Consider this: If you don’t know who’s making your key components or product itself, or even where they are, how can you be sure that your product will be of acceptable quality or compliant with market regulations?
More importers than you might think do not have visibility over their supply chains, and there are a number of reasons for this.
Renaud and Adrian discuss how to improve your visibility over your supply chain. You’ll learn why new regulations are making this more important than ever, the risks of not knowing who is supplying your or your suppliers, and some actionable steps you can take to improve transparency and control.
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🎧 Increasing Visibility Over Your Supply Chain 🎧
00:00 – Greetings & Introduction to today’s topic: how to increase visibility over your supply chain03:05 – Does everyone know who’s in their supply chain?
Many buyers purchase products off-the-shelf from suppliers, maybe to white label, and have no transparency over who is in the supply chain or even where it is assembled. They may never even have visited the supplier they’re buying from in person either. Just having ‘a supplier’ with little knowledge about them or the wider supply chain is becoming riskier for importers.
05:18 – Background: Regulations coming into action requiring more supply-chain visibility.
In the US products can’t be put on the market where people from Xinjiang are involved in the supply chain, even producers of raw materials or factories with workers from that province that are far away from West China.
In the EU, also, regulations are coming in from 2023 that forbid forced labor or modern slavery practices in the supply chain. All hard goods in the EU will also need a product passport soon that can be scanned and will give consumers and market surveillance authorities to get information, including that of the supply chain, so there’s no hiding.
Other regulations that will make importers need more transparency over supply chains are those that require eco-design and sustainability from new products.
Compliance with these is now becoming critical rather than just ‘nice to have.’
11:29 – Real examples of people we’ve worked with at Sofeast who suffered problems caused by a lack of visibility over their supply chains.
At least around 30% of problems suffered by buyers with a supply chain in China stem from a lack of visibility over it. A recurring issue is in surface treatments. The supplier often outsources the surface treatment and they hide who does it as they see it as a business secret. Suppose they change to an inferior plating company, for example, and there are some problems, such as a different alloy has been used that is outside of your specifications. In that case, you will never know what the reason for quality and reliability failures is when, in fact, it’s because a different sub-supplier is being used without your knowledge. This makes it hard to avoid problems like this, or even find the cause of them!
14:06 – Do Chinese suppliers often try to hide supply chain info and why?
It’s common because in China they consider their business network to be a valuable resource that is not to be shared with customers. Rather they deal with them and benefit from their network. Oftentimes, supply chain information is deliverable that customers pay for, but Chinese suppliers would often prefer to keep this information to themselves. At Sofeast when we’re employed to source suppliers and products for clients we provide this information so they have a transparent supply chain.
19:18 – The drawbacks of NOT having visibility over your supply chain.
- You will suffer from more unwelcome surprises because if you don’t have visibility, you don’t have control. An example is when auto companies suffered from a lack of parts following earthquakes in Thailand and the Tsunami in Japan that affected sub-suppliers they didn’t realize where in those areas, or due to the 2020 lockdown of Wuhan and Hubei province which caused the same. Sometimes even Chinese suppliers didn’t know that their own sub-suppliers had suppliers in affected areas. So as the buyer it’s your responsibility to do thorough due diligence over your supply chain to avoid this from happening.
- You are at risk of very bad PR. Brands with products being made in factories that burned down or collapsed, such as the Rana Plaza in Bangladesh, didn’t actually know that their products were being made there, but they suffered from very damaging bad press due to this. Subcontracting and keeping supply chain details secret can cause this and should be avoided.
- Product quality issues are probably going to more common. If you don’t know who is making what in the supply chain, how can you pinpoint where issues are coming from? Also, if your supplier knows you don’t have visibility, they’re more likely to subcontract to companies that you have not vetted or may use suppliers of similar materials or components that are not tested and, therefore, not compliant. Sometimes the first time you know there’s a problem is when customers suffer from failures when using the product. Quality problems can cause shipping delays, higher costs, and PR issues.
- Production will be more inefficient. For instance, you will not know if a supplier or sub-supplier has a low inventory of a required product or component (because you don’t know who they are) which makes it hard to plan production as you may have to unexpectedly wait for a new batch to be manufactured at the last minute, delaying your entire project.
31:19 – Best practices that will help you have better supply chain visibility.
- If you’re developing your own products: Take time to identify and qualify at least critical component suppliers yourself rather than leaving it to a supplier who may keep this information a secret (companies like Sofeast can help do this on the ground in Asia for you) as it’s not that much extra work. Require your main supplier/assembler to use only these sub-suppliers and keep the Bill of Materials open to you.
- If you’re buying products off-the-shelf: It’s a more difficult situation, but if you buy larger quantities you may be able to negotiate more transparency from the supplier (less likely in China).
- Confirm that you’re buying from a manufacturer rather than a trading company: That will give you more transparency as a rule, as many trading companies don’t give you supply chain info as they are claiming to be the manufacturer themselves.
- Have a manufacturing agreement: This agreement should make it clear which sub-suppliers can be used and that no unauthorized subcontracting is acceptable. You should also retain the right to send in representatives or auditors from a third party company to check on the supplier’s actions at short notice. Clarify that no manufacturing processes are to be altered without your permission.
38:18 – Wrapping up.
- 8 Elements of a Low-Risk Supply Chain in China [Webinar]
- How To Push a Chinese or Vietnamese Supplier for Supply Chain Transparency
- How To Qualify A Contract Manufacturer Or Component Supplier [Podcast]
- Developing New Products? Which Suppliers Are The Right Fit For You?
- Have You Revised your Supply Chain Risk Analysis?
- 6 Steps and 1 Key To Reduce Subcontracting Risks in China
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