Importers who have read the reports about quality problems with Chinese products have to be thinking "There but for the grace of God go I." They know that regardless of what they're buying and where they source from, there are times when suppliers just don't do what they're expected to do.
What many importers don't know is that mistakes are not always the suppliers' fault. In fact, suppliers' failure to comply with product specs, customs regulations, and cargo security requirements may have more to do with poor communication than with willful disregard.
To ensure that far-away vendors follow all the rules, say experienced importers, you must first make your expectations crystal clear. After all, nobody can meet expectations if they don't know what they are.
That's not to say that up-front communication is the only consideration; establishing standard procedures and regularly monitoring both product and process are equally important. The best way to get what you paid for is to do all of those things in a respectful and friendly manner. In other words, don't command—collaborate.
IBM listens to suppliers
When it comes to collaborating with overseas suppliers, IBM provides an example that all importers—large or small—might want to emulate. The technology giant does business in 170 countries, and shipments criss-cross the globe as they move between dozens of origin-destination country pairs.
No matter where a shipment originates or is headed, IBM requires its suppliers to meet uniformly high standards. "We expect all suppliers to abide by all of the applicable laws and regulations—import, export, or otherwise—and we state that in all of our contracts and agreements," says Alan Kohlscheen, executive program manager for import compliance strategy.
The word "uniformly" is key: Globally accepted standards and procedures are central to IBM's business philosophy, says Debbie Turnbull, executive program manager for supply chain security.
The company is eager to see common security and trade facilitation standards established across all of the countries where IBM does business, she says. That would greatly improve supply chain efficiency, effectiveness, costs, and speed, and it's a major reason why IBM is a leading advocate of the World Customs Organization's global standard for supply chain security, known as the SAFE Framework.
Among other initiatives, Big Blue has spearheaded the formation of a coalition of high-tech companies that is developing industry-specific standards that will be consistent with the SAFE Framework. One of the coalition's aims, says Turnbull, is to mitigate the compliance burden on suppliers by creating common requirements that would be adopted by many high-tech companies.
At the same time, IBM avoids painting all suppliers with the same broad brush. Even as it promotes consistency in quality and process, the company is sensitive to cultural differences and local business practices. "Our compliance organization has people in seven countries engaged in import compliance and supply chain security," Kohlscheen notes. "We're not in a control tower trying to understand everything. We're fortunate to have the diversity we do have around the globe; it adds to our effectiveness."
IBM also considers a supplier's size and available resources when imposing compliance and procedural requirements. "It really takes a two-way conversation to understand suppliers' capabilities and how you can work with them," says Kohlscheen. "If you take a heavy-handed approach, you may end up adding cost and inefficiencies in your supply chain."
That balance between centralized policy-making and flexibility is apparent in the way IBM communicates its expectations to suppliers. For example, the company has held conferences with its manufacturing and logistics suppliers to discuss supply chain security and regulatory issues. These events are true give-and-take dialogues: Not only does IBM explain its expectations, but government representatives also present their perspectives and suppliers show each other how they are meeting their big customer's requirements.
Despite such comprehensive efforts, and although it's rare, IBM's suppliers still experience quality issues from time to time. That's why testing and verification are built into its supplier management programs. The high-tech leader follows up educational outreach with transaction testing and process sampling to verify compliance with its policies. Compliance teams may check data quality and format as well as the accuracy of customs and transportation documents, even opening packages in some cases. These checks are risk-based. For instance, lanes where IBM has found anomalies in the past often are targeted for review, Kohlscheen says. And if an error should turn up? "We circle back to the suppliers and discuss it with them. In my experience, once you point that out, they are very willing to make changes."
Automation or the personal touch?
IBM achieves its compliance objectives through a combination of technology-supported process standardization and face-to-face communication. While both approaches have a role to play in ensuring that suppliers meet expectations, some companies and industries may favor one over the other.
Import-dependent retailers that impose a variety of requirements in areas like product fit, quality standards, and environmental and social responsibility are finding that automation can be an efficient and cost-effective way to work with overseas suppliers. Apparel makers, for instance, may have dozens of points of measure for a single style; if a supplier fails to measure each of them properly, the product will be defective and the importer will either have to reject it or deal with costly returns and dissatisfied customers. To be certain that suppliers understand exactly what each point of measure means and that they consistently measure it correctly, some retailers are using software to guide them through that process.
