Supply Chain Reaction

Toy maker Mattel has forced discussion among many members of the supply chain this week as to the risk of working with and in China.

Mattel, which recalled 250,000 Chinese-made toy cars in the United States because of unacceptable levels of lead-based paint this week, is hardly the first company to be slammed with recalls and bad press because of consumer product from China and it won’t be the last.

While the issues with China-made electronics span the entire supply chain gamut – from design, to manufacturing, to assuring against counterfeiting and IP theft (perhaps the biggest issues), to shipping truly RoHS -  compliant end product – it’s a market that can’t be ignored as it has been a source of huge financial gain and expansion for many companies in the supply chain in recent years. Arrow Electronics alone has more than 20 locations in China and nearly quadrupled its Asia-Pacific revenues  between  2002  and 2006.

Arrow CEO Bill Mitchell this week shared his thoughts on lessening the supply chain risk in China and avoiding potential pitfalls in sourcing product from the region. The 10 steps he offered are below. In reading Arrow’s release, I was taken back to a story I did for the mainstream press about 10 years ago when a sudden increase of college dorm rooms invasions occurred. Identity theft was common among the victims. In speaking to campus security and local police, I asked for their tips on how students could ward against this type of assault. Their responses were simple -- lock your doors, don’t lend your campus IDs out, only order deliveries from campus approved stores, etc. -- but effective. Mitchell’s points for the electronics supply chain are also simple, but effective, and they are the same points often made by NEDA (National Electronic Distributors Association), the not-for-profit trade organization that firmly pushes use of supplier- authorized distribution of components, parts and electronics.

In the case of the campus invasions and as is the case with Mattel and must be the case with the electronics supply chain, the end solution is practicing common sense, whether that means locking a dorm room door or qualifying suppliers, and taking responsibility, just as Mattel did by enacting a costly recall as it gears up for the holiday shopping season. In Mattel’s case, when it took responsibility for product, it spurred the China government into action, which this week vowed to step up its inspection process.

Electronic News has published another blog on issues with China this week: “China is not the problem,” a post contributed by Editor-in-Chief Ed Sperling. Check them out and, as always, your comments on this topic are welcomed below.

Mitchell’s 10 steps for strengthen quality assurance measures:

1. Source from reputable, well-established companies with tight internal controls.
2. Conduct comprehensive background checks, including checking trade references and past business history, of supply chain partners before conducting business with them.
3. Implement site inspections of supply chain partners and find out what systems have been put in place to track quality.
4. Conduct ongoing performance reviews of supply chain partners and engage in ongoing communications with them to benchmark against preset goals and define improvement plans.
5. Only source from companies that are willing to provide a guarantee for products in writing.
6. Be cautious of buying from companies that do not have franchised relationships with distribution partners to avoid a greater potential risk of counterfeit product.
7. Beware of unusually low pricing. While pricing is certainly important, it should not be the only determining factor in business relationships.
8. Look for International Organization for Standardization (ISO) or other equivalent, globally recognized certifications in a supply chain partner's operations.
9. Establish relationships with third-party organizations.
10. Translate quality into measurable and clearly defined targets with supply chain partners and ensure these metrics are communicated regularly with employees