By aahmadi on 9/20/2010 4:36 PM
As companies have grown in size throughout the decades, supply chains have become longer and more tangled. The good news is this has lead to much higher levels of productivity for companies and as a result, cheaper products for consumers. The problem however, with these long supply chains, is that many of the supply chain members are able to stay under the radar and as a result will take risks to increase their profit – sometimes extremely dangerous ones.
Honesty is definitely an issue within large supply chains, and luckily the article “Keep Your Suppliers Honest” from the Wall Street Journal offers some valuable tips on how to accomplish just that. I thought two points in particular were very helpful.
The article first claims that the fact that there was a very long chain of people involved with the buying and selling of mortgage-backed securities made the 2008 financial crisis easier to happen. As a result, it’s important to “make suppliers and intermediaries responsible and accountable.” The article goes on to suggest that “contracts with bonuses, delayed payments or explicit quality guarantees may result in slightly higher costs, but they reduce risk.” These ideas work well to promote quality but I’d also recommend also thinking about how you would penalize a supplier for their negligence. Promoting positive behavior and discouraging negative behavior is vital to having a health relationship with your suppliers.
The other recommendation given was to “change the ways you test and measure.” Suppliers will take any opportunity they can to cut corners, even if it means “substituting ingredients, fooling tests and sanitizing a planet just before inspection.” The key here is to make sure to keep your suppliers on their toes by changing your testing dates and methodology frequently.