Properly understanding your supply chain is vital to avoiding disasters such as the recent Nanna’s frozen berry scandal, writes Gordon Donovan, principal consultant at The Faculty.

It’s a tense moment in the Emerald City. Dorothy, Tin Man, Lion and Scarecrow stand trembling before the giant visage of The Great and Powerful Oz as he thunders and roars, complete with jets of flame and billowing green smoke. Toto, Dorothy’s little black terrier, slips away unnoticed to the side of the room and pulls back a curtain to reveal that the terrible Oz is in fact a short, grey-haired gentleman frantically manipulating a control panel and speaking into a microphone.

We’ve all been guilty of accepting the facts presented to us by an organisation without pulling back the curtain to confirm them ourselves. As customers, our powers of investigation are often limited – there’s only so much you can glean from scrutinising the ingredients and country of origin labelling on a box of cereal and you’re unlikely to get very far by interrogating a uniformed teenager stacking the shelves at Woolworths or Coles. A business, however, has the opportunity to gain a great deal of visibility and control over its supply chain, but only if decision makers are willing to do the hard work and get to know their suppliers.

The recent product recall of Nanna’s frozen berries across Australia was a very public demonstration of how badly things can go wrong in the supply chain. In mid-February this year, more than a dozen cases of Hepatitis A were reported by people who had consumed frozen berries sourced from China via Chile. The company immediately issued a recall but the impacts were enormous: financially, the parent company Patties Foods suffered a 12% fall in share price, while $1.7 million worth of unsaleable inventory sat in their warehouses. The blow to the company’s reputation and customer trust was even more serious, with daily headlines, a class action being threatened and furious comments flooding social media. Red Cross even voiced concerns over potentially infected blood donors.

In January 2013, UK supermarkets including Tesco, Iceland and Lidl were engulfed with a similar supply chain scandal involving meat. Frozen burgers and frozen ready meals labelled as beef sourced from Romania and Poland were found to contain horse and pig meat, leading to a huge customer backlash that saw Tesco drop €360 million in market value, burger sales tumble by 41% and ready meals fall by 15%.

Why did these companies make such poor sourcing decisions that left them vulnerable to risk?

Well firstly, the sourcing team may have put factors such as price and availability above equally-important factors like reputational risk. In an environment where every dollar is a prisoner to its owner, snap price decisions are made without thought to total cost, including risk. The leading procurement managers measure risk by how much it would cost the business if the worst happened, making the total cost argument even more persuasive.

Secondly, the sourcing team may have accepted the Oz-like visage presented by the supplier without taking the important next step of delving a little deeper. Who supplies your supplier? And, in turn, who supplies your supplier’s supplier? Investigating your supplier’s suppliers can be a courageous decision – in many cases, a company may be justifiably worried by what they might find.

How can businesses both large and small ensure that a frozen berry or horse meat-type scandal doesn’t happen to them?

The answer lies in taking the well-known financial services compliance mantra of, ‘know your customer’ and adapting it into, ‘know our supplier’.

Procurement professionals need to be able to confidently trace the elements used to create their product back to their source, secure in the knowledge that risk mitigation and regular auditing is in place to protect the company’s profits and reputation.

If you, as a marketing professional, need to deal with wholesalers or suppliers, the best advice would be to engage your procurement team or third party expert. They have the knowledge and experience to guide you through the process, pull back the curtain and scrutinise a complex multi-levelled supply chain.

Here are the five vital questions that marketers should ask their procurement colleagues:

1. Who, exactly, is the supplier?
2. who are the supplier’s suppliers? And who are the supplier’s suppliers’ suppliers (and so on)?
3. what are the risk factors associated with using this supplier?
4. what systems are in place to minimise or eliminate risk? and
5. what systems are in place to ensure the product or service is of a consistent and high quality?

So don’t wait for Toto to pull back the curtain. Work with your procurement team, get to know your supplier and pull back the curtain yourself.