There were many warnings

Companies with single-source suppliers in China have no excuse for Covid-19 fallout

I can’t help but wonder how many companies that moved their operations to China or have sourced major components there, figured something like coronavirus into their business plans? Judging by recent stock market performance, I’d say not many.

What they don’t understand, and are learning to their chagrin, is that processes are controlled, not by the customers, but by the suppliers. When you move your operations offshore or source significant components there, you’re giving up an awful lot of
control.

With the coronavirus outbreak, the Chinese government shut down many suppliers, but that wasn’t the only problem. The companies that are still able to ship have a problem too.

This problem, completely unanticipated by many, is that customers don’t want to buy products potentially contaminated with an often lethal
virus. What do you do when your customers refuse to buy from your only suppliers?

I know, who could have ever seen this one coming? Is there even a single case study in our many business schools that presents such an eventuality? Probably not, but it’s no excuse.

If CEOs are worth the tremendous salaries they are getting, they should have known. This is not the first time. Remember SARS back in 2009? And even that wasn’t the first time.

Part of qualifying potential suppliers, especially those to which you intend to entrust your lifeblood as single sources, is properly vetting them against all eventualities. That includes a complete understanding of their history, their culture and the environment in which they operate.

When I see those news reports about our poor companies caught short, I find it hard to be sympathetic. It’s not rocket science. You can’t visit China without noticing their standards are not the same as ours.

No doubt, there are definite financial benefits to using cheaper labor, but what about the costs? Many products made in China have competition from identical bootleg products, often surreptitiously made in the same factories. The Chinese are particularly adept at stealing technologies. And, of course, they often cut corners when they realize they’re your only source.

Many companies used to require multiple sources for critical components. When the Japanese were taking market share from our companies because of the superior quality of their products, we got serious about competing on quality. Multiple sources increase variability, the enemy of high quality. It’s a lot easier to control and adapt to one process than two or three.

Single sourcing, with its attendant risks, became a major component of many quality efforts. When suppliers were close by, problems could be addressed quickly. When operations moved half a world away, there was a long pipeline to fill. When problems appeared, they were much bigger and more difficult to solve.

We can’t stop this global economy. Hopefully, each government, including ours, will learn how to protect us from future outbreaks, as the costs in human lives and misery are far more severe than the economic costs.

Even so, we can’t wait for that. Each company needs to evaluate its current sourcing and make adjustments. If you consider all the costs, especially the ancillary ones, you just might find it’s actually cheaper to just make it over here. There’s less risk, and the quality of life for your supplier support people will improve dramatically.

Ronald J. Bourque, a consultant and speaker from Windham, has had engagements throughout the United States, Europe and Asia. He can be reached at 603-898-1871 or RonBourque3@gmail.com.

Categories: Business Advice

Comments

comments