SUPPLY CHAIN STANDARD OCTOBER 2008
www.supplychainstandard.com
Asian supply chains
IMPORTANCE OF FACTORS WHEN
DEVELOPED MARKET MANUFACTURERS
SELECT AN EMERGING MARKET SUPPLIER
Source: Deloitte’s Global Manufacturing Industry Group
TRADING
Value proposition
Trading entities value proposition may include:
● Established network of capable proven manufacturers;
● Capability and infrastructure to control quality or to
consolidate, label, package, or hold inventory;
● Export license/customs brokerage;
● English speaking, professional service experienced in
meeting the needs of international buyers;
● Knowledge of local regulations or
government relationships;
● Pricing stability;
● Intermediary with the source manufacturer in issue
resolution or negotiations;
● Ability to deliver special projects such as joint product
development or quality improvement programme, and/or;
● Ability to develop and integrate new suppliers into
global supply chains.
engineering. Suppliers in emerging economies are
entrepreneurial and innovative; they are hungry to explore
such opportunities.
While managing social and environmental compliance is
possible with suppliers that buyers know, it fails for those that
are hidden. In relying on the trading entity to conduct this due
diligence the risk increases exponentially. In a world with
powerful global brands, consumer expectations do not
differentiate between products produced domestically or
overseas; to them the entire supply chain is all one brand.
Recently, a US industrial supplies company that has
sourced from China through a Taiwanese trading company for
many years, made the wise decision to visit one of the trading
company’s manufacturers. Initially the trading company was
extremely evasive in providing the details and setting up the
visit. It was not until they visited the supplier that they realised
that the company was, in fact, a prison factory that uses
Chinese prisoners to manufacture the product under forced
labour. In the US it is a criminal offence to knowingly import
goods made by a convict or through prison labour.
This further demonstrates that the only way to have total
confidence is to see the supplier’s conditions first hand or to
use an independent trusted audit firm. To accomplish this,
each part of the supply chain must be known and visible.
How to illuminate hidden links
Even if the trader is trusted to manage the source
manufacturer to the right standards and in the buyer’s best
interests, the case for illuminating these hidden links is still
equally valid to control risk and to realise longer-term benefit.
While many Asian manufacturers are willing to share the
fact they are using a network of partners to meet the
requirement, often they will not volunteer this information. So
during the supplier qualification, it is important to ask
probing questions. Thorough due diligence is required before
any effort-intensive on-site evaluations to start to establish the
facts on how they intend to fulfil the order.
For example, it is good practice to request photographs of
the production floor to gain a sense of the scale of operations
and to understand which stages of production they
subcontract. In these supplier requests, ensure they provide
photographs of the lines where this exact product is currently
produced or if the supplier were to win the business, the
production lines on which the product will be manufactured.
Furthermore, re-iterate the expectation that a sourcing
manager will visit the line in the next round of qualification.
In a similar manner, buyers should make it clear to trading
companies that they will visit all production sites as part of
their global risk policies. This is easier to mandate at the start
of the relationship and does not have to be adversarial or
focused on penalties.
Deloitte’s Global Manufacturing Industry Group recently
published its annual ‘Innovation in Emerging Markets’ study
which this year focused on managing product sourcing risks
in emerging markets. It surveyed more than 650 executives
from both developed market and emerging market companies
SCS:GLOBAL SOURCING 17
In a similar
manner, buyers
should make it
clear to trading
companies that
they will visit all
production sites
as part of their
global risk
policies. This is
easier to
mandate at the
start of the
relationship and
does not have
to be adversarial
or focused
on penalties.
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