The Parmesan Scandal Takeaway: Protect Your Supply Chain From Reputational Risk

Increased reliance on contractors and subcontractors brings a heightened responsibility to closely vet and monitor supplier performance and behavior.

It's never been more important to have a lean, agile supply chain network in the hyper-competitive global marketplace. However, increased reliance on contractors and their subcontractors brings all kinds of increased risk and, with it, a heightened responsibility to closely vet and monitor supplier performance and behavior.

Consider Target Corporation and Associated Wholesale Grocers, Inc., whose Parmesan cheese brands labeled “100 percent grated Parmesan cheese” were found by the Food and Drug Administration to contain absolutely no actual Parmesan. Instead, the well-known brands like Market Pantry and Best Choice “100 percent” grated Parmesan cheese contained a mix of Swiss, mozzarella and white cheddar cheeses “as well as a heaping dose of cellulose,” Bloomberg reported.

Supply Chain Spending

According to CAPS Research in 2015, a whopping 83 percent of all corporate spending went to hundreds of thousands of global suppliers, and only 17 percent went toward corporate manufacturing plants, personnel and operations infrastructure.

That means chief procurement officers (CPOs) and their staff now have influence and responsibilities that go far beyond cost containment. Maybe that's why today over 80 percent of CPOs are required to report directly to their CEOs. Their decisions have profound effects on corporate health, intellectual property, environmental compliance, quality and even sales.

Social Responsibility And Suppliers

Today, Fortune 1,000 firms face real complexity in protecting their ethical imperatives, image and standing, when firms can have as many as 10,000 or more suppliers under contract. How those contractors behave while doing work can make or break multibillion-dollar corporations.

There was a time when social responsibility was considered a "soft" nicety. However, that’s no longer the case. Government regulation enforces it, and consumers punish companies that don't handle themselves responsibly, as we have seen in recent headlines.

Volkswagen, for example, is expected to lose billions of dollars and significant market share because of ethical lapses. But what about suppliers? Nike has come under similar scrutiny over the years for suppliers' alleged labor exploitation around the world. Tesco is one of the food manufacturing companies that in recent months was adversely impacted by horse meat found in their products.

Among suppliers (and their own subcontractors), poor working conditions, loose financial transactions, skirted environmental regulations or substandard quality in parts or materials can all turn into scandals that affect the contracting organization. As a result, corporations must constantly vet and monitor supplier performance and behavior.

For example, consumers are now demanding country-of-origin information on shrimp in restaurants and stores after an investigation by the Associated Press (reported in December 2015) revealed that shrimp peeled by modern day slave labor in Thailand is making its way into the U.S., including through major food stores and retailers such as Wal-Mart, Kroger, Dollar General and Petco.

Guidelines to Protect Your Supply Chain

The Institute for Supply Management (ISM) created formal guidelines in these areas, and they were recently updated by its board of directors. When followed, they uphold ethical behavior and reduce the chance of high-risk lapses occurring. Some of the guidelines include:

  • Do not tolerate corruption in any form.
    Employers are urged to implement clear anti-corruption policies for employees, suppliers and the extended supply chain to follow. Employee training should be included to support the implementation of these policies.

  • Promote diversity and inclusion throughout the organization.
    Diversity continues to be a hot-button topic and for good reason. Fostering a diverse group of suppliers, employees, external partners and affiliates will create a culture of inclusion, not exclusion.

  • Support environmental precaution and promote environmental responsibility.
    Organizations should strive to comply with, and whenever possible, exceed compliance with all applicable environmental laws, regulations and protocols. We suggest providing all employees with the training and resources needed to make environmentally conscious decisions.

  • Value, respect and enforce human rights.
    Human beings have universal and natural rights and status regardless of legal jurisdiction and local factors. Organizations should not use suppliers who violate these rights.

These are just four of the 11 principles ISM has created and endorsed. The path to sustainability and social responsibility isn’t an overnight process but a journey to continuous improvement. The stakes could not be higher.

About The Author: Thomas W. Derry is the CEO of the Institute for Supply Management. To learn more about ISM Principles of Sustainability and Social Responsibility please visit

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