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Where’s The… ummm Horse… errr... Beef?

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When you outsource, you often face a lingering fear that you will somehow lose control. You have a feeling that you just can't shake that something will happen to undermine your program and, worse yet, that your failure will become public in the most embarrassing way possible. In retail food and supermarkets, something very similar... and very embarrassing ... has happened. Somehow, mistakes have been made that allowed horsemeat to become part of food products that are supposed to contain beef. Oh my!

For a moment, let us step outside of US or UK thinking and look at horsemeat objectively. In other countries, including France and Germany, horsemeat is a regular part of the menu. Nutritionally, horsemeat is almost identical to beef, and it's supposed to have a very similar look and taste. The American Wild West, the ideal of the British manor and even knights on horseback give the Anglo-Saxon world a very romantic image of our relationship to the horse. Yet, a vegetarian might tell you that eating a horse or a cow, two animals of similar size and intelligence, is equally immoral. Different cultures place different values on common issues. What one group considers absolutely abhorrent, another may see as slightly objectionable. Your BIG LIE may be my little white lie.

Supermarkets (or law firms, banks, or accounting firms) with complex supply chains and multi-level subcontractors, have a hard time knowing the belief systems of every vendor and customer. Is everyone truly of the same mind as to what is forbidden and what is acceptable? In the 90s, farmers providing produce for McDonald's were concerned about the amount of fertilizers and pesticides used to grow potatoes for french fries. Farmers wanted to be more environmentally conscious, as did McDonald's, and surveys showed that customers were becoming more environmentally conscious. McDonald's allowed suppliers to use a new type of potato, the “New Leaf” to replace its traditional "Burbank” variety. This would cut the use of chemicals by half.

The result? Massive revulsion and anger by customers, leading to protests that permanently took this potato off McDonald's menu. The New Leaf was genetically modified. Both the farmers who wanted less chemicals, and the customers who refused to eat “Franken-Food” came from California. Same state, same concerns, nearly identical belief systems, yet a completely different reaction.

The new potato option was never a secret. McDonald's just assumed that environmentalists would favor the reduction in chemical pollution. Farmers… familiar with genetic modification, seed hybridization and other techniques for manipulating nature… didn't see the problem. The New Leaf was introduced in 1995, just as customers were forming an opinion about genetically modified foods.

The European horsemeat controversy arises from less altruistic motives than McDonald's potato fiasco. Horsemeat was relabeled as beef for greater profit. But the supply chain lacked controls to prevent fraud, even though some contracts specifically excluded horse meat, making it clear that substitution was a concern (or even an industry practice?). While supermarkets are relentless in pursuing suppliers for on-time delivery of orders and missing items in an order, freely available DNA tests were never used to verify product contents. Independent tests in the UK and Ireland show products contained 30% to 100% horsemeat. If this began as an occasional “mistake”, without oversight and correction horsemeat substitution was allowed to grow into a widespread industry practice.

Any butcher can tell the difference between a side of horse and a side of beef. Experienced butchers can tell the difference between the two meats after they are made into cuts, but even the most skilled butcher can’t tell you if a meat sauce contains some horsemeat. DNA tests can tell, but there are lower tech ways to tell what you are buying.

Russel Allen, owner of an award willing butcher shop in London said, “If you are buying five burgers for a pound ($1.55), I kind of think you get what you deserve… It suggests you don’t care, so why would you suddenly care?” Food in the UK is twice the cost of the US. In US cities you can buy beef for 75 cents a pound, but you need to know that this is NOT grass fed Angus beef. Mr. Allen went on to explain that supermarkets are extremely price sensitive, with a lot of “bullying” of suppliers, forcing a choice between giving customers what they ask for and what the contract tells them to do. When customer are relentless about price, the supplier will eventually “adjust” their belief system to give you what they think you want the most.

When you choose not to check, problems happen. Before horsemeat was the problem, supermarkets were selling “pink slime.” While this is technical beef, it’s probably not what you were expecting in your hamburger. Do you like Sushi? DNA tests shows that half of it is not what it claims to be, with cheaper fish replacing higher-end varieties. Extra-Virgin Olive oil has been tested as mostly lower grade than advertised, and Kobe beef… popular in very high-end restaurants… is virtually 100% fake. The ease of DNA testing is going to produce still more revelations (is the chicken in hot pockets really chicken?) and a lot of skepticism from customers.

