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You Get What You Manage, Not What You Contract

By February 26, 2013

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Surprise

PHOTO: All Rights, Microsoft Corporation

The supermarket supply-chain scandal in Europe continues to spread. The horsemeat that was substituted for beef in the supermarkets, seems to have found its way into Swedish meatballs at European Ikea stores. Could it also be in the US stores? In South Africa, testing of foods has failed to show any horsemeat. That's the good news. However, it appears that South African's are a bit more suspicious than their European counterparts and did further testing. Water Buffalo and donkey were found.

Do we really want to know what's in our outsourced food supply chain? In a lot of cases the answer is, "No!" Which is partially why we are probably eating a lot of things that we are consuming a lot of things we never thought we would. Likewise, a lot of outsourcing programs nasty bits in them that we have chosen not to know about, and without active management they too have spread through the system.

Regardless of what your contract says, it is only one form of communication between you and your vendor. Often, the contract is not the most important communication, or parts of the contract are of much less importance (and less frequently discussed). Issues of substitution in a supply chain happen frequently. In aircraft maintenance there is a complex process where every part ever produced follows a elaborate tracking process with up to six government agencies tracing every single part by serial number. Food supplies and outsourcers are somewhat less regulated.

Vendors rarely "pull the wool ( I hope it's wool!) over the client's eyes." Instead, it's the vendor and the client working together to avoid talking about certain aspects of the outsourcing program. Putting a list of "thou shalt not's" into a contract doesn't mean much if you never measure or ask about these issues. We don't know what they will find next in our food supply chain, but you can be sure that your outsourcing program is doing what it's supposed to if your management process reflects your true concerns.

Comments

March 22, 2013 at 10:56 am
(1) Erin says:

Well, Chris, as a lawyer who specializes in outsourcing contracts, I know what you’re aiming at, but I still think contracts are the foundation for a good outsourcing relationship. It’s the venue through which the parties have pre-agreed upon common ground.

March 23, 2013 at 7:32 pm
(2) outsourcing says:

Erin,

You are absolutely correct; a well crafted contract is a necessary and critical part of the vendor management process!

However, too many outsourcing agreements follow a “total outsourcing” model, converting internal services into contracted products. These cost-centric agreements are notorious for selective enforcement of contracts, causing the real program to be quite different from the contract.

Much like the “All Beef” products in European supermarkets, neither the label nor the sourcing contract itself provides a guarantee of the contents. To paraphrase one London butcher, “If you pay a Pound (Sterling) for a pound of ‘beef’, you know it ain’t grass fed Angus.” The contract is a foundation, but that foundation needs to be built upon with active management!

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