40,000 Sick Kids and Counting -- China Must Get Serious about Supply Risk

I live in a country that's full of hypocrisy. A capitalist society that socialized more for-profit institutions in a single week than Lenin did over his entire reign; a President who can't spell free trade yet supports it (when running for office); a Presidential candidate who plays the race card when campaigning to Lakeshore liberals in Chicago -- my neighbors had him speak at their house during a fundraiser and the specifics are a fascinating study in and of themselves -- yet then has his attack squad plant stories about how his potential loss could only be the result of racism. In other words, don't get me started on hypocrisy in the US. It's bipartisan and disgusting.

Fortunately, back in the States, few people die as a result -- especially not innocent children. We can't say the same for China. The latest supplier quality scandal to hit China is further proof that China, as a society, still tolerates abhorrent business practices that can lead to maiming and death for those whose only culpability is buying a product in an increasingly consumer driven society. Ironic, given China's free market embrace, isn't it? Sure, the government can arrest and shoot all of those associated with such an event -- as they will do -- but the intolerance of such behavior in the first place must come from the people, not the government. Chinese business culture must acquire a moral compass on the back of their profits -- not based on the threat of execution.

Consider the specifics of their latest supplier quality scandal. This is no accidental mistake. A supplier substituted the chemical Melamine, "commonly used in coatings and laminates, wood adhesives, fabric coatings, ceiling tiles and flame retardants" in products containing raw milk. Melamine is a byproduct of the plastics industry and "can be used to mimic high-protein additives," hence why it was used where milk was called for in a recipe. The result is that "China's Health Ministry said Sunday that about 13,000 children were hospitalized, while another 40,000 had undergone outpatient treatment for illnesses related to suspected melamine-tainted milk products." Four children have died from these tainted milk products. And a painful death it was.

According to CNN, "Health experts say ingesting melamine can lead to kidney stones, urinary tract ulcers, and eye and skin irritation. It also robs infants of essential nutrition." And if you recall, "Melamine is the same industrial contaminant from China that poisoned and killed thousands of U.S. dogs and cats last year." Even Nestle, a company that invests significantly in supplier quality and performance, is tied up in the scandal. Apparently a sample of their Dairy Farm Pure Milk tested positive for low-levels of Melamine in Hong Kong.

So what's the cure for what has amounted to a continuous supplier quality problem in China that puts profit ahead of all morals, of all ethics? From one who strongly disagrees with the concept of the death penalty, this is clearly a situation where past executions have had no effect on current business practices. So scratch the firing squad solution. What about technology? It’s too easy to game supplier performance and risk evaluations when there's insufficient data, so that wouldn't be much help either. Rather, Chinese society must stop tolerating this type of behavior at the core. Managers and workers must 'stand-up' when they suspect something is amiss. And Western companies doing business in the region should back-up their product specifications with frequent sample testing -- and let their suppliers know that such testing is going on. While we can't drive the solution, the Chinese -- like all peoples in a free trading world -- will at least respond to the threat of losing business.

- Jason Busch