Supplier Challenges – Perception or Deception

What is really true, how will you ever know? Do you believe everything you are told in a 3rd world country, especially from a distance?  Do you utilize an experienced or untrained eye that regularly adds value to your supply chain (people and product)? Managing your supply chain, one challenge at a time along the way.

General Principles

This issue is about a client who was having issues with product quality, deliveries and increasing price.

  • The challenge with corporations and the people that run or own them is they believe that their suppliers are gold and do not need any management or transparency.
  • Another challenge is the client may have already established relationships and credit terms with this supplier and not have any secondary suppliers or factories to replace this supplier/factory with the same credit terms.
  • Then there is the issue of too many excuses, the lack of knowledge of their supply chain; financial obligations; and commitments.

To understand what was happening, it is best to build a relationship with that supplier based on sharing intelligence, management, and Kaizen business models.  It is recommended that you meet with your suppliers on a weekly basis; as well visit the actual factories frequently (2 – 4 times during production) to establish transparency and trust.

Recommended Remedies

Your job is to act as a detective, look for inconsistencies that could not be found by a local person concentrating on a single job.  

For many suppliers it was a matter one or more of the below offences:

  • Illegal outsourcing (sounds simple but its not, as the product you are inspecting is at the factory who was approved to make the production, so now you need to be able to read between the lines to discover the inconsistencies).   I have caught many factories with variances that didn’t make common sense. When confronted properly, they will admit it was outsourced.
  • Hiding changes in raw materials and trims to save on costs
  • Utilizing a factory that did not have the expertise or experience to make this type of products (This is a continuous problem as the supplier/factory does not know their strengths, weaknesses, and faults).
  • In addition, buyers allocate production to unsuitable supplier/factory due to limited vendor options, established credit terms, lack of knowledge of the prospect supplier/factory.
  • Not having the proper compliance to meet the standards of the western buyers (Unfortunately western compliance is strict for a reason but not many can pass an honest compliance inspection, as humans and businesses we all have faults).

Case Study

Unfortunately, with this one supplier, it was a big investigation as it involved another agent who was very dishonest, misleading and conniving.   There was a lot at stake as we had placed millions of dollars for delivery with that supplier. The issue was that a lot of this production was placed with factories in another province (state) using another agent who had relationships with the factories and spoke the local dialect (language).

One of the main challenges was not to disturb the broken (unauthorized) supply chain; trying to figure out how to work with the factories to ensure they delivered quality products in a timely manner.

Once this was achieved, I could move on to working with the secondary agent on responsibilities and deliverables. But this was impossible, as they did not want to be accountable; it baffled the main agent and me.   In the meantime, I needed to work with the main agent on the removal of this illegal second agent by building a transparent direct relationship with all the approved factories.

It was a struggle to stop using this secondary agent as they were claiming ownership of all the factories. I ended up discussing this in detail with the owner of the company (buyer), and we decided it would be best to go to the head office of this secondary agent (100+ employees) and meet with the managing director and staff managing the products and programs. We went with our main agent (5 employees).

The conversation was a lot of pointing fingers, proof of the secondary agent’s lies to conclude that we will cease business with this secondary agent and all their factories, but we needed to ensure they could complete on all orders on hand in a professional manner.

We advised our main supplier of our strict rules of conduct and compliance. I read them the riot act then continued to do business with them. It baffled me but it was not my ultimate responsibility.

After this incident, I later caught the agent outsourcing production to another agent and reminded him of the repercussions, from past actions and the fact that it is illegal to outsource to secondary agents/factories.  

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