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Managing Asian Supply Chain Response To Failure

March 28, 2006
You can manage your suppliers' commitment to success.

"Commit and Achieve" was something reinforced among executives at Seiko Instruments early in my business career. Over the years, however, I learned that this phrase meant something different to me than it did to my Japanese counterparts. I also learned that the concept of "losing face", also meant something very different to me than it did other businessmen in Japan, China, Singapore and Thailand. The subtle differences in business attitude, in culture and in the reality of economics can help us predict supply chain behavior, and this is very important when a problem occurs.

In Greater China, where I currently have the greatest percentages of my supply chains, there are cultural and economic realities that one has to take into consideration. One economic reality for example is that margins run on the thin side. This creates instability when a problem occurs, because the vendor is usually overly dependent on success. If you are not careful, the vendor will simply stop being responsive and quit. I was greatly upset the first time that I encountered this due to my personal view of "Commit and Achieve", however; I have come to understand the economic and cultural realities that make this behavior predictable and avoidable.

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It is a common practice that a vendor will submit a small quantity of short run production or pre-production parts for thorough inspection called First Article Inspection. Conscientious management of the First Article process is one way to avoid having a Pacific Rim vendor from disengaging. It sets the stage for teamwork, communication and coordination. This process helps to verify that everyone is on the same page.

It is possible to have a vendor disengage even after a successful First Article review. However, the danger of disruption is even greater if the part does not pass First Article Inspection. Proper communication can help the vendor understand root cause, which can sometimes be a communication issue or culturally based issue. For example, we have had situations where the vendor produced exactly the details that were on a drawing and then the vendor was told that the first article failed because convention would suggest the machinist would add a feature not on the drawing or the desired "look and feel" for the part was not achieved.

We need to manage the vendors in our Asian supply chain carefully, because for some "saving face" may mean disengagement before they lose too much money or before the blame might be narrowly allocated to them. Communication is our best tool. When something goes wrong, we have assets that can help our vendors remain committed to success. We have our relationship, which needs to be developed beyond a faxed purchase order. We have the promise of additional business, and we have the management of "baskets of parts", which can add incentive to tough tasks. More on this to follow...

In his breakout presentation at IW's SMART/mfg conference to be held June 14-16, in Las Vegas, Phillips discusses "Supply Chain Response To Global Relocation."

To learn more about the conference click here.

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