A couple of years ago I wrote how some huge companies were demanding more transparency into their supply chains. I think they are setting a trend that will not get reversed.
However, many companies are not following these best practices. Can KFC, for example, ensure the food they purchase in China is safe if they don’t work closely with their suppliers, all the way down to the farms? Certainly not.
If the KFC people don’t know what farms the produce comes from or what conditions that produce is grown in, it will get back to bite them later. If they don’t know what the processing plants do on the days when there are no announced audits, they will keep suffering scandals similar to that of last year.
Ideally, a company has a view over its entire supply chain, as represented below:
In reality, this ideal situation remains an exception. And companies are aware of the risks associated with it:
One study, conducted by Jabil, a global manufacturing service provider, found that 89% of electronics manufacturers surveyed said they faced challenges with visibility in their end-to-end supply chain. And a whopping 96% said lack of visibility introduced risk into areas of their organizations’ supply chains.
(Source: Quality Progress magazine, published by the American Society for Quality, October 2015.)
What are the downsides of an opaque supply chain?
- Risk of breakdowns (e.g. a critical sub-sub-supplier gets flooded, and no replacement can be found in less than 3 months)
- Risk of bad PR (e.g. when a brand hears that its labels were found in the remains of a factory that collapsed, killing hundreds, even though that factory was not a direct and authorized producer)
- Inefficiencies (e.g. excessive inventory due to lack of communication, or several suppliers purchasing the same components from the same sub-supplier separately even though aggregated demand would result in better pricing)
- Quality issues (e.g. a component is changed without the buyer’s approval and causes failures in the users’ hands)
In case you are not a big company, you will have to make tradeoffs and accept that some key sub-suppliers are not disclosed to you. The alternative would be to source, screen, and qualify every company that is part of the supply chain, and to select the final link (the assembly & packing factory) through the same means.
If you only work on 1 or 2 product lines, this might be realistic. If you are spread thin across many product categories, you will have to rely on your suppliers to manage their supplier chains. At that point you should be aware that it is their supplier chains, not yours…