Too often we do get what we deserve, or at least what we pay for. Yes, you have a duty to create tension with your outsourcing vendor, and to drive down costs. If you don’t do your job and keep vendors on their toes, it is likely that you will pay too much. You might pay a tiny bit more, or it might be an enormous amount. But when you push so hard that the vendor cannot make a profit, you have taken the 1st step in undermining your vendor’s ethics. The vendor is listening to what you say, what you do, and what you fail to do. Here are five simple steps to ensure that your vendors, and their sub-contractors, truly understand what want.

KNOW WHAT YOU WANT: Looking back at the horsemeat problem, the supermarkets say that they are completely surprised that their incredibly low-priced beef isn't beef. Would they have been surprised if it was pork, or beef past its expiration date, or had other health violations? When you push for ever lower price, you push your vendors towards the edge of their safely envelope, or beyond. The supplier is completely responsible for breaking your rules, but when you push hard on the boundaries, which boundaries matter the most to you? What price are you willing to pay to be absolutely sure that these boundaries will never be breached? Price has dominated outsourcing contracts over the past decade. If you are truly interested in issues of quality and ethics, consider how many pages of your contract will address cost and how will be devoted to non-cost issues.

ASK FOR WHAT YOU NEED: Once you decide what you want, tell your vendor early in your discussions, and clearly state it in your contract. Too often, the contract process first negotiates the price, and then negotiates all the other details, often changing the real cost of the contract without allowing for any price changes. Don’t just penalizing vendors for violating your standards. Provide rewards for EXCEEDING your standards. Make ethics and quality a constant part of the client/vendor discussion. Don’t allow a gap to open up between your beliefs and the beliefs of your outsourced vendors and workers. The more you discuss issues that are important to you, the easier it will be to identify and resolve differences. Incentive pay for excessive ethical behavior or superior quality, or whatever you are looking for, regularly reviewed in your monthly meetings, ensures that these values take root.

VISIT VENDORS AT WORK: Do you (or any of your relatives) have children? Have you ever asked a child, “Have you cleaned your room?” The answer may be simple (Why do you want to know?), legalistic (My daddy said that my sister’s room is clean, and when I clean my room it's cleaner than hers!) or straightforward (uhhh… Sure, I did!). Most likely, you will learn more by looking, than asking. For those who think, “That’s ridiculous! Why should I check up on a vendor? They should take care of themselves!” An excellent point. However, when you ran the operation yourself, weren't your finances examined by accounting, didn't corporate security check your operations and HR make sure that everyone got a regular personnel review? Who is monitoring the work now? Any good operation has checks and balances.

REWARD ETHICS: Don’t just think in terms of financial rewards in your contract, although rewards for exceeding your expectations can provide powerful motivation for improvement. Think about contests, personal communications, and the occasional pat on the back for junior workers in your monthly meetings. Vendors really do listen carefully to what you say. They may not always do what you expect, but they do what you tell them to. YOU… may not be listening as carefully to what you are communicating.

CHECK ON RESULTS: You don’t need a DNA test. There are a lot of ways to check that what you want done actually happens: video cameras, interviews with staff, annual training, site visits, asking staff to violate rules, etc. Some checks can cost virtually nothing. But they do require that you are consistent, and that you regularly perform checks, rather than try to do “drive-by quality control.” Ethics and quality are, as much as anything else, a habit. Get into the habit of checking and talking about what you see.

Every firm and every employee in the world faces issues of ethics. We don’t all share the same ethics when we live and work in the same place. When we deal with workers living in different countries with different cultures, it is inevitable that ethics will be different. If you don’t regularly talk about ethics, you may not even know how different everyone’s ethics are. Even the things that we assume are fairly universal values, such as “do not seal” can have special exceptions, such as… “unless it is from an occupying army”.

Every outsourcer wants to make their client happy, but they also know that every client has different values. In a day when lower cost drives far too many outsourcing programs, many can clearly hear a request that lower cost is more important than other issues we talk about, and even that we put in our contracts. If ethics are important to you, talk about it frequently, make it a subject of meetings, put it in your contracts and financially reward exceptionally ethical thinking. When you give the right guidance, you will get the results you expect!

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