New sourcing tricks for better quality

Going back through the supply chain, finding exactly the component, ingredient or packaging that fails regulation, or checking every stop in the supply chain for a possible breach in security from procurement to end-consumer - product recalls are possibly supply chain managers' largest nightmare.

It has however, happened to more than one company in 2007. The year was a particularly harrowing one for the world's largest manufacturing base China, whose products seemed to be making the trip back to source nearly half as often as they travelled to the end-consumer.

Mattel, for one, was in the media spotlight for allowing lead-tainted toys to pass through the supply chain and into children's hands (and mouths) all over the world. Pushed by the company's own initiative to get to the source of the problem and save their brand as well as a public outcry from concerned parents all around the globe, the problem of quality controls in China-made goods surfaced and was devoured by the media.

A Mattel spokesperson previously told Procurement Asia that while the company enforces paint and product to be tested, "if vendors and their subcontractors had adhered to our procedures, we would not have had this issue".

This points to an interesting occurrence in some companies supply chains - that buyers sometimes source from distributors, or "vendors and their subcontractors" instead of sourcing and qualifying the manufacturer itself.

Noting that this happens more often in China, Colin Airdrie, managing director of the Logistics Bureau Asia believes not all buyers are aware that they have been dealing with merely a distributor and how this could have serious repercussions on the company's supply chain.

"It is absolutely true that sometimes purchasing managers sourcing from a distance may be unwittingly led to believe that the party they have engaged is a supplier when they are actually distributors," Airdrie says.

It is also more likely for quality issues to arise when sourcing through a distributor, Airdrie says, because the responsibility to make sure quality specifications are adhered to falls on the distributor and not on the organisation or the manufacturer.

"This distributor will not only have a different relationship with the manufacturer than you will, but will also be driven by different agendas than your own," he says.

Airdrie explains that the distributor would be focused on moving volumes through his operations - this means it matters less to the distributor if one organisation's order slips past his operations, or if quality standards slip by uncheked.

The sourcing organisation's agendas, on the other hand, are more likely to be aligned with the suppliers, he states.

"This is because the manufacturer, upon receiving a company's specifications, would have to spend time and resources tooling up their machinery to fit those specifications, and would therefore rather have the same specification moving through their production line for longer," he says.

"The same goes for the buying organisation, which would rather look for a long-term supplier so that quality, price and expectations are consistent."

Discrepancies in quality can affect a company's brand in the short run, resulting in short term loss of sales, but if the problem is severe, organisations have to invest as much as millions in reverse logistics, including staff to execute it.

Further, doing tests on products that have failed quality audits can take any time from eight weeks to 12 months, not just blowing the organisation's budget for testing but also throwing a spanner into its time to market.

It is because organisations run this risk that Airdrie suggests they deploy a team or have a third-party representative on the ground to physically audit the supplier and do site visits.

"You cannot source offshore without a team from your organisation visiting there. It is important to have some representation - either from your own company or a third-party - that can protect your interests," he says.

The all-important checklist

Mistakenly sourcing from a distributor does not happen to Verigy, a semiconductor testing company. Choo Lip Wei, director of procurement says while he is aware of the situation, the company does not experience it.

"Perhaps one of the reasons why we don't encounter this problem is because we always deal with big, reputable companies," he says.

"To avoid sourcing from a distributor, you have to invest some time and effort to visit their plant."

Choo says this is standard protocol for Verigy. "Visiting the supplier at the site, a buyer can come away with a good idea not only of the quality of the supplier's goods, but also how responsive he is. This will help should the buying organisation need sudden changes."

More importantly, sourcing specialists will bring along a Verigy-created checklist to qualify suppliers against. These are based on several key elements: technology, quality, responsiveness, delivery, cost, environment and business - whether the company has bad credit rating or if they are involved in any lawsuits or scandals.

It is important for companies to make sure all suppliers, large, reputable ones or smaller, possibly cheaper alternatives; those supplying crucial raw materials or stationery, to pass this audit before commissioning them, Choo says.

"All products and services should go through the same audit, whether sourcing for paper or high-end goods. A lot of the time organisations find themselves in trouble in terms of quality or time-to-market when they fail to spend time and resources fully qualifying the supplier of these products."

Apart from ticking off a checklist, companies will do well to find out as much as they can about their prospective supplier, especially if the supplier has its own quality measures it benchmarks itself on.

"It is also important to see if the supplier has a technology roadmap or quality processes. Suppliers that are certified with the ISO 9000, for example, and have good processes are likely to be able to fare well when it comes to delivery times," Choo says.

Like many companies, Verigy, with an annual spend of US$200-US$400 on materials, is in the process of shifting its supply base from Europe and the US to China, in the hope of tapping on more cost efficient raw materials and wages.

He however cautions buyers looking to source from China to be certain that the low hanging fruit is of the same quality, and service is just as acceptable as the organisation's suppliers from Europe. "It is only profitable to go into a low cost country to source if the product is of comparable quality or better than the original sourcing location."

Choo understands that even if an organisation is backed with a checklist, sometimes the buying organisation will lose out because it lacks resource or size. "When small companies do not have the size or scale to purchase from large reputable organisations like Foxconn and Flextronics, it is unlikely that these suppliers will meet with them at all, leaving them to source from smaller, less established companies."

