For today’s customers, quality is not simply basedon whether a product looks good, tastes good orworks well. They want to know where it comes from, how it was produced and whether stakeholders involved along the way were treated with dignity and respect. This can pose a serious challenge to industries ranging from aeronautics to food manufacturing, particularly in a world where supply chains are longer and more complex than ever. So how should companies respond? 

VIEWPOINT
A trend in reverse

Shortening the distance between the field or factory and the consumer is an idea that has gained increasing traction. As Thomas Kwasniok, partner at consultancy Bain & Company, suggests, the trend for longer supply chains may already be going into reverse.

“Until a year ago, supply chains were getting longer and the assumption was that this would lead to ever decreasing costs, lower customs fees and barriers. Now the pendulum is swinging back, as consumer interest in sustainability forces companies to source more locally. But supply chains are still longer than they were 20 years ago. That makes it more complex and more likely that things will be tampered with.” 

Transparency is key

A short supply chain may be easier to monitor, but it is not an automatic solution. “When you look at a supply chain, it’s the transparency that matters, not the length,” says Eoghan Daly, forensic and counter-fraud services expert at accountancy firm Crowe Clark Whitehill. 

Daly cites a case from 2012, when UK supermarket giant Sainsbury’s was systematically overcharged for potatoes, a scam that culminated in the conviction of three businessmen, including a Sainsbury’s buyer. There was just one link in that supply chain – but the fraud amounted to nearly £9 million. 

“There was a supply chain that was really short, but fraud happened because of the lack of transparency,” says Daly.

Tackling fraud

There are numerous ways to tackle supply chain fraud and each has its own advocates. But in essence, there are two principal approaches: technology and old-fashioned due diligence.

PwC’s Lane believes smart supply chain analytics can be extremely beneficial. “We’ve been developing a data analytics tool for one big retailer that will help it see where the risks might exist,” he says. 

“We’ve built a tool that distils all the supply chain information in its factories, looking at where the products are made and the supply of raw materials, using real data and modelled data where real data is not available. Then you start to understand where the risks might emerge.” 

He says spikes in prices can ring alarm bells. If the price of a certain commodity or food ingredient jumps sharply, perhaps because of a poor harvest, everyone along the chain has a higher financial incentive to cheat. It may be time to apply some extra checks. Black pepper, for example, is extremely prone to substitution fraud when prices surge. 

 

 VIEWPOINT

Where’s

it from?

Where’s
it from?

For today’s customers, quality is not simply basedon whether a product looks good, tastes good orworks well. They want to know where it comes from, how it was produced and whether stakeholders involved along the way were treated with dignity and respect. This can pose a serious challenge to industries ranging from aeronautics to food manufacturing, particularly in a world where supply chains are longer and more complex than ever. So how should companies respond? 

Once, most people had no idea where their purchases came from and even fewer cared. Today, provenance is a pervasive concern. Among consumers, manufacturers and retailers, the same questions crop up time and again. Are these goods produced sustainably, organically, ethically? Are they healthy? Are they safe? 

Companies that fail to address these basic enquiries struggle against rivals. And in the worse cases – when horsemeat crops up in lasagne or T-shirts rely on child labour – the results can be catastrophic.

There are no easy answers, however, particularly in a globalised economy, where supply chains can involve many participants and stretch from one side of the world to the other. 

Unscrupulous suppliers

By its very nature, the true scale of product fraud is almost unknowable, but experts agree that it runs into billions of dollars. A study carried out by Portsmouth University and accountancy firm PKF Littlejohn estimated that food fraud alone costs the British food and drink industry £11 billion a year. The global figure is incalculably higher. Products such as olive oil and Manuka honey have been key targets – goods where unscrupulous suppliers or others along the chain can easily dilute them or substitute the real thing with a cheaper and inferior alternative. 

Supply chain integrity

But food and drink are not the only items susceptible to fraud, prompting all sorts of companies to look closely at the security and integrity of their supply chains. Geoff Lane, an expert in sustainable supply chains at professional services giant PwC, explains.

“The whole issue of sustainable sourcing and responsible sourcing started out with environmental issues, but it is broadening into social issues. Regulation is partly driving it. And we have seen that with the Modern Slavery Act, which has moved this issue up the agenda. Even companies who do not make that part of their positioning cannot afford for it to go wrong,” he says. 

Tom Woodham, an expert in digital supply chains at PwC, contrasts today’s global supply chains with his own early career.

“When I started as a buyer at a large engineering group, I could go and visit the factories in the West Midlands that were supplying me. We have come a long way since then and businesses have got more complex. Some companies do not realise how that matters and it is beginning to hit some consumer goods brands,” he suggests.

