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What to Do about Bad Supplier News

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They say you can tell a lot about a person by the company she keeps. And, in the minds of many consumers, you can tell a lot about a company by the companies it keeps company with — especially if one of those companies has a negative mark against it.

In an article appearing in the Harvard Business Review, a team of marketing and supply chain academics explains their recent research into the “spillover effect” that is created in the minds of the public when a supply chain partner gets bad publicity. If your partner is in the news for any of the wrong reasons (e.g., financial malfeasance, unfair wages or pollution), the public will associate your own organization or product with this bad actor — even if you had nothing to do with the issue.

“The longer the supply chain is in terms of geography and complexity, the more likely it is that bad things will happen somewhere along the way,” they wrote. “With all the risks and opportunities for operational failures, including some risks global supply chains managers [might] not even be aware of, managers can all but guarantee that at some point something will go wrong somewhere in the supply chain, and, particularly with the rise of social media, that consumers will hear about it.”

On the other hand — and maybe not surprising considering how we’re wired to think — don’t expect to ride on a supply chain partner’s coattail if they are in the news for a good reason (treating their employees especially well, for instance). That seems to be because our social media-influenced world serves to reinforce people’s negativity bias, or our tendency to focus on negative news.

“These findings may be grim for companies managing global supply chain complexity, particularly retail and consumer products companies, which have struggled to maintain effective accountability of their suppliers and contract manufacturers for many years now,” they write. “And we know that while many firms may claim to be aware of the actions of their direct suppliers [aka, Tier I suppliers], few have information about their direct suppliers’ suppliers.”

What can be done? The researchers suggest that bad supplier news can be mitigated “with just a little bit of effort and communication.” In other words, be transparent about the problem. If you can, describe positive steps your organization is taking to limit or address it.

Fortunately, the research concluded that “consumers’ perceptions and purchase intentions are generally reparable. Collectively, the findings should encourage firms to more rigorously consider how news about their supply chain operations may impact consumers’ perceptions and intentions toward the firm’s products.”

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