Finding the right fit

More important than getting a supplier with the best quality, is finding a supplier that shares the same work ethics and motto, Choo says.

"A right fit between a supplier and buyer is like a marriage. Sometimes big corporations tend to work with big corporations and likewise with the smaller companies. This is because the buyer and supplier are likely to have similar expectations, standards and quality.

"As clichéd as it sounds, buying organisations have to match the mission, vision and objectives of the supplier company - what the company believes in, where it wants to go, how it perceives itself in the next few years."

This means having to re-qualify and re-assess the supplier's goals alignment with your own organisation's every few years, Choo says.

"Two companies may work together very well for the first few years of the relationship, but after awhile sometimes the collective consciousness of one of the company shifts - perhaps due to the introduction of a new CEO or changes in corporate objectives - then the right fit may start to diverge," he says.

The re-qualifying process for Verigy is a yearly affair, during which Verigy draws up a new set of metrics to get the supplier to give them better quality and responsiveness. Choo believes this is important for every company to do because organisations need to respond and adapt to changes in the market.

At the end of the day...

China is still the manufacturing womb of Asia, despite the quality issues it has been recently under fire for.

Charlie Chase, business enablement manager of manufacturing and supply chain global practice at SAS, believes that these are merely teething problems every developing nation has to go through.

"This is very normal for a country that is becoming more industrialised and becoming more global," he says. "They are not likely to have many of the quality controls that other more matures countries have in place.

"As a result, many of these product recalls happen. People may feel uneasy purchasing from China, but people also have a short memory," he says.

However, problems with quality from China or other emerging markets may be rectified by more pro-active collaboration from the sourcing company, as Philips Electronics does.

Milkha Singh Dhaliwal, strategic manager of purchasing at Philips Consumer Lifestyle says one of its supplier development programmes include sourcing and qualifying suppliers that are perhaps not up to best-in-class standards, but still have good potential.

"When you buy from China or other emerging market, you're always taking on some risk," Dhaliwal says. But instead of sourcing for alternative sources in the emerging market or commissioning more expensive suppliers from Europe or the US as many organisations do, Philips puts in resources into developing these suppliers' capabilities.

This is beneficial to the supplier as well, Dhaliwal says, as with cooperation from the buying organisation to develop the quality of the product, the supplier gains credibility in the market as producing good enough quality to produce for a respectable brand.

While it seems like a noble idea and a small step toward elevating the quality of China-made products, Dhaliwal says this highly depends on the willingness of the supplier to have their products be developed.

According to him, the supplier may not want to invest in developing their product with the buying organisation because this involves a considerable amount of investment. They sometimes would rather drop the order, concentrating on the product quality they have at the moment and supply to other organisations that are not particular when it comes to quality.

Nonetheless, most of their suppliers are appreciative of Philips's efforts to develop them and not simply seek a different supplier. Dhaliwal's personal opinion is that supplier-hopping is not a good strategy as the buyer will spend a lot of time sifting through substandard quality and testing procedures.

"A better way is to find the best supplier out there and work with them. This means a company should invest resources to building up their capabilities. This way, the organisation builds a long term relationship with the supplier and helps foster trust between the two," he says.

Developing the supplier is a strategy that is increasingly employed by the larger brands across the world, according to SAS.

"What we're seeing in the organisations globally is the push to set up their own quality departments in their manufacturing sites in China and other emerging markets," says Kiat Hong, who heads up the manufacturing and supply chain division at SAS.

"They are putting in the right processes whether it is adhering to governmental regulation standards or their company's own assessment criteria," he adds.

A common mentality is for buyers to source products from many suppliers in emerging markets, and this means jumping from one supplier to the next should the product be substandard. Dhaliwal believes that not only is this time consuming and cost inefficient, but will also earn the sourcing company the reputation of being a short-term customer.

Apart from developing the supplier, Philips tries to maintain good relations with their supplier by recommending them to other divisions in the company, thus increasing the supplier's orders.

For example, Dhaliwal manages the mains cord purchasing in the company, which is needed by nearly every department under the Philips umbrella of products. In this case, Philips consolidates orders from across the products for better leverage with their mains cord suppliers. These suppliers, now with more orders from one company, is more likely to service Philips better in the hopes of repeat orders.

This is also a part of Philips's wider strategy to reduce the number of suppliers it employs, and beef up its current number of suppliers.

Detecting slippages through the chain

While the buyer or supply chain specialist in the company has a responsibility of qualifying the supplier in order to nip problems with quality in the bud, sometimes discrepancies may slip by unnoticed by the naked eye.

In these cases, there are tools in the market to monitor the product and make sure quality is consistent as it moves along the chain, Chase says.

According to Chase, quality checks can be done during the manufacturing process with better visibility throughout the chain. These can come in the form of weight assessments - for example, if a shipment of goods comes into the warehouse or distribution centre that is lighter or heavier than the acceptable weight range, then the solution in place should be able to detect the change and provide real-time indication to the product manager that somewhere along the line there has been a slippage in compliance. The production manager can then stop production to conduct checks before it goes further along the chain.

"Sometimes you can't see a problem in the material with the naked eye. You need the assistance of analytics that capture important data so that you can see the irregularities - even as slight as weight - that give an indication that something went wrong in the chain.

"This way, the supply chain manager can predict an issue before it gets too far into the chain or worse, into a customer's hand."