The impact of disruptive technology on supply chains has been remarkable.
Many of the actions we take with new technology are to reduce risk, however often the risks just emerge in different areas under different guises.
And whilst technology has certainly changed the nature of the risks that we are identifying and mitigating we are still seeing regular examples of our complex supply chains dealing with rather basic risks.
Take the case of Tesla as a recent example. After a highly controversial earnings call, Elon Musk has vowed to start ‘scrubbing off the barnacles.’ It’s a term he’s used to describe not just certain temporary workers working on manufacturing the company’s Core Model, but entire contractor companies.
No doubt there is probably more to Tesla’s own set of current supply chain problems than we are being told however this one is as the result of poor outsourcing selection and management processes, and apparently a lack of awareness of the risks being introduced to the business as the result of selecting the strategy to outsource.
That is not to say outsourcing in of itself is a bad idea. In fact it’s often a great idea, but how do we do it in a way that ensures that we are mitigating and managing risk, not adding more risk to our supply chain profile?
Without this awareness, you are likely allowing your contractors to negatively affect your products, manufacturing, delivery outcomes and reputation!
So, first we need a process to select potential contractors partners, then we need a process to manage potential contractor partners then we need to develop a risk profile as well as ways to mitigate this risk.
Coincidentally, today’s SCM software solutions and tools have enough capacity to acquire this level of information. Use them to the best of your ability and create profiles that cover the following checklist of attributes.
1. Be clear on purpose and objective
In an ideal world, what is it that you want them to do for you and what will you do for them in return.
2. Work out what is most important to you from the following by ordering these items from most important to least important.
Capability, experience (your product and industry related), their process, people, technology, regulatory compliance, capacity, location, financial stability, IP protection, data and information privacy and security. Add another category where you will record items such as: negative on line reviews, information from their customers, suppliers that you might need to investigate further. You are going to rate each contractor on your list on a scale of 1(poor) to 5 (outstanding) for each of these attributes. The suppliers who score highest on the most critical attributes will become your shortlist.
3. Make a long list of contractors whom you are aware of who could do this work for you.
Obtain information from secondary sources that allows you to rate each of these contractors on the items that you have considered most important to least important. You can also speak with their customers, suppliers, distributers without identifying yourself as a potential new client.
What have other companies had to say about a particular supplier or manufacturer? Go beyond the testimonials covered by their website. Look for any other mention of them in other parts of the web. Don’t even hesitate to make a few emails or phone calls to look into how a possible supply chain partner might perform.
4. Short list these contractors – ideally select 3 or 4.
Once you work out who might be able to do your manufacturing (on paper), you need to determine who wants to do it, is actually likely to do it and who can do it well.
5. Creating the list of questions for your face to face interview
Once you have shortlisted your preferred candidates you will approach them to discuss your needs and investigate any issues that have emerged during the course of your evaluation, including any areas of negative feedback or concern that you have uncovered.
You will need to create an interview list and agree with your colleagues how you will rate the answers. Ideally you should visit the preferred candidates so you can get a feel for the environment, meet some of their staff and get a sense for how the conditions under which people are working, the values that are being espoused vs modelled, the culture of the organisation, the relative safety, perceived efficiency and cleanliness,of the facility, how staff are being treated and whether you would be ok with your product being handled by this team
Here are a few ideas for questions you might consider asking in your interviews:
- Would they like to manufacture your product? (Why, Why not?)
- Confidentiality – Have they ever had any issues with proprietary recipes or product information being shared? – This is your IP so you need to be extremely careful about it. Are they OK to sign an NDA(non disclosure agreement which will include penalties for copying. (Patents and trademarks come in here as well.) What are their internal processes to protect your IP? (Even from employees!)
- Understand lead time – if you sign them up how long will it take until they are set-up and ready to manufacture your product?(If this is a long time, ask them why?)
- What are their internal processes from order to delivery – if they say 3 weeks, make sure there is a kpi on that they are measured to. (They must deliver on what they promise or you aren’t interested.) Where will the product be delivered to? Will they be packaging the product as well? Will they be delivering this product anywhere? How will it be delivered and moved safely and securely?
- How big is each run? Why? What dictates this size run?
- What is their internal process for scheduling and planning their daily manufacturing and what could go wrong elsewhere in their processes that might delay the production of your product? How could these potential risks issues be minimized?
- What is their process for batch control identification – what happens if a batch is faulty – can they rapidly identify it and recall it, can they rapidly determine what went wrong and fix it.
- Who in their business will be your contact? What happens if they are away who is the back up?
- Could you please speak to some of their reference clients – who are the clients that they are serving and you need to speak to these guys to see what your short listed contract manufacturer strengths and weaknesses are. (We all have strengths and weaknesses – opportunities for growth and development and improvement)
- What are their processes to handle your growth – your current batch size might be x, but you might need to be doing 2 runs a week by mid June. Can they handle this, What if it’s 4 runs a week by dec?
- What are next steps once you determine who you would like to use? – these next steps should include break down of product costs, and something like a pilot run or test run.
- Do they understand the concepts of self managing, self reporting, and self correcting? Can they give examples of how this would work in your specific case? What kpi’s will they be using to report back to you to assess their performance? Are these sufficient or do you need more?
- Do they understand the concept of transparency in their dealings with you? Are they able to provide an itemized breakdown of their proposed cost position for you along with what they might be able to do going forward to continue to reduce this cost and their needs to make these projections occur – such as capital required, volume order required,
- What are they outsourcing to subcontractors and what issues have they experienced and how have they dealt with these?
6. Other issues that you need to consider
- Region
A contractor working locally is much lower risk than a contractor working internationally and if you are selecting from a global contractor base, you will need to be considering global economic and geopolitical risks as well as usual supply chain risks. These will include: What is the economy like in that particular region? What are its labor laws? What is the reputation of companies working in your candidate’s industry? Are they exploitative or prone to accidents? What is your liability if they are involved in safety related incidents? In contrast, are they truly a global standard and really the best in the world? You will need to visit to really work this out. Remember, you need to establish rapport face to face, one on one, before you can work with someone remotely even via video conference, skype or face time apps.
- Total Cost
One possible partner could have a lower, upfront cost but we all know that total costs manifest in many ways. The lowest cost contractor is not always the best option. What corners are they cutting with what impact to deliver these lower costs? What you may not pay with money, you end up paying with time or angst. A prospective partner might think it delivers great value, but you might discover that the quality of its products is poor. If you are truly working with this contractor as a partner, they will understand your need for transparency in their provision of cost estimates and itemised cost breakdowns. If they share your culture of continuous improvement say, they will understand when you ask them what they are going to do going forward to continuously improve quality as well as continuously reduce costs.
You need to understand the finer details of the total cost you are paying with every third party.
7. Management process
How will the day to day management process work? What does their process look like? Get them to provide an illustration of their end to end process with lead times, so you can understand what is happening to your order from one day to the next. What will they do when things don’t go to plan? How and when will they let you know? What should you do, if they make a promise to you then something different happens in reality?
8. Risk Profile
Even once you have selected your preferred candidate you will need to document the risks you now see and with your partner, develop a plan for how these will be mitigated.
You may not have as much visibility into an outsourced partner’s inner workings but an adequate risk profile arms you with information to demand accountability. The barnacles need not be scrubbed if you can avoid having them on your ship in the first place.
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