When an airbag maker supplied defective products that were installed in millions of cars, major automakers had to rush to repair damage to their brands. When a tire maker sold unreliable tires to another Detroit icon, a similar scramble followed. These episodes and others suggest that having the right financial partners is important for any business trying to build or strengthen a brand.
“Products and services may have suppliers for raw materials or technology services, and the quality of the raw material or service directly influences the quality of the final products," says Amy Xia, associate professor of business analytics and supply chain researcher at William & Mary's Raymond A. Mason School of Business.
“Not enough attention has been given to supply chain risks," Xia maintains. “Whenever a big event happens, we start to pay more attention and then the attention goes away with the pressure of lowering cost. But we have to rely on our suppliers. Mutual trust is needed."
Potential Partner Problems
Finding the right supply partners for your business is not always easy. Perfect knowledge of every supplier's internal processes may not be a realistic goal. In addition, unreliable supply partners can create many different problems.
If you want to know if somebody has a quality management system, ask them: 'What is your QMS?' A lot of people can't answer it and that's a huge red flag right away.
—Justin Patton, director, RFID Lab
“So far quality has been the most important issue," says Xia. “But be aware of on-time delivery. Delay of suppliers can cause the delay of the whole project and a lot of inventory issues. Sustainability issues in both environmental impact and social responsibility areas should also be watched for."
For Justin Patton, director of RFID Lab at Auburn University, counterfeit and grey market sales of products in unauthorized markets are key reasons to choose the right financial partners.
“Counterfeiting is a large problem," Patton says. “This happens a lot with fashion brands."
Signs of Trust
Business owners can increase chances of having the right supply partners by building long-term relationships, Xia says.
“Less emphasis on tag price, more attention to total replenishment cost," she says.
Verification may be part of building trust. Many businesses check out financial partners with on-site visits. Patton says his organization has a team that goes to factories of RFID equipment makers to inspect the premises.
Business owners may check a supplier's facilities for physical security and access control. They may look at how a supplier transports goods, and check shipping documents for completeness, accuracy and information security.
Simply questioning a supplier about quality controls can tell a lot, Patton says.
“If you want to know if somebody has a quality management system, ask them: 'What is your QMS?' A lot of people can't answer it and that's a huge red flag right away," he says.
Other checks may include whether employees are screened before hiring. Businesses may ask whether workers get security and quality training after joining the staff. Suppliers can also be asked to explain how missing and diverted shipments are discovered and reported.
Some businesses investigate the businesses that supply their suppliers.
“You may ask them if they're sharing sourcing factories with any of your competitors," Patton says. “That can be an immediate red flag."
Technology also helps. RFID, barcodes and other tracking tools let businesses follow lots and individual items from factory to ultimate user. That helps ensure authenticity, reduce grey marketing and, if problems crop up later, can identify sources of components, materials or services that caused them.
Attaching unique serial numbers to products can go a long way toward ensuring that supply partners act in your business' best interests.
“For some shoes they're putting a QR code in the tongue of the shoe," Patton says. “You can scan that with your phone down the line and verify that it's a brand name pair of shoes and not something that's been counterfeited. We're seeing more and more brands go that way."
Limits of Financial Partner Trust
It is probably worth putting some effort into finding the right supply partners. However, even filling a supply chain with perfect financial partners may not solve all problems.
“Things get damaged, things go awry," Patton says. “You might order 1,000 of something and only get 950. You might think it is a bad quality supplier, but they can't help it if somebody lost a case in shipment. You're always going to have some stuff that gets away from you."
Problems with financial partners may be an unavoidable part of doing business, even when the cost is high due to a major supplier quality failure.
“Sometimes it is difficult to trace the problematical raw material and hold the supplier liable," Xia says. “Even when you can, your brand reputation is already damaged."
In the future, better technology for monitoring supply chains will help cut theft, shrinkage and gray market sales and make it easier to pinpoint a problem's origin, Patton says.
“As we get better eyes and ears on all this serialized inventory over the next 10 to 20 years, we're going have much higher expectations and much less wiggle room for things to fall off the back of the truck as they have in the past," he says.
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