High-tech solutions

But the real excitement in supply chain security is in the application of technology to create a seamless chain with absolute integrity. Such systems, which aim for water-tight chains, have long been a feature of the aerospace and pharmaceutical industries, where adulterated or inferior products can have disastrous consequences.

Using relatively high-tech seals – for example with holograms or watermarks – can help to ensure that boxes cannot be opened and resealed while in transit. This in turn allows every packet to be traced down to the last ingredient.

“In pharma, if there was a problem, the company would have to show exactly which factory, which batch and which batch from which supplier was in each box, so you would know exactly which boxes needed to be taken off the market,’ explains Kwasniok.

Component tracking 

In aerospace, the technology of component tracking has gone even further. “Another step is to trace products by attaching transponders to them, which can trace identify the producer of each individual component,” Kwasniok explains. “When you change a part on an aircraft, you must register it and exactly where it came from, even if it is a tiny little screw.”

The technology behind such systems is radio-frequency identification (RFID). The transponder reacts to transmitters at every step of its journey, enabling the logistical path of each component to be traced.

The march of technology

The technology can also do far more than merely track journeys, says Woodham.

“We worked with a big aerospace group and we could take each component it produced and track it using RFID. This RFID logs not just where the component has been, it also measures temperature, humidity, whether it has been dropped and so on. The factory can then say not only that this is the part it made, but that it has been transported in the right conditions.”

This high-tech solution is evidently suitable for very high-end products. But the march of technology means basic forms of RFID are increasingly affordable in other sectors. 

Fashion group Burberry has used RFID on products in some stores for several years. 

Sometimes in the tag label, but also woven into the fabric, the system allows traceability of products and provides the company with data on sales and supply chain efficiency.

The ‘blockchain’ buzz 

Today, however, the latest buzz in supply chain integrity is blockchain – the technology behind crypto-currencies such as Bitcoin. 

Lane says: “Blockchain was set up to act as a ledger for financial transactions – an unfalsifiable ledger. But once you have it for financial transactions, you can use it for other transactions, including moving products.”

In early March this year, US retail giant Walmart applied to patent its own system, ‘smart package’, to monitor items in transit. And in the UK, start-up company Provenance is working with Unilever, Sainsbury’s and others on developing a blockchain system for absolute traceability along supply chains.

But it is early days. As Kwasniok cautions: “Blockchain will contribute in the long term, but I have not yet seen a real end-to-end blockchain system for logistics.”And even where it can be applied, blockchain has its limits. Daly says: “Anyone who sells software will tell you it’s the answer, but it’s the quality of information that goes into that ledger that matters.”

That involves feet on the ground and eyes on the scene. In other words, know your supplier.

Mitchell Weinberg is founder of Inscatech, an investigation company that specialises in uncovering food fraud. He became interested in the subject after a bout of food poisoning in China. He started looking for technology solutions, but soon became frustrated.

A bottomless pit

He says: “At first someone talked me into thinking a piece of software could be developed, but I realised that this was just a bottomless pit. The whole thing is just senseless, at least when it comes to protecting against fraud. The only way to deal with this is to treat it as another type of crime.

“I have a network of investigators in about 190 countries. A typical investigation involves surveillance, interviews and placing people inside production factories. We take video, get photographic evidence and do online surveillance. We do everything that a typical investigator would do.”

Checks and balances

Daly also argues that many companies could save themselves a lot of risk and damage by getting to know their suppliers properly, right down to the individual level.

He says: “Organisations do the financial due diligence and the technical due diligence, but they do not look at the individuals they will be dealing with. Do they own the assets they say they do? What is their personal record? What do people say about them? Are they linked to organised crime?

“You need someone local to check the local office. Are these in fact the type of people you would prefer not to do business with? And it’s not very expensive. Individual checks on people range from about £1,000 to £1,500 per head.”

That can still amount to substantial expenditure for a modest company with dozens of suppliers.

Is anybody there?

But the risks of not taking such steps can be immense. 

“I’ve seen examples of where a meat trailer has been sent to collect the product and it turned out the supplier company did not even exist,” says Daly. 

The ‘disappearing supplier’ is, of course, a nasty shock and may be costly to the bottom line. But, for most companies, the supplier that is diluting or adulterating products, paying illegal wages, employing underage workers or flouting environmental regulations poses a far greater risk.It may be endangering the health and wellbeing of its own employees and community.

It may also be endangering your customers’ health and wellbeing. At the very least, it is a risk to the integrity of your brand and company.

