Risky Business

A version of this post was originally published by Promo Marketing on December 2, 2011.

I’m often asked which product categories pose the highest risk for causing harm to people and damage to an end buyer’s brand. My typical answer applies a reasonable amount of common sense. It is fairly obvious that products appealing to children or those being ingested or coming into contact with our bodies carry more risk than other categories. As such, you should be very concerned when purchasing toys, food, personal care products and drinkware categories.

While the above items are of primary concern, that doesn’t let others off the hook. Any product category is susceptible to social accountability issues and the resulting scandal from a Fortune 1000 company receiving products that are manufactured in a facility that does not adhere to the UN Global Compact and violates human rights and/or child labor principles.

The more often people ask about product category risk, however, the more I am convinced that product category alone is not the proper way to identify risk. It is certainly a major factor, but you can purchase a low-risk product from a high-risk supplier and find yourself in the same mess. And it’s also possible to buy a high-risk product from a low-risk supplier and get hurt.

There are multiple factors that should be taken into consideration when determining risk. One of the most critical aspects is core competency. When evaluating core competency, ask these questions:

• Does the supplier I am purchasing from know anything about the product, or is the company just good at selecting merchandise at the Canton Fair while in China?
• Is the product category a core competency for the company; meaning, does this supplier specialize in this specific type of goods?
• Does the supplier know where and by whom the product is actually being made as well as what standards of quality and safety are being used?
• Does the supplier have transparency and control of its supply chain?

The reasons questions such as these are important is because there is too much sourcing through trading companies who know a guy who can find a factory that can make it in China. After all, China doesn’t exactly have the best track record when it comes to food and personal care items, as demonstrated in the article “China Seizes 26 Tons of Melamine-Tainted Milk.”

So how does this play out in our industry? Here’s an example: A supplier known for manufacturing writing instruments expands its line by adding mints, personal care items and drinkware to its product offering. This supplier, like many others in the industry, is following a proven path to growing its business. The company can either sell more merchandise to its existing customers or it can develop new products and win new customers—both of which are much more difficult, and expensive, to accomplish. Knowing this, the company adds new product categories to its offering and sells these new categories to existing customers. Unfortunately, this strategy does not grow the overall industry volume through ingenuity or creativeness. Rather, all it accomplishes is one supplier carving into another supplier’s market share, resulting in further commoditization of that product category.

Let’s take the antibacterial hand soaps that you are buying from your best writing instruments supplier as an example of why you might want to instead purchase from a company who has personal care products as a core competency. There are a number of questions a supplier should ask before getting into this product category:

• Is this product a drug?
• Is it an over-the-counter drug?
• Is it a cosmetic?
• Is the item a soap or hand wash?
• Are medical claims being made, and how does this impact the requirements and labeling?
• Where is the product made?
• Are there any restrictions in shipping the product via air if it contains alcohol?

Shouldn’t you know these things before putting customers’ brands on the packaging? And these are just a few of the questions that need to be asked. More can be found in this Guide To The Regulation of Antibacterial Hand Soaps from ISSA—The Worldwide Cleaning Industry Association.

Adding new categories outside core product lines without taking the requisite steps to develop expertise above and beyond how to decorate the product is risky business for suppliers, distributors and their end buyers. Having expertise at manufacturing bags does not automatically make a supplier good at everything else. Each product category requires specific knowledge bases and skill sets. And the greater the risk within the product category, the higher the premium is on how suppliers source. For more on supply chain transparency and control, check out this previous blog post.

The good news is that some suppliers who have added new product categories are actually doing their homework. They have invested the time and resources to understand the requirements for these new products and have developed a new supply chain to meet these requirements.

Even better news is that, every day, distributors are becoming more adept at indentifying risk and valuing those suppliers who actually have core competencies. It’s something to think about as you walk the aisles and see all the new product offerings at The PPAI Expo 2012 coming up in January.

Brent Stone is executive director – operations for Quality Certification Alliance (QCA), the promotional products industry’s only independent, not-for-profit organization dedicated to helping companies provide safe products. A Six Sigma Black Belt, Stone has more than 25 years of in-depth supply chain management experience with extensive expertise in process design, development, improvement and management. He can be reached at brent@qcalliance.org or visit www.qcalliance.org for more information.