Following up on these two earlier posts (here and here)… I'll quit calling them the “Idiot Corporation of America” since the Peanut Corporation of America is bankrupt and shutting down. I feel bad for those who are losing jobs due to their incompetent management.
Friday's USA Today has an article about the company and those who bought from them.
Starting a bit out of sequence, the Kellogg's people make some lame excuses about their peanut supplier:
Kellogg's recall costs may reach $70 million, the company has said. It purchased up to $10 million in peanut products a year from PCA.
“I think we did everything we could do,” David Mackay, Kellogg's chief executive, told lawmakers. He said Kellogg used common industry practices, but PCA was an “unethical, dishonest supplier” that was prepared to put people's lives at risk. Kellogg has 1,000 ingredient suppliers, he says. It will now do its own audits of those making products most vulnerable to bacterial contamination.
There are two approaches to supplier management, apparently. One: keep your eyes closed and blame them after the fact. Two: proactively manage and select suppliers based on quality, not just price. Kellogg did everything they could do? Everything? REALLY? Isn't it Kellogg's job to manage the suppliers they choose? Or at least choose carefully?
Compare their behavior to Nestle.
Foodmaker Nestle decided against doing business with Peanut Corp. of America after its inspectors found grossly unsanitary conditions at two processing plants, and lawmakers Thursday said that other companies should also have been that vigilant.
Amen to that! Do you hear that, Kellogg? Be more vigilant! Nestle hired their own inspectors and found the horrible conditions (such as holes in the roof and rats). Where was Kellogg?
Kellogg was called “sloppy” while Nestle was responsible:
They (Nestle officials) said, ‘Man, these are bad practices and we're not going to use them,' ” said Rep. Bart Stupak, D-Mich., who chaired the House Energy and Commerce investigations subcommittee hearing on the industry's role in the outbreak.
There's also a Dr. Deming lesson here about not choosing suppliers just based on low price. You get what you pay for. Apparently, this is how PCA chose their inspector (who, again, I wrote about here).
Waxman also says PCA “hired the cheapest inspector they could possibly get,” paying about $1,500 when tougher “gold standard” audits cost $20,000.
Cheapest inspector? Enough said… what else did you expect? Did Kellogg choose PCA because they were the cheapest peanuts they could possibly get?
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We have to be careful though about the fallacy that more money means better quality. Our healthcare costs are reportedly “spiraling” out of control, yet we have severe problems with the quality of care.
To say that a $20,000 inspector is better than a $1,000 inspector is false confidence.
The best approach is a “go and see” visit. Nestle gave us the best example of this practice. This is why the open market works well. Here we have a case of Nestle improving their reputation and instilling confidence with end consumers. Kellogg’s on the other hand, has a lot of explaining to do, both to end consumers, legislators and share holders – for effectively losing $70 Million dollars a potential loss of life.
PCA of course, gets what they deserve, their reputation is so poor, nobody in the market will buy from them. It all comes down to the choices we make and what sort of confidence that instills in others.
We don’t need a “gold standard” inspector to do that for $20,000. A little common sense is worth 100 times that amount.
Bryan, you’re right about better quality not having to cost more.
But, maybe the higher priced inspector is indeed better and, therefore, in higher demand. Maybe their price is a matter of supply and demand.
There’s no substitute for the direct inspection and responsibility that Nestle demonstrated.