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Focus: Sourcing/Procurement

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From SCDigest's On-Target e-Magazine

- July 29, 2014 -

Supply Chain News: Procurement and Sourcing News Round Up for July 29, 2014

Johnson Controls Gets Its First CPO; McDonald's, KFC, Hurt by Meat Sourcing Scandal in China; Is It Time to Look at Myanmar for Sourcing?

SDigest Editorial Staff

Johnson Controls Gets First Chief Procurement Officer

Johnson Controls, a $43 billion maker of energy control, automotive and other industrial products, has named Michael Bartschat its first chief procurement officer.

SCDigest Says:

KFC lost substantial market share in China starting in 2012 when it was revealed some of its chicken contained sky high levels of antibiotics.

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The company said Bartschat will "optimize cost and value" of purchased materials, products and services. There will also be a focus on supporting the company's on-going transformation to a "true multi-industrial through operational and manufacturing excellence across its business units".

Bartschat will report to Bruce McDonald, executive vice president and chief financial officer, who said: "While procurement has always been a focus at our business-unit level, under Mike's leadership we are committing ourselves to building a world-class global procurement function to leverage our combined reach and spend.

"This new role brings key strategic capabilities including global sourcing and procurement operations and will enable the introduction of common systems and processes across the organization."

Bartschat joined Johnson Controls in 2004 and most recently served as group vice president and general manager of product group metals and mechanisms, Automotive Seating at Johnson Controls.

KFC Burned by China Suppliers Again

US companies McDonald's and KFC, a unit of Yum Brands, were both caught up in a food quality scandal in China, after they were found to be sourcing meat products from a company shown on Chinese video to be improperly handling the products.

Chinese TV video showed a processing plant of Shanghai Husi Food Co.- a division of US-based OSI Group - which was upsetting to consumers to say the least. The video showed workers picking up and using meat from a factory floor, as well as mixing meat beyond its expiration date with fresh meat.

This is the second time KFC has been hurt by meat supply scandals in China. For years delivering stellar financial results, KFC lost substantial market share in China starting in 2012 when it was revealed some of its chicken contained sky high levels of antibiotics. Just as KFC was starting to finally recover from the PR disaster, now comes this latest bad news.

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OSI execs are now in China, handling what has become a PR disaster. Initially, the company characterized the problem as an isolated incident, but a preliminary investigation by the Shanghai Food and Drug Administration showed otherwise. Authorities have announced the seizure of more than 1,000 tons of meat products from OSI facilities in China and called what had been going on at Shanghai Husi organized and planned, not the result of some individual's discretion.

OSI has now recalled all products produced by its China division. McDonald's in Japan also said this week it would stop doing business with Shanghai Husi Food Co.

Time to Look at Myanmar as Sourcing Location?

Myanmar (formerly known as Burma) is a Southeast Asian country that some US companies are looking at as a sourcing location.

That after US sanctions prohibiting doing most business with Myanmar were lifted two years ago, coming after something of a civilian government is now in place following years of military rule.

In June, Gap stores announced it would become the first US company to sign an apparel deal with the country. Previously, Coca-Cola Co. started producing soda in Myanmar, pledging to spend $200 million there over five years.

Myanmar is said to be a potential source of many commodities as well, from oil and gas to agricultural products and minerals, in addition to manufactured goods.

Wages are cheap - about $25 per month, though Gap says it will pay factory workers about $110 monthly.
The country is expected to see 7-8% annual economic growth for the next decade, as other multi-nationals look to Myanmar to combat rapidly rising Chinese wages. But, estimates are that only 30% of the 55 million people living in Myanmar currently have electricity.

The country lacks a minimum wage law, which could potentially lead to trouble with perceived labor abuse in the extended supply chain.

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