It pays to check your suppliers

When cosmetics giant, Estée Lauder, sued Target Australia for selling allegedly counterfeit products from its MAC brand, the retailer disputed the claims. Unfortunately for Target, the “reputable” wholesalers it worked with through its Australian suppliers allegedly operate from the back of a suburban American motorcycle shop.

An increasingly global economy is encouraging more businesses to take advantage of the cost savings of working with foreign suppliers but without the right partner, the complex nature of foreign supply chains and parallel importing potentially can derail a business.

While the Target versus Estée Lauder case is still before the courts, it points to the importance of having good professional relationships with suppliers and understanding how they operate. In Target’s case, it stands by the legitimacy of its MAC products, claiming it sourced them from Australian suppliers that dealt directly with the American wholesalers. The process, known as parallel importing, is not illegal but lawyers say it is a grey area.

“Target believes the MAC product supplied to Target was sourced lawfully by a domestic supplier from a legitimate MAC wholesaler overseas,” Target told its customers via social media site Facebook.

“Sourcing genuine product in this way, a process known as parallel importing, is not illegal in Australia and can result in significant savings for our customers.”

Estée Lauder, however, claims the products are fake and Target, which is not an authorised MAC re-seller, has potentially damaged its brand. It says scientific testing of the products have showed they are not the same formula as the legitimate MAC products, which could potentially could compromise the quality of the product.

Addisons Lawyers partner Karen Hayne says the case proves businesses and consumers should tread carefully when it comes to parallel importing.

“There are lessons for businesses and consumers which arise from this parallel import issue,” she says.

“Basically if you’re not buying from the manufacturer or an authorised re-seller, it seems a bit ‘buyer beware’. “[You need to understand] the ramifications if you’re wrong and it’s fake product.

“Are you getting what you pay for? Are you getting what you think you’re getting at all and is it worth the risk?”

Suppliers can influence some important aspects of your business. These include the quality of products, cash flow, timeliness, competitiveness and product innovation.

When time is taken to understand a supplier’s business, aligning both companies’ expectations is more achievable and misunderstandings are less likely to happen.

Also, if problems occur, a business with a personal relationship with its supplier is more likely to have its products delivered first.

Another company to recently come under fire for its use of foreign made products is the Australian Football League. It was blasted by angry parents earlier this year when it was found that the Sherrin footballs it uses in its children’s Auskick program were hand-stitched by children in India for as little as 12¢ a ball.

Despite having a long-standing agreement with Sherrin that prohibits the use of child labour, a Fairfax investigation found that Indian children, mostly girls, were working up to 10 hours a day, seven days a week stitching the footballs.

Sherrin was subsequently threatened with the loss of the contract after it was hit with a breach of agreement notice by the league.

The AFL at the time told media: “We understand Sherrin is investigating these very serious claims and will continue to provide us with information as it comes to hand. The AFL has strict contractual regulations with licensees and in order to maintain these regulations we have formally provided Sherrin with a notice of breach of agreement while these investigations are ongoing.”

The increased reliance by companies on foreign suppliers and the potential legal ramifications associated when things go wrong could potentially shake-up supply chain structures, Hayne says.

“Perhaps there will need to be a rethink as to how consumers and businesses alike are best protected while still keeping prices competitive,” she says.

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