Supply Chinks

Two years ago, the CEO of IBM, Sam Palmisano, coined the term ‘Globally Integrated Enterprise’ to describe a new type of business that seeks to source material and talents globally. While a multinational creates “mini versions” of itself in different countries, the GIE, he wrote, sets up production and distribution links “wherever it makes sense”, on the basis of “access to expertise, superior economics and on the presence of open environments and technologies”. Even before firms like IBM began remaking themselves to adapt to this strategy, similar products had been sweeping the world — which we could call globally integrated products. The process through which this takes place is so opaque that few understand it, but a recent spate of scandals involving such products has added to the anxiety about a globalised manufacturing and supply chain.

The labels might proclaim a product ‘Made in China’ or ‘Made in Costa Rica’ or even claim to be made in one’s home country, but that is often only half the story. Whether it is a television set or a granola bar, it is actually ‘made in the world’. Combining economies of scale with the disintegration of product components and low wages in the developing world, manufacturers have managed to slash the prices of goods. This transformation has taken place quietly, often without consumers being aware of the long chain linking products to distant producers. But the illnesses and injuries afflicting consumers of everyday products — from pet foods to toothpaste — have begun ringing the alarm bells.

Until their dogs and cats fell sick and died, few American consumers suspected that the ordinary pet food in supermarkets contained a fake protein imported from China. Nobody would have believed that toothpaste could be lethal, but the decision by a Chinese company to replace one ingredient with a cheap toxic chemical killed at least 51 people in Panama. Mattel had to recall nearly 10 million toys made in China (costing some $30 million) as they were found to contain toxic lead paint. The recall and the attendant bad publicity was a serious blow to the US’s leading toy maker, which sources nearly 80 per cent of its products from China. However, the most serious concern to be raised about globally integrated products came from a US-made blood-thinner called heparin, which is widely used by patients undergoing dialysis and other procedures. After some 81 American patients died after using the product, the source of the contaminated ingredient was traced to China, where downstream suppliers operate without regulatory oversight or quality control mechanisms.

In order not to alarm consumers or attract controversy, many producers simply avoid mentioning the foreign origins of the ingredients that go into processed food or, for that matter, medicines. Researchers have found that even Nutri-Grain cereal bars, which come stamped with a ‘Made in USA’ label, include ingredients procured from Denmark, Italy, the Philippines and India. Such examples bring to light how intimately today’s processed food is dependent on myriad sources, and how the health and safety of consumers ultimately depend on hundreds of thousands of subcontractor companies and workers spread across continents. One or two bad apples contaminating the supply chain can bring death and injury around the globe, as well as cause economic losses and product recalls. Fakery and adulteration aside, the accidental poisoning of food and beverage is a common occurrence, but complex processes of manufacturing and intricate supply chains crisscrossing the planet multiply the risks and make it harder to identify the source of contamination.

As consumers wake up to the fact that their child is sick from playing with a foreign-made toy, or that their pet is dead from adulterated food and a family member is at risk from a drug contaminated by the neglect or avarice of a foreign supplier, their anxiety is understandably growing along with demands for closer government scrutiny. Meanwhile, the integration of global production processes has reached a stage where attempts to undo it would cause havoc for both consumers and producers. For the sake of sustaining a global supply chain that has brought both variety and low-priced goods, companies must themselves accept greater responsibility for overseeing their supply chains.

As events have shown, a globally integrated product is only as good or bad as the weakest link in its supply chain.