One such product is the Quality Management module of TradeStone's retail merchandising solution. With TradeStone, suppliers see a diagram that shows each measurement point for a specific product or style; when they click on each point of measure, they get a close-up view and an explanation of how to verify that measure. This method not only reduces the need for multiple, very costly fit evaluations and the incidence of returns, but it also ensures consistency in high-volume operations with large numbers of employees, says TradeStone CEO Sue Welch. The software's flexibility when it comes to language is another way to ensure suppliers understand what's expected of them: Users can easily configure screens and vocabulary to reflect their preferences.
TradeStone also monitors other types of compliance checkpoints from the design and bid stages all the way through to final delivery. At appropriate points in the product's lifecycle, the software asks suppliers to confirm and verify that they have received required certifications, performed testing (such as Underwriters Laboratories' tests for electrical items), complied with security and customs regulations, fulfilled social responsibility mandates regarding labor and the environment, and met similar buyer-imposed requirements. The process is configured in such a way that the product cannot move on to the next step until complete information has been submitted, Welch says. Furthermore, if there is any deviation from expectations, the system alerts the buyer and identifies any changes in cost, specs, and other requirements that may result."At each point, the system looks for the responsible party to confirm which actions have been done, and if a new date, cost, or classification is needed, it notifies everybody involved," she explains.
Automation is an integral part of the picture for users of the Supplier Management service offered by UPS Supply Chain Solutions, but face-to-face communication and follow-up is the program's hallmark. Supplier Management monitors vendors' compliance with purchase orders,manufacturing, distribution, documentation, and customs clearance requirements. "We act as our clients' eyes and ears all over the world," says Director of Supplier Management Tom Boike. "We take an order's 'temperature,' making personal contact and verifying that it's on time, that quantity and quality are correct, and so forth."
UPS begins the process by sitting down with the importer and small groups of its suppliers to discuss the client's expectations and what UPS's role will be. UPS receives a purchase order at the same time the supplier does; local staff assigned to that account follow the order's adherence to the client's rules using a combination of automated monitoring and personal communication with the factory and logistics service providers. The supplier and the importer also can arrange "events" such as shipment bookings and quality inspections through UPS's proprietary visibility system. If there is a problem, UPS notifies the appropriate parties and works with the supplier to come up with a solution.
Although personal contact and careful application of technology are the main drivers of a compliance program's success, many importers wisely do not rely on friendly persuasion or technology alone. IBM, Hewlett-Packard, Intel, and others write specific compliance mandates into suppliers' contracts to give them the power of law. But UPS may have built the ultimate compliance incentive into its system: "We act as the trigger for payment," Boike explains. "We don't control the money, but we control the documents that enable the supplier to get the money—and they don't get paid if they don't comply."
Perhaps the best advice for importers who want to ensure that their suppliers toe the line is to do everything possible to prevent problems from happening, says Ken Koenemann, practice leader for TBM Consulting Group's Lean Value Chain Practice and an expert in offshoring. And that's essentially what the following suggestions are all about. They may seem fairly basic or even obvious in some cases, he says, but these preventive measures are often overlooked by companies that are more focused on cheap labor than on the potential consequences of their actions.
- Use key metrics and a scorecard system to monitor compliance. Setting up a system for tracking metrics much as you would do in your home-based operation will allow you to assess your offshore suppliers' processes at a glance and will provide early warning when something is about to go wrong.
- Communicate regularly and clearly with your offshore suppliers, and be prepared to follow up. Making periodic visits to suppliers' sites will help you find and solve problems before they affect your ability to profitably meet your own customers' requirements.
- Lay out terms for agreements and partnerships in contractual form. Don't assume that your offshore manufacturer understands what you want—put your expectations and agreements in writing. Specify exactly what you want with respect to quality, cost, delivery, and services, and make sure you do it in clear, unambiguous language.
- Perform due diligence on your offshore suppliers. Find out the facts about their capabilities in such areas as product design, engineering, transportation management, and supply chain technology. It's up to you to do the necessary research to ensure you're getting what you expect—and that you're doing business with a company that can fulfill those expectations.
