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Manufacturers Should Start Taking Responsibility for Suppliers

Why are businesses with massive supply chains using software based on 1990s paradigms?

Michael Jung/iStock

Honda’s recent recall announcement adds more than 100,000 automobiles to an ongoing wave that has affected most major automakers, including Toyota, Mazda, BMW, Nissan, Mitsubishi, Subaru, Chrysler, Ford and General Motors.

The cause of the recall is airbags built by the Takata Corporation, a Japanese auto-parts maker. When deployed, the airbags — manufactured from 2000 to 2011 — explode with too much force, potentially harming passengers.

It might surprise consumers that so many vehicles, from so many different car companies, are affected by the same issue. But because of the way global trade has evolved, most manufacturing these days is outsourced — often to a handful of standard suppliers.

What hasn’t been outsourced, though, is risk.

When a third-party supplier has an issue, it affects everyone in the supply chain, including the customer. If companies choose to outsource, they’re still obligated to deliver safe, quality products, no matter who handles production. Their suppliers, and their suppliers’ suppliers, are part of their responsibility.

The practice of regarding supply-chain partners as external parties needs to end. They are a vital part of a company’s brand. In the eyes of an increasingly demanding market, suppliers are an extension of the company itself — and companies are accountable for them.

Bearing the burden of quality and safety

A cynic might only see accountability in terms of the bottom line. Well, guess what? Today’s customers demand quality and safety more than ever. Thanks to e-commerce and social media, everyone quickly comes to know if a product is poor, harmful or unethical. And when this occurs, demand drops. Companies are beginning to realize this, and they now broadly acknowledge quality assurance as a top priority. Yet outsourcing still makes business sense, and with outsourcing comes a major loss of control over a product.

High-tech supply chains have multiple handoffs, so it’s easy for a misstep to go unnoticed until it’s too late to adjust. Often, product delays leave customers empty-handed and looking at competitors’ alternatives.

For example, Apple had to slash its target shipment of its new smartwatch from 2.5 million to three million per month to 1.25 million to 1.5 million due to supply-chain issues. Its other new product, the Retina-display MacBook, was also delayed from its planned launch last year because Intel — its CPU supplier — had its own production issues developing its latest “Broadwell” chip.

The bottom line is that what first-, second- and third-tier suppliers do affects companies’ bottom lines. So not only do businesses need to take responsibility for their customers’ sake, they need to do it for their own.

Stepping up to the plate

Last year, General Motors reacted to a factory explosion at Kunshan Zhongrong Metal Products Co. — one of its second-tier suppliers — with a startling blind eye. The incident killed a total of 146 workers.

The response from GM President Dan Ammann? “Our tier-one suppliers on a global basis are required to make sure that they are sourcing from suppliers that are implementing the right safety standards.”

The automaker is not alone in its inability to see beyond first-tier suppliers. A recent KPMG study found that 49 percent of manufacturing executives globally (54 percent in the U.S.) admit they do not have supply-chain visibility beyond tier-one suppliers.

This is eye-opening. Given how important quality and safety are, companies have to be able to track who is producing their goods at all stages. But that kind of visibility has proven elusive.

As it turns out, this isn’t just an issue of corporate responsibility. It’s a technology problem.

Using networks to ensure quality and safety

At the heart of the matter is connectivity and collaboration. Supply-chain partners need to have a good way of communicating and coordinating if they’re going to manage today’s complex issues. Most companies rely on license-and-install software or enterprise-resource planning (ERP) tools for supply-chain functions like creating orders. That technology works excellently within a single enterprise.

But when companies try to use that software to collaborate with dozens of partners — across oceans and continents — each with its own IT infrastructure, the process is anything but reliable or efficient.

The faster a company can react to a supply-chain issue, the less harm comes to its customers, brand and bottom line. So why are businesses with massive supply chains using software based on 1990s paradigms?

The cloud and social networks have changed the way consumers interact. Unlike endless chains of person-to-person emails, social networks collect information in one place, where it’s easy to absorb and react to. Supply-chain technology needs to take a similar approach. Point-to-point solutions are hopelessly inadequate. Supply chains need a rewired communication infrastructure that connects all parties together simultaneously, as a single network. The status quo is analogous to bloated email threads, where it’s impossible to even see who’s involved, let alone unearth a vital piece of information.

Imagine: A single global supply-chain network that integrates different ERP systems, trading partners, and most importantly, data that moves between them. A car company wouldn’t have to rely on its tier-one suppliers to tell it — by a forwarded email — what its tier-two suppliers are doing. Instead, they’d get an update directly through their supply-chain platform, just like a Facebook notification.

With a network foundation, supply-chain visibility can become real, and companies can take responsibility for the quality of their products across the entire supply chain. The quality of goods is not something that should be left to chance. The status quo is unsafe, unacceptable and inadequate. Companies that can embrace new, disruptive technology models, like cloud-based networks, will have happier customers and greater competitive advantage. That’s a win-win for everybody.

Greg Johnsen is co-founder and chief marketing officer at GT Nexus, the world’s largest cloud-based commerce network, on which more than $100 billion in goods is managed for more than 25,000 businesses. Leaders in virtually every sector rely on the GT Nexus platform to automate hundreds of supply-chain processes on a global scale, across entire trade communities. Johnsen is responsible for global marketing at the company, and has more than 25 years of sales, marketing and product-management experience with Silicon Valley technology companies. Reach him @gregjohnsen.

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