Honest Company’s Laundry Detergent Mess Signals a Major Problem in Business

March 20, 2016, 2:00 PM UTC

Jessica Alba

Though Alba is known for her work on screen, she's spent this year behind the scenes at The Honest Company, the eco-friendly firm she co-founded with Healthy Child, Healthy World author Christopher Gavigan, LegalZoom.com, ShoeDazzle.com founder Brian Lee, and former PriceGrabber.com VP Sean Kane. Its mission of selling chemical-free diapers, wipes, cleaning products, and more has impressed: The Honest Company received $27 million in funding in March from investors like General Catalyst, Lightspeed Venture Partners, and Institutional Venture Partners. Alba seems to have found her passion with this company. "it was important to me to that The Honest Company have a cause component as part of its DNA, engage in environmentally sound practices, and actively communicate with our customer base to deliver the eco-friendly products they most desire all under one roof," she says. "We are a triple bottom line company, contributing to a better world and bigger mission extending beyond business."
Photograph by Theo Wargo — Getty Images

The negative attention that Honest Company’s liquid laundry detergent has received recently serve as a cautionary tale to product producers: a company’s ability to verify how products are made and what they are made of diminishes with the length of the supply chain.

The Honest laundry detergent, which comes with an “honestly free guarantee,” as stated in the company’s web site, came into question when two independent lab tests commissioned by The Wall Street Journal reportedly determined that the product contains sodium lauryl sulfate (SLS). Honest Co. disputes the lab findings, saying its own tests found no SLS, which is used in many household detergents, cleaners, and personal care products, from toothpaste to dish soap.

In the Journal article, Honest said “its manufacturing partners and suppliers have provided assurances that its products don’t contain SLS beyond possible trace elements.” And there’s the rub for product manufacturers everywhere: assurance comes, ultimately, from trusting someone else’s word.

Rather than assuming suppliers are telling the truth or being ambivalent over the difficulty of verifying claims, product producers and suppliers would do well to acknowledge just how limited their quality-control reach really is. Beyond some nearby link in the supply chain, the company needs to ensure someone else is watching those out-of-reach suppliers with an intensity that matches its own scrutiny. Otherwise, there is risk of embarrassment and a loss of consumers’ trust, which for a company that calls itself “Honest,” seems like a karmic black eye.

Complex supply chains, with many links and branches, have been formed in a quest for efficiency, as an MIT Sloan Management Review article noted back in 2010. But with a complex supply chain comes multiple parties, any one of which could be a weak link that causes a widespread breakdown, such as around claims about product composition, quality, and safety.

Supply chain vulnerabilities can be particularly problematic for food and restaurant companies. Chipotle Mexican Grill announced an overhaul of its food safety procedures after an E.coli outbreak in 2015 that was linked to ingredients. The new procedures, meant to reduce the chances of another outbreak, reportedly will make it more difficult for the restaurant chain to source ingredients from small local suppliers that may not be able to afford the technology and other requirements for increased scrutiny.

Another supply chain upset resulted when Volkswagen admitted software was installed to allow 580,000 diesel vehicles in the U.S. to emit excess emissions. The latest development was the departure of Volkswagen’s top U.S. executive, Michael Horn, who has said he had no knowledge of the software installation to circumvent emissions standards. The VW Dealer Council in a statement called Horn’s departure “a serious blow to the U.S. dealer network, the employees of Volkswagen of America, the workers at the Volkswagen plant in Chattanooga, and the entire Volkswagen community.” In effect, the entire VW chain is being impacted by an allegedly fraudulent decision reported by a few individuals in the company.

As these examples show, what occurs at one link in the supply chain may go undetected in another part, but could create huge problems for all. Even if we assume that Honest Co. had no intent to deceive consumers with its detergent, blithe assumptions about suppliers’ actions put reputations at risk. When reputational problems arise, the marketplace will step in to correct them, as consumers shun a product and/or company valuations suffer when investors back away.

This is a sobering reminder not to be easily seduced by claims and assumptions, whether positive or negative. To illustrate, imagine a new family moves into a red house down the street. Soon, you hear that one of the people in the family has a criminal record. Should you believe it? If you hear that claim from someone who lives next door to the red house and you trust that person, you probably would be inclined to believe the information more than if you heard it from someone else who lives next to you (and further from the red house).

Willingness to trust the information is influenced by the number of people through which the information passes. If it’s a friend of a friend of a neighbor down the block, thus far down the information chain, there is no way of knowing if the person is telling the truth or might be motivated to lie for some reason.

The same holds true for a product that relies on a long chain of suppliers, not all of whom might be committed to the same standards in manufacturing or in truth-telling. For Honest Co., if the Wall Street Journal tests are accurate, then at least one link was not telling the truth —weakening trust across the supply chain.

Kent Grayson is an associate professor of marketing at Kellogg School of Management at Northwestern University and director of The Trust Project at Northwestern University.

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