Every day, there seems to be another Apple Inc. (Nasdaq: AAPL)/Foxconn Electronics Inc. headline. The biggest "ouch" story I've read referred to the situation as "Apple's 'Nike moment'."
But with every supplier public relations disaster, there's a positive side for the supply chain folks because the renewed spotlight ensures that suppliers reflect the OEMs' business standards.
Here are the three lessons I see in the experience of Apple for the electronics supply chain:
- When in doubt, ask. Procurement pros are under more pressure to deliver savings -- with scare resources, so it's easy for supplier performance management to fall through the cracks. Start by having honest conversations with your suppliers at least once a year about factory and worker conditions, environmental concerns, and other corporate initiatives. Of course, you may not receive honest answers -- and the fact that many suppliers are a few time zones away makes it even more difficult. But suppliers are becoming increasingly representative of the brands they serve, making the due diligence critical for your company.
More mature programs go even further to create a complete picture of tier-2 and tier-3 suppliers. Supply chains need to be up to standard from the bottom up, and that includes your supplier's suppliers.
- Create a process for mitigating risk. Don't wait for your ethics or risk officer to bring problems to the forefront. Instead, be proactive and create a system for tracking supplier standards and identifying areas of risk.
Secondly, create a timeline and action plan for addressing any problems that slip through the cracks. The questions to consider include the following:
- How important is my business to the supplier?
- How important is the supplier to my business?
- Can I immediately influence their corporate social responsibility (CSR) requirements?
- Which stakeholders do I need to notify?
- Do I have alternative sources of supply (if needed)?
Define total cost. "Cheap" labor isn't so cheap anymore, and it's not as desirable as it once was. While selecting cheaper suppliers is always desirable, selecting based on price only could increase risk. To truly reflect the market conditions, make sure that commodity planning incorporates increased total cost as worker conditions and quality of life improves and wages increase. If your suppliers aren't passing along those costs, it could be a good indication that their working conditions aren't up to standards.
The bottom line is this: Supply chain departments must be enablers of success. And if your supplier fails -- or negatively affects your brand -- the amount of money your team saved or the terrific contractual terms your team secured will fall on deaf ears.
What strategies do you use for ensuring supplier performance management?