If you’ve purchased lululemon’s yoga pants lately, then watch out: the brand has recalled 17% of its yoga pants after an apparent defect rendered them too revealing. The company blamed one of its suppliers—a screw up that could lower lululemon’s revenues by millions of dollars.
Supply chain issues pose a constant threat to brands. Pet food, computers, pharmaceuticals—brands in each of these sectors and many others have been hit by damaging supply chain mishaps. And product recalls are increasing. ExpertRECALL’s Quarterly Recall Index, most recently released in February 2013, found that during the 4th quarter of 2012, companies announced an average of six food related recalls per day. The 552 recalls of FDA-regulated food products announced during the fourth quarter affected some 18.4 million items, including fresh fruit and vegetables, nut products and other foods and beverages.
All this amounts to many potential wounds inflicted on corporate and brand reputations. Consider, too, that the damage can extend to well beyond the brand in question. In the wake of issues at the now-bankrupt Peanut Corporation of America in 2008, confidence in all brands of peanut butter declined.
What should companies do to protect themselves?
First, be prepared. Every organization should have clear policies in place regarding the quality, safety, legal compliance and ethics of its suppliers. Depending on the industry and the type of supplier, that may range from having suppliers sign fairly simple legal forms to ensuring complex monitoring programs and traceability standards. If a crisis breaks, a reasonable person will likely not hold you responsible for knowing everything going on at your supplier. This person will, however, expect you to have taken reasonable steps to confirm that supplier’s integrity.
A policy alone won’t insulate you from perceived responsibility. As part of your crisis planning process you should conduct a threat assessment that includes supply chain vulnerabilities (e.g. contaminated ingredients, faulty parts, manufacturing disruptions, regulatory violations). Make sure you have a solid crisis plan in place that includes tactical plans for the highest-priority threats, including a solid product recall plan. Conduct crisis simulations to identify gaps in your plan when it comes to supply chain. Any company with significant vulnerability to product recalls should conduct a mock recall scenario annually with all internal stakeholders participating, on both the operational and communications sides.
View your major suppliers as extensions of your company, just as your stakeholders are likely to do. The actions of one of your company’s business units, or even one employee, can significantly impact your overall reputation and bottom line. In the B2B world, customers and potential customers typically evaluate you in part based on the organizations with whom you conduct business. Work with suppliers with reputations for reliability, diligence and compliance, since these can reflect positively on your company’s reputation. Conversely, regard a poor reputation on the part of a supplier as a potential dollar-and-cents liability—as it can be costly indeed if things go wrong.
Once a crisis breaks, we have four pieces of wisdom:
- Recognize that you “own” your supplier’s actions in the eyes of stakeholders. Regardless of where legal liability ultimately falls, your customers, consumers and others will expect you to step up to make things right. They want accountability and action, not finger-pointing.
- Don’t let the initial “facts” paint you into a corner. The facts can prove a moving target, particularly when key information is coming from another company dealing with a crisis of its own. To avoid setting unrealistic expectations or having to eat your words, avoid offering conclusions about the cause of a problem or the time required to solve it until you’re really sure.
- Don’t count on your supplier to fix the problem. You will be held accountable for the effectiveness of the actions taken to address and resolve the situation. If your supplier needs help, be sure they get it. If your supplier is making the fixes, check and double-check the results.
- Don’t count on your supplier to communicate effectively. Some suppliers have sophisticated global operations, but many others are small-to-midsize B2B operations with virtually no PR teams and little-to-no crisis experience. If you need them to do or say something, tell them directly; if they need additional communications resources (such as an outside PR firm), consider providing them.
As in any crisis situation, an organization’s key audiences ultimately assign responsibility, so clients and firms should understand stakeholder expectations. Those managing a brand built heavily on integrity and ethics shouldn’t be surprised when customers and others hold the brand responsible for failing to police a supplier’s real or perceived misconduct. A company that sells private-label products should expect to accept responsibility when a supply-chain source causes a quality or safety issue, and the private label company bears the burden of new responsibilities for public recall notification and retrieving those products from the marketplace.
A brand’s ability to influence stakeholder perceptions in a crisis is getting smaller all the time. Yet once set, perceptions are extremely hard to change. Crisis preparation and avoidance are thus central to most companies’ business operations—and not merely when a supplier has caused the problem. The savviest companies are working with their suppliers as a team. Conduct threat assessments together. Create joint simulation scenarios. And make sure your major suppliers have their own crisis plans in place.
lululemon might be the most recent casualty of a supplier–induced crisis. But one thing is certain: it won’t be the last.