Why the sourcing of safe products is so important.

August 27th, 2008

During the last four months this blog has discussed a variety of safety related issues. We’ve discussed the impact of the recent St. Paul salmonella out break

During the last four months this blog has discussed a variety of safety related issues. We’ve discussed the impact of the recent St. Paul salmonella out break, recalled beef, tainted pet food, Heparin recalls, lead in toys and a variety of related issues such as traceability, certifications, and environmental impact. But what is the resulting trickle down effect.

We all remember the pet food recall from 2007. Although accurate numbers were never released as to the number of pets affected, an article in USA TODAY on August 26th 2008 by Julie Schmit indicated that the FDA received more than 17,000 complaints. WOW!!! Let’s spell that out SEVENTEEN THOUSAND. What if those were people? What if several of these outbreaks all happened at the same time? The same article titled Pet-food recall leads to 6,000 claims and counting. SIX THOUSAND. At present the article indicates that pet food makers and retailers have set up a $24,000,000.00 fund to compensate pet owners. This begins to beg a couple of questions.

1. What impact is this having on the bottom line of retailers, pet food suppliers and other affiliated companies?
2. How much work time was and will be lost by those filing claims that did or will have impact on the company’s productivity for whom they work.

We already know that retail in particular the supermarket segment is a low net earnings business. Based on estimated average net profitability over the last 10 years, it would take twenty four billion dollars ($24,000,000,000) to create $24M in net profitability. That’s a big ouch to retailers. So what other areas can be impacted by these types of events?

Some potential impact areas to consider from these types of events follow:

1. Lost sales of affiliated products
2. Lost customers that end up blaming retailers
3. Lost jobs at manufacturers and suppliers of tainted products
4. Productivity declines due to sick time
5. Increased legal fees
6. Decrease in stock performance of all connected companies
7. Increased government spending which drives taxes higher
8. Less job growth

Obviously one could go on and on. Retailers have always proved to be resilient and shown the capacity to bounce back. But, and it’s a big but suppliers and manufacturers can make it easier on their retail partners by supporting the proper level of traceability in the supply chain and adhering to emerging standards in more than name only. Great companies make the focus on these types of issues executive suite sensitive. Generally these are the same companies that bounce back.

I look forward to your comments.

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