The recent case of counterfeit parts in the Aston Martin supply chain (tied to non-DuPont resin that a lower-tier Chinese supplier illegally substituted) highlights the need for OEM and tier-one manufacturers to do more in assuring continuity of contracted supply in global supply chains. But what can be done in such a situation where Chinese suppliers will knowingly cut every corner possible to maximize margins if they know they’re not being carefully monitored?
There are multiple approaches to solving the problem. One involves the method Japanese OEM Toyota is taking: tightly controlling the supply chain and mandating the use of Japanese-sourced raw materials (i.e., importing material into the region). But such a model is not always viable from a total cost standpoint, especially if there are additional taxes, tariffs, or duties involved by bringing in raw material from outside the manufacturing region.
Another approach makes more sense – it’s one that high tech companies such as HP have used for years. This involves setting up “buy-sell” organizations as intermediary trading companies, mandating suppliers source from these organizations. The “buy-sell” model has numerous advantages, not the least of which is ensuring visibility into raw material sources and assuring continuity of supply chain (since the venture can also take over value-added areas such as stockholding to assure inventory availability).
In the landmark 2013 study, Re-inventing Direct Procurement, Spend Matters Chief Research Officer Pierre Mitchell observes that in a “supply chain vs. supply chain” world, the chain of supply is not managed very well as an end-to-end process due to silos. Yet by shifting to a model that encourages a “design for supply” approach to direct materials procurement, companies can begin to treat the extended supply chain as a potential asset rather than a source of risk across a range of initiatives including:
- Early Procurement and Supplier Involvement
- Strategic SRM for joint innovation
- Total Cost Modeling and price/cost estimation and forecasting
- Target costing, Quote Management, profitability analysis
- Component / Supplier “re-use” as appropriate, but also use of crowdsourcing / “open innovation”
- Multi-tier BoM collaboration and component sourcing
- Make vs. Buy analysis. Use of third party services / intelligence.
- “DFx”… and the x can be in-house or outsourced
- Multi-tier spend analysis beyond purchased SKU level (e.g., multi-tier demand aggregation for a buy-sell arrangement)
This final point is key. By orchestrating the sourcing of raw or semi-finished material and products for lower tier suppliers in a buy-sell program, manufacturers can greatly reduce supply risk and avoid the Aston Martin case of counterfeit materials from ever cropping up – and even profit from the operation in the first place.