23 March 2009 - International [United States]
Quality
Quality is something that many firms do not always have direct control over. The complexity of modern supply chains means that many larger firms rely on the quality checks carried out by their many suppliers. Food product manufacturer Kellogg's, for example, has around 1,000 ingredient suppliers. One of these suppliers was a firm called Peanut Corporation of America (PCA). The company supplied Kellogg's and other food manufacturers like Nestle with products such as peanut butter and peanut paste. However, two of PCA's plants in Georgia and Texas were subject to quality problems and a salmonella outbreak mean that over 3,500 products from a range of firms had to be recalled from shelves - nearly 700 illnesses and nine deaths were attributed to the outbreak.

Should Kellogg's have been more vigilant in monitoring its suppliers? It says it did everything possible to ensure the quality of its supplies, but there are suggestions that maybe it could have done more or that the system of quality control was flawed. It is alleged that Kellogg's based its monitoring process on self-regulation by PCA. The auditing of PCA's production was carried out by firms paid by PCA. It seems that Kellogg's relied on reports from the American Institute of Baking, based in Kansas, to monitor its quality, and that auditor had given PCA a clean bill of health. Kellogg's bought $10 million worth of products from PCA every year. There are also allegations that PCA hired firms to audit it on the cheap, paying around $1,500 instead of the $20,000 which it is estimated would be needed to get a comprehensive audit. As a result of the salmonella problem, Kellogg faces a bill of around $70 million in recall costs.

On the other hand, Nestle sent its own inspectors into PCA to audit production. As a result of that audit, the company decided not to do business with PCA. Nestle audited the Georgia plant in 2002 and the Texas plant in 2006. The audit reports were released to a House Energy and Commerce investigations committee looking into the salmonella outbreak. The 2006 report suggested that pest control, monitoring of pathogens ( biological agents that cause disease) and the possibility of cross contamination of products (potentially lethal to those who have certain types of allergy) were lacking.

The lessons learnt from the outbreak of salmonella and the need for more effective monitoring of supply chain processes will not be lost on a wide range of firms that rely on quality products in their production processes - wherever they come from. There is clearly a trade-off between the additional cost of more thorough quality control regimes and the potential for damages as a result of having to recall defective or dangerous products and the effect on reputation and image that could arise as a result of a problem such as that experienced by Kellogg's.

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