The crisis at Nestle India was a sad story of an all rounded systemic failure. It hints at gross negligence and irregularities. On Nestle’s part, the failure seems to be in not complying with food standard regulations and on authority’s part, the failure is in not creating a rigorous method to keep a check. Generations have consumed Maggi and the current saga is only a betrayal of their trust.
The ability to both respond to and check such a deep systemic failure requires an equally strong systemic approach. A knee jerk reaction of issuing statements (many of which appear very irresponsible in the current context), initiating a full- fledged PR drill or blaming the endorsers is far from sufficient to contain the damage.
The challenging aspect is that in an age of consumer awareness and empowered media, more and more such incidents will get reported and regulatory pressures shall only mount. The good news is that a well thought out deployment of IT and digital technologies can help businesses to comply and even deal with what can be aptly termed as the Maggi Muddle.
I must state my assumption here; I believe the producers and regulators are conscientious in their approach and such incidents happen only because of the evolving nature of the system. If it’s otherwise, I don’t think this discussion is relevant.
While I was thinking of how a systemic approach be created to both avoid and manage the damage, I recalled my interaction with the CIO of an auto major. I vividly remembered his argument that IT must strive towards the cause of protecting consumer interests and dealing effectively with the increasing regulatory and compliance pressures. The compliance pressures will impact companies across sectors, e.g. banking, telecom and insurance are already regulated and healthcare regulations are evolving. It will soon spread to even the manufacturing domain. The businesses will need to embrace IT and more specifically the new digital technologies in order to be able to deal with the demands of compliance for protecting consumer interests.
Mass level recall of faulty products may be required in case of issues with compliance. This may prove to be a futile and a very costly exercise if the ability to trace back the faulty products (using their batch numbers) to the production system and the entire supply chain, which it came from, is lacking. The biggest damage is to the consumer trust, which requires years to build.
Businesses need to prepare themselves through use of IT and digital technologies. I feel there are three big areas where applicability of IT and digital will prove to be of relevance, both to avoid and deal with the kind of situation Nestle is in today (this is in no way a comment on the preparedness of Nestle, something I am personally not aware of).
1. Digital for building systemic control
A gap generally exists between the operational system (OS) and the information system (IS). Many operational procedures may be carried out using digital machines but their parameters as a measure of the process are fed into the information system manually. In fact many activities may even be done using non digital machines, e.g. counting the number of output units or weighing the input raw material are noted and fed into the IS later. Many other aspects like the operating conditions, processing details etc. are not even fed into the IS from the OS. In fact that data is not processed in any way as it’s not part of the main IS. Though the digital operating technology may be leveraged from an automation point of view, but remains underleveraged from an information point of view.
The chances of any discrepancy remaining undetected are high and even if detected, it is at a later point in time. Moreover, visibility into what caused the discrepancy remains missing as the data is simply not there.
A gap also exists between the principal manufacturer’s system and the partners’ systems. The situation becomes even more complex when fully processed or semi processed parts or ingredients come into the enterprise system from the outside vendors. Many manufacturing companies are today relying on contract manufacturing and suppliers ecosystem. How do they extend their systemic capability to cover the ecosystem partners? That’s a tricky situation as partner firms may have different level of digital maturity. Well, the least which can be done is create data interchange on critical aspects of the contract manufacturing output. Eventually the partner firms must move up the digital maturity capability and the principal vendor has to take this agenda proactively.
Digital OS and an integration with the IS, both from internal and ecosystem point of view, is a must to build a robust system for assuring quality and complying with regulations. The integration must create a systemic control to detect discrepancies in real time, analyse the operating conditions in which the discrepancy happened and create visibility into the production and supply chain from which the faulty product came (in case the recall happens).
Today the systemic control is either missing or is very weak.
The systemic control should provide a real time visibility into the man, machine, material, method and measurement dimensions of the situation. This may provide the ability to trace back each product unit with the entire history of its production context and supply chain journey.
2. Digital for building systemic intelligence
When operational processes are digitized end to end and linked with IS, both within and outside the enterprise boundaries, vast amount of data is generated regarding the operations and the operational context. The processing environment, machine conditions, operator details, method followed, input variables and output metrics create big data, which if analysed and leveraged can build predictability into the system.
The ability to analyse and predict real time based upon operational big data is what creates the real information leverage of digital operating technology. It may start as a standalone analytics exercise, where data is culled and modelled for seeing patterns, but over a period of time it must get embedded into the production and operational processes for an automated systemic leverage.
3. Digital for building systemic transparency
The regulatory environment will demand more and more transparency into the production and supply chain ecosystem to ensure compliance. RBI today demands real time visibility into banking operations for it to control any financial irregularity, which may impact the customer negatively or keep systemic abuses like fraud and money laundering into check. This includes aspects like whether the loan disbursement is as per policy and there are no vested interests or KYC compliance is adhered to in reality. RBI systems are integrated with bank systems for an automated data flow on key parameters to be able to ensure compliance.
More and more industries will see the regulator creating such systemic control at the industry level by linking their system with the manufacturers’ systems to get real time visibility into degree of compliance. Businesses need to adequately gear up for a situation when the regulators will want automated data flow from individual businesses’ systems to the regulator’s system.
Management vision and conscientious approach on the part of the manufacturer and political will and enforcement infrastructure on the part of the regulator are equally important dimensions for protecting consumer interests, alone digital may not be able to do so. But once they are in place, digital can really create the capability to create a proactive system, both at the individual manufacturer level and at the industry level.