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Have to Get Your Suppliers to be Transparent

July 21st, 2014

Business StrategyManufacturing

Transparency – knowing exactly where your goods are made and who is making them – is the most important element in a Buyer/Supplier relationship. Yet companies in the supply world do all kinds of things that Buyers don’t know about. Factories subcontract processes like cutting and printing to smaller, cheaper shops, without sharing the savings with you, the Buyer. A Trading Company pretends to be a manufacturing facility (so that you believe you are going direct and getting the best price), when in reality it’s two guys behind a computer screen brokering deals with Suppliers. In the US, imported materials are regularly passed off as ‘Made in the USA’ to unsuspecting Buyers.

While camouflaging certain facts may be a bad industry habit, not all Suppliers who do so have bad intentions. The most likely scenario is that a Supplier believes full-disclosure would make them a less attractive candidate, so they are simply ‘discreet’ about what they share. Still, the burden of establishing transparency in a supply chain falls on the Buyer; it’s up to you to do your homework.

Thankfully, doing your homework is less about spending money or leveraging expertise, and more about taking simple, focused steps towards establishing transparency. Knowing the right questions to ask, using your common sense, and performing an inexpensive factory audit are easy tools anyone can utilize to paint a clear, reliable picture.

Before we discuss tactics however, it’s important to note that situations like the ones mentioned above don’t have to be deal-breakers when looking for a partner. For example, few Suppliers can do everything under one roof, so subcontracting is often a necessity. And while crooked middlemen are certainly no good, working with Trading Companies is an excellent way for a smaller Buyers to establish a relationship with a larger factory. What Buyers should concern themselves with is knowing about it.

Knowledge means that you can make informed choices. If you don’t know about subcontractors, how can you perform social audits or pursue any other kind of due diligence in your supply chain? Similarly, in the case of the US Supplier using imported materials… if you’re unsure of where the components in your product are coming from, how can you properly evaluate what is a fair price? While there isn’t one manufacturing set-up that is best, transparency is necessary in order to produce the best product.

Ask Questions

Knowing which questions to ask is your most powerful tool in establishing transparency. In your communications with Suppliers you should be able to identify the location of your production facility, the origin of all materials, the type of business you are working with (i.e. factory, trading company, wholesaler, etc.) and what they plan to subcontract when making your product. Issuing a Supplier Questionnaire at the beginning of your communications will help filter out problematic companies, however you can use any format. Questionnaires simply help to keep you organized and provide an easy format for Suppliers to send information.

Be careful not to overload people with unnecessary questions, especially if your first language is their second language.  They are busy people just like you, and it takes time to translate and craft answers! You also don’t want to offend potential partners by inferring that they are dishonest. Keep it simple and be polite about your requests, and then dive deeper with further questioning if any answers are not sufficient.

Use Your Common Sense

We all get those feelings about ‘something just not being right’ about someone. If a supply partner seems evasive, or makes you feel uneasy, trust your gut! If they reply with excuses or vague answers rather than directly answering your questions, let it be an alarm bell to proceed cautiously.

Basic common sense can also detect ambiguous situations. Does the person you are speaking with have a company e-mail address and listed phone number? If not, it’s unlikely that they are an employee of a factory. Is a Supplier’s business license out of date? Are you unable to find a website or directory listing for the company name being provided? If something is not right about a Supplier, you may take that as a sign for you to steer clear.

Inexperienced new Buyers will often defer to Suppliers whom they regