Beyond social responsibility, questions remain about the return of investment (ROI) and whether consumers in the mid to lower end are willing to pay for increased traceability in order to become more socially responsible consumers. However, any company just looking at ROI may want to have a conversation with Chipotle, a United States burrito chain. The company’s sales dropped 35% in 2015 after an E. coli outbreak, not to mention the damage caused to the brand of a once industry darling.