JTPP: Risk-Mitigation is All About Finding the Right Partners
By John Walsh
Through
a special arrangement, presented here for discussion is an excerpt of a
current article from The Journal of Trading Partner Practices (JTPP),
the official online publication of the Vendor Compliance Federation (VCF),
the Trade Promotion Management Associates (TPMA), and the Federation of
Credit and Financial Professionals (FCFP).
We are living in an era
of 24-hour a day, as-it-is-happening news that comes streaming to us via
the internet, TV and radio, where recalls of lead-tainted toy products
and salmonella-laced peanut butter receive maximum exposure. Even unproven
allegations receive 24/7 coverage, forcing costly recalls of perfectly
good product and negative publicity that can sink a manufacturer and its
reputation. Combine this with new Consumer Product Safety Commission standards
for lead and phthalate content in products and plastics and manufacturers
have more reasons to get maniacal about product design, strategic site
selection, supplier-risk exposure, managing procurement contracts and implementing
supply chain what-if models that prepare them for disruptions.
Manufacturers need to
be reaching out to reliable and trustworthy partners in their efforts to
develop quality products and a seamless supply chain. After years of sourcing
products on its own, Liz Claiborne decided that the risks (and costs) of
going it alone were too great and it reversed course and hired Hong Kong-based
Li & Fung to handle its sourcing functions. Claiborne’s CEO William McComb said, “Managing
our large, complex sourcing strategies and teams throughout Asia in a cost
effective and brand appropriate manner from the U.S. does not offer the
flexibility we need to meet the demands of our consumers efficiently and
to deliver to them the best designs with the best price-value and quality.”
Given the increased burden
on the company to oversee product quality and factory conditions at facilities
in China and the increased requirements to know which product materials
are being used and where they are coming from, Claiborne decided it was
best to retain a trusted partner for the task. It determined that this
was the best way to reduce its exposure to risk while retaining product
quality.
In a move that underscores
this trend, apparel retailer Talbots is also in discussions with Li & Fung
about outsourcing its manufacturing functions.
Ultimately, having a
risk-mitigation plan in place means having supply chain partners you can
collaborate with. Whether it is Claiborne and Li & Fung, or a U.S.
importer and Chinese supplier, there is little room for error. Managing
your supply chain partners should not be about seeking leverage and advantages,
but about seeking solid relationships. Those who succeed will be those
who implement collaborative risk-mitigation best practices that ensure
product safety and quality and keep them out of the headlines.
Discussion
Question: Do you agree that the way news and
rumors now speed across the media has
increased production risks? Do you believe the best course for manufacturers
is to hire third party sourcing companies? Which should consider this approach
and which should not?
Of course the risk is greater given 24 X 7 new coverage, blogs, social networks, et al. Does hiring the RIGHT third party help? Probably, but it’s no guarantee against the kind of risk created by an “always on” media. At the end of the day, most companies want their goods produced at the lowest supply chain cost and that often means creating conditions Middle Americans would be horrified by.
The risk isn’t greater. The ability to employ “forced ignorance” or to contain the information is almost zero. Top management can no longer keep at arm’s length from what is happening at the local level anywhere they operate. Information is now available anytime from anywhere or anyone. Execs must now assume that information about what is happening at any facility anywhere in the world can become a newsworthy phenomenon at any time. The risk itself and the risk of exposure was always there. Now, however, technology provides tools to make communication of that information a 24/7 possibility.
First, consumer communication has changed. TV, radio and newspapers have all become tabloids. They mostly report items with shock value. Traditional media has become biased on both sides. No longer do they report facts with alternative perspectives. They simply hammer business for even the smallest failure. The Internet is completely unregulated. People simply make things up and tell the world. This puts business on a treadmill to debunk lies.
The supply chain side is different. The herd went to China for cheap labor and material costs. Now the herd is learning all those cost savings are not real. This is what happens when a complete analysis is not preformed for major decisions.
Much of the recall and tainted product would never see the marketplace if they were manufactured the old way. Companies had checks in place and knew their suppliers. Not only did companies lose control of their supply chain, they added the cost of defective product, below-specification product, and long in-transit times. Additionally, companies did not spend the money on quality control.
This affects most every kind of product, food and non-food, that are sourced from somewhere other than the local factory location. A small spice manufacturing company can get the same black pepper SKU from more than 50 countries. Depending upon what product we’re talking about, securing a third party sourcing company may be the only way to get the product in the first place. It’s a requirement, not a choice.
There is no guarantee, however, that someone won’t post something on the internet just to make the news. Frank said it well with the status of the media today. All companies are at risk. With more than 400,000 companies importing goods from China to the US, it is unmanageable at this point, based upon the current supply chain “system.” If there actually is a system. Checking and then consistently rechecking the sourcing of all SKUs is required to at least mitigate the risk. This can be a huge expense, that can offset the value of offshoring. Hence, this is why many manufacturers are now looking at the feasibility of relocating plants back in the country where the product is sold. Even here in the US. Major manufacturers are looking at the fact that sourcing, securing and shipping products is now more expensive than making them. Take out the major elements of cost in the supply chain, and we may end up bringing a couple jobs back to the US.
The recent runs to Li & Fung are not just about risk management/mitigation. Liz, Toys ‘R’ Us, Timberland, Sanrio and others are outsourcing to Li & Fung because it is simply too cumbersome and resource-draining to keep sourcing and production in-house. By outsourcing to Li & Fung, these brands can focus on brand development and marketing while realizing cost efficiencies, speeding up design-to-shelf and yes, managing potential quality and liability problems. These guys basically hand off designs and let Li & Fung do their bidding (literally)!
It isn’t the production risks that have increased but the risks of being caught out with an insufficient level of scrutiny. Granted, as the article says, some unjustified accusations are made (and tend to stick) but, more often than not, they are justified. Not keeping an eye on standards and maintaining high levels of safety can never be justified. Nor can turning (or attempting to turn) a blind eye. Or blaming the media for the message.
In the end, the companies utilizing low-cost country sourcing to gain a cost advantage at retail in the U.S. are solely responsible for product quality and safety. This said, when operating using LCC sourcing in the supply chain, you have to have a trusted set of eyes and ears on the ground at all times, monitoring manufacturing quality to include product and material specifications; zero defect processes, packaging conformance, and assisting with on-time accurate deliveries.