I just read a great article in the May 2014 IndustryWeek magazine entitled “Safety in the Supply Chain: No Easy Fix.” [note: if you are not a subscriber to IndustryWeek magazine, you can sign up for free]. The article, which was written by Jill Jusko, focuses primarily on the challenges faced by global brands and retailers who use contract manufacturers from across the globe and highlights various incidents of unsafe working conditions that have led to deaths. It also states that inspections of these suppliers are on the rise.
What I found interesting about this article is that it identifies a fundamental tension that oftens faces many manufacturers. On one hand, manufacturers seek to keep costs down by negotiating with their suppliers or even moving business from supplier to supplier without a great deal of familiarity. On the other hand, manufacturers are dependent upon the quality of the product or service provided by the supplier particularly if the end product fails or is defective in some way.
This tension can cause all kinds of problems. As the article mentions, negotiating a “tough” supply contract might lead to outsourcing by the supplier itself in part because the supplier made promises it can’t keep. In addition, I have seen several situations (particularly in less regulated industries) where the manufacturer’s relationship with the supplier is so limited that the manufacturer has little or no knowledge about the processes that are employed at the supplier’s factory. It is not uncommon for me to here that a manufacturer has never visited a factory of a supplier or conducted any type of audit, but rather, just relied upon the certification given by the supplier.
While in the normal course of business that might be sufficient, if litigation ensues against the manufacturer, it is often necessary to trace everything back to that supplier. For that reason, it is important to continue to monitor your supply chain relationships so that you are not learning about your suppliers for the first time after a lawsuit has been filed.