supply-chain
Information Lifecycle Management

Mohan Ponnudurai (Global) - Stricter Restrictions on Supply Chain Management: Industry Trend Here to Stay?

The high technology and electronics manufacturing industry is complicated, advanced and churns out more new products faster than ever before. There are also more consumers, with greater disposable incomes, spanning the developed and developing world. Consequently, the complex electronics industry demands the introduction of new products at a faster pace to meet customer needs. As a company's global supply chain becomes more complicated, the risks associated with corporate supply chain management comes under greater scrutiny, affecting the top and bottom line of the organization.

One example of how to address these concerns is reflected in recent moves by Apple. In 2011, Apple conducted 229 audits throughout its supply chain and discovered a number of violations as outlined in the Apple Supplier Responsibility 2012 Progress Report. Some of the violations addressed health and safety, worker compensation and representations.

What prompted this? Managing outsourcing due to globalization has introduced many challenges in the electronics sector. What is interesting is that Apple launched a specialized auditing program to address environmental concerns about some suppliers in China. Results show various noncompliance findings from Apple's suppliers in China and they plan to expand the company's environmental auditing program in the coming year.

What did Apple do? As Apple commands a substantial market share and breadth of high technology supply chains extending all over the globe, its actions are gaining a lot of attention. Apple's findings have led the company to place higher quality restrictions on supply chain management. According to the Apple Supplier Responsibility 2012 Progress report, suppliers must adhere to:

• Increased inspections
• Higher standards
• Management visibility

Increased inspections: In addition to regularly scheduled audits to suppliers, Apple also conducts a number of surprise audits every year that must begin within the hour of arrival. Greater frequency and more rigorous inspections lead to finding problems ahead of products reaching the market, thus, avoiding costly recalls, repairs and warranty costs, and protecting brand reputation - an expensive undertaking, but a smart business decision.

Higher standards: When a company prides itself as a purveyor of superior quality products, that value should extend to its suppliers to be effective. Apple selects its suppliers based on a number of factors including the country in which the facility is located, past audit performance and the type of work performed at the facility. Grooming suppliers to its standards helps Apple eliminate poor suppliers - a challenge initially, but a competitive advantage in the longer term.

Management visibility: Apple reviews all audit findings with the facility's senior management team. When a violation is found, Apple requires the facility to implement a corrective action plan that addresses the specific violation, as well as the underlying management system.

Why is this important? Manufacturing in the electronics and other high technology sectors is moving to an outsourcing and off shoring model located in developing and emerging countries - generating attention to their standards. It is monumental to maintain the reputation and brand value whereby these large companies are scrutinized regarding their business conduct, including fair labor practices and human rights. Since the brand value can be 50 percent of the market value, it is imperative that these companies put more efforts into bringing transparency, visibility and education to their strategic suppliers, and empower the management to follow through with their performance evaluations and audit findings. This may raise the threshold requirements for suppliers to enter lucrative supply chains like Apple; however, this stricter oversight benefits both parties.

What can be learned? Globalization and extended supply chains are here to stay. In today's world of 24/7 news consumed through ubiquitous smart devices, bad news travels fast. When high profile companies are involved, time to recover is long and the damage costs are expensive. It is therefore necessary that companies plan and enforce business practices that support these values plus improve quality, cut costs and provide value. Simultaneously, companies like Apple can be trendsetters to show the industry and other sectors that efficiency, cost control, social responsibility and profits can cohabitate successfully. Although these changes do add costs initially, eventually the changes will yield higher quality output, better-aligned suppliers and ultimately bring the incremental costs down, leading to superior operational efficiency.

How can technology help? Various best-of-breed solutions are already being used to run lean and agile supply chains today. However, managing the supply chain and quality requires best-in-class processes, solutions and people to be effective. This should also include your suppliers as part of the extended enterprise. In order to realize these ground-breaking business practices, enterprises need to have a strategy in place that provides the following:

- Harmonized, centralized and automated framework of business processes that are used by the suppliers based on the parent company's best practices. Appropriate data must be captured, relevant checks and accepted controls should be followed and appropriate personnel notified upon trigger based conditions.
- Flexibility to meet different requirements while maintaining standardized business processes is important. This makes analytics effective and overheads low.
- A system that provides management decision-making information or key performance indicators (KPIs) in a usable manner in real-time. Typically, the critical information should be pushed through specific dashboards or delivered to smart phones.
- Suppliers should have visibility to their critical information, so they know when they are expected to respond, to remedy a situation before it becomes a critical roadblock, possibly through their own dashboards and interface, which effectively aligns them to the parent company's criteria, and enhances collaboration.
- Business intelligence and analytics should be available to facilitate both suppliers and management decision makers' ability to query, ask what-if scenarios and be able to look ahead. This provides a greater level of information for effective decision-making, including when to increase or relax oversight, which suppliers to drop, which suppliers to develop into strategic partners, which new suppliers to onboard, changes in on boarding and certification requirements, etc.

In conclusion, if a business like Apple can muster the discipline and enforce the supply chain sustainment initiatives on its suppliers, then it is likely that other companies will follow this trailblazer. You simply need three mandatory components: people, processes and technology. These are critical elements of a superior supply chain management that would effectively cut or manage costs and deliver the highest quality products.

By Mohan Ponnudurai, Industry Solutions Director, Electronics and High-Tech Manufacturing, Sparta Systems

 

Apple. (2012, January). Apple Supplier Responsibility 2012 Progress Report Retrieved from http://images.apple.com/supplierresponsibility/pdf/Apple_SR_2012_Progress_Report.pdf

 

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