And in today’s world, such risks are not worth taking 

Back to articles 

Food fraud alone costs the British food and drink industry £11 billion a year. The global figure is incalculably higher”​

Once, most people had no idea where their purchases came from and even fewer cared. Today, provenance is a pervasive concern. Among consumers, manufacturers and retailers, the same questions crop up time and again. Are these goods produced sustainably, organically, ethically? Are they healthy? Are they safe? 

Companies that fail to address these basic enquiries struggle against rivals. And in the worse cases – when horsemeat crops up in lasagne or T-shirts rely on child labour – the results can be catastrophic.

There are no easy answers, however, particularly in a globalised economy, where supply chains can involve many participants and stretch from one side of the world to the other. 

Unscrupulous suppliers

By its very nature, the true scale of product fraud is almost unknowable, but experts agree that it runs into billions of dollars. A study carried out by Portsmouth University and accountancy firm PKF Littlejohn estimated that food fraud alone costs the British food and drink industry £11 billion a year. The global figure is incalculably higher. Products such as olive oil and Manuka honey have been key targets – goods where unscrupulous suppliers or others along the chain can easily dilute them or substitute the real thing with a cheaper and inferior alternative. 

Supply chain integrity

But food and drink are not the only items susceptible to fraud, prompting all sorts of companies to look closely at the security and integrity of their supply chains. Geoff Lane, an expert in sustainable supply chains at professional services giant PwC, explains.

“The whole issue of sustainable sourcing and responsible sourcing started out with environmental issues, but it is broadening into social issues. Regulation is partly driving it. And we have seen that with the Modern Slavery Act, which has moved this issue up the agenda. Even companies who do not make that part of their positioning cannot afford for it to go wrong,” he says. 

Tom Woodham, an expert in digital supply chains at PwC, contrasts today’s global supply chains with his own early career.

“When I started as a buyer at a large engineering group, I could go and visit the factories in the West Midlands that were supplying me. We have come a long way since then and businesses have got more complex. Some companies do not realise how that matters and it is beginning to hit some consumer goods brands,” he suggests.

Using relatively high-tech seals – for example with holograms or watermarks – can help to ensure that boxes cannot be opened and resealed while in transit. This in turn allows every packet to be traced down to the last ingredient”​

Food fraud alone costs the British food and drink industry £11 billion a year. The global figure is incalculably higher”​

A trend in reverse

Shortening the distance between the field or factory and the consumer is an idea that has gained increasing traction. As Thomas Kwasniok, partner at consultancy Bain & Company, suggests, the trend for longer supply chains may already be going into reverse.

“Until a year ago, supply chains were getting longer and the assumption was that this would lead to ever decreasing costs, lower customs fees and barriers. Now the pendulum is swinging back, as consumer interest in sustainability forces companies to source more locally. But supply chains are still longer than they were 20 years ago. That makes it more complex and more likely that things will be tampered with.” 

Transparency is key

A short supply chain may be easier to monitor, but it is not an automatic solution. “When you look at a supply chain, it’s the transparency that matters, not the length,” says Eoghan Daly, forensic and counter-fraud services expert at accountancy firm Crowe Clark Whitehill. 

Daly cites a case from 2012, when UK supermarket giant Sainsbury’s was systematically overcharged for potatoes, a scam that culminated in the conviction of three businessmen, including a Sainsbury’s buyer. There was just one link in that supply chain – but the fraud amounted to nearly £9 million. 

“There was a supply chain that was really short, but fraud happened because of the lack of transparency,” says Daly.

Tackling fraud

There are numerous ways to tackle supply chain fraud and each has its own advocates. But in essence, there are two principal approaches: technology and old-fashioned due diligence.

PwC’s Lane believes smart supply chain analytics can be extremely beneficial. “We’ve been developing a data analytics tool for one big retailer that will help it see where the risks might exist,” he says. 

“We’ve built a tool that distils all the supply chain information in its factories, looking at where the products are made and the supply of raw materials, using real data and modelled data where real data is not available. Then you start to understand where the risks might emerge.” 

He says spikes in prices can ring alarm bells. If the price of a certain commodity or food ingredient jumps sharply, perhaps because of a poor harvest, everyone along the chain has a higher financial incentive to cheat. It may be time to apply some extra checks. Black pepper, for example, is extremely prone to substitution fraud when prices surge. 

Using relatively high-tech seals – for example with holograms or watermarks – can help to ensure that boxes cannot be opened and resealed while in transit. This in turn allows every packet to be traced down to the last ingredient”​​

High-tech solutions

But the real excitement in supply chain security is in the application of technology to create a seamless chain with absolute integrity. Such systems, which aim for water-tight chains, have long been a feature of the aerospace and pharmaceutical industries, where adulterated or inferior products can have disastrous consequences.

