Partner with suppliers to cut supply chain risks, expert advises

12 July 2015

Suppliers and manufacturers should be partners to reduce the risks of an increasingly diverse and globalised supply chain, according to an expert.

Global consulting firm Strategy& said the recent recall of millions of automobiles due to defects with airbags from supplier Takata, highlighted the issues that come with the reliance on an increasingly lean supply chain.

Reid Wilk, a managing director at Strategy& who is focused on the automotive and industrial sectors, said manufacturers and suppliers needed to consider whether, in an age of global platforms, systems and standards, it is appropriate for them to work in an arm's length relationship model.

“In the automotive industry, materials cost is between 50 per cent and 70 per cent of the cost of the product,” said Wilk. “Managing your supply chain is absolutely imperative given the percentage of the product created by your suppliers. Supplier partners are critically important to the success of your product.”

A partnership approach is beneficial to both parties said Wilk, and the focus should be on working together to reduce the possibility of recalls and ensuring there is a proper process in place to deal with them if they are necessary.

“No supplier is really big enough to survive the full liability of a major recall,” said Wilk. “You’ll never get to ‘zero defects’, so the question you should be asking is ‘what process should I put in place?’. People need to be pragmatic and work together to solve these problems, a supplier can’t back stop 10-15 years of parts.”

Wilk said the best manufacturer/supplier relationships involved close working from an early stage, but there were key questions businesses should consider.

“Suppliers and OEMs (original equipment manufacturers) should ask themselves, can I design the product correctly? Can I make it correctly and consistently? How do I deal with a breakdown, and monitor and prevent, or contain it quickly?”

“You have to have redundancy in the system, you have to monitor people’s performance and then you can begin to hold people accountable, and you can help each other if there isn’t the consistency.”

Wilk said manufacturers and suppliers needed to “do their homework” on supply chain continuity and fully understand whether or not the risks outweigh the benefits for them.

Ultimately, global supply chains with fewer suppliers can be very beneficial to both sides if partnership working, with investment and commitments from suppliers and manufacturers, is achieved.

Wilk said: “You can have a handful of major partner suppliers, and say to them that if you agree to quality, performance, technology, delivery, and cost targets, they can be sourced for the life of the programme. That can create a win-win, where suppliers and OEMs work together to design new products earlier in the process.”

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