Using relatively high-tech seals – for example with holograms or watermarks – can help to ensure that boxes cannot be opened and resealed while in transit. This in turn allows every packet to be traced down to the last ingredient.

“In pharma, if there was a problem, the company would have to show exactly which factory, which batch and which batch from which supplier was in each box, so you would know exactly which boxes needed to be taken off the market,’ explains Kwasniok.

Component tracking 

In aerospace, the technology of component tracking has gone even further. “Another step is to trace products by attaching transponders to them, which can trace identify the producer of each individual component,” Kwasniok explains. “When you change a part on an aircraft, you must register it and exactly where it came from, even if it is a tiny little screw.”

The technology behind such systems is radio-frequency identification (RFID). The transponder reacts to transmitters at every step of its journey, enabling the logistical path of each component to be traced.

The march of technology

The technology can also do far more than merely track journeys, says Woodham.

“We worked with a big aerospace group and we could take each component it produced and track it using RFID. This RFID logs not just where the component has been, it also measures temperature, humidity, whether it has been dropped and so on. The factory can then say not only that this is the part it made, but that it has been transported in the right conditions.”

This high-tech solution is evidently suitable for very high-end products. But the march of technology means basic forms of RFID are increasingly affordable in other sectors. 

Fashion group Burberry has used RFID on products in some stores for several years. 

Sometimes in the tag label, but also woven into the fabric, the system allows traceability of products and provides the company with data on sales and supply chain efficiency.

The ‘blockchain’ buzz

Today, however, the latest buzz in supply chain integrity is blockchain – the technology behind crypto-currencies such as Bitcoin. 

Lane says: “Blockchain was set up to act as a ledger for financial transactions – an unfalsifiable ledger. But once you have it for financial transactions, you can use it for other transactions, including moving products.”

In early March this year, US retail giant Walmart applied to patent its own system, ‘smart package’, to monitor items in transit. And in the UK, start-up company Provenance is working with Unilever, Sainsbury’s and others on developing a blockchain system for absolute traceability along supply chains.

But it is early days. As Kwasniok cautions: “Blockchain will contribute in the long term, but I have not yet seen a real end-to-end blockchain system for logistics.”And even where it can be applied, blockchain has its limits. Daly says: “Anyone who sells software will tell you it’s the answer, but it’s the quality of information that goes into that ledger that matters.”

That involves feet on the ground and eyes on the scene. In other words, know your supplier.

Mitchell Weinberg is founder of Inscatech, an investigation company that specialises in uncovering food fraud. He became interested in the subject after a bout of food poisoning in China. He started looking for technology solutions, but soon became frustrated.

Until a year ago, supply chains were getting longer and the assumption was that this would lead to ever decreasing costs, lower customs fees and barriers. Now the pendulum is swinging back”​

Until a year ago, supply chains were getting longer and the assumption was that this would lead to ever decreasing costs, lower customs fees and barriers. Now the pendulum is swinging back”​​

A bottomless pit

He says: “At first someone talked me into thinking a piece of software could be developed, but I realised that this was just a bottomless pit. The whole thing is just senseless, at least when it comes to protecting against fraud. The only way to deal with this is to treat it as another type of crime.

“I have a network of investigators in about 190 countries. A typical investigation involves surveillance, interviews and placing people inside production factories. We take video, get photographic evidence and do online surveillance. We do everything that a typical investigator would do.”

Checks and balances

Daly also argues that many companies could save themselves a lot of risk and damage by getting to know their suppliers properly, right down to the individual level.

He says: “Organisations do the financial due diligence and the technical due diligence, but they do not look at the individuals they will be dealing with. Do they own the assets they say they do? What is their personal record? What do people say about them? Are they linked to organised crime?

“You need someone local to check the local office. Are these in fact the type of people you would prefer not to do business with? And it’s not very expensive. Individual checks on people range from about £1,000 to £1,500 per head.”

That can still amount to substantial expenditure for a modest company with dozens of suppliers.

Is anybody there?

But the risks of not taking such steps can be immense. 

“I’ve seen examples of where a meat trailer has been sent to collect the product and it turned out the supplier company did not even exist,” says Daly. 

The ‘disappearing supplier’ is, of course, a nasty shock and may be costly to the bottom line. But, for most companies, the supplier that is diluting or adulterating products, paying illegal wages, employing underage workers or flouting environmental regulations poses a far greater risk.It may be endangering the health and wellbeing of its own employees and community.

It may also be endangering your customers’ health and wellbeing. At the very least, it is a risk to the integrity of your brand and company.

And in today’s world, such risks are not worth taking 

Back to articles 

Browse all articles
Bridgepoint  |  The Point  |  May 2018  |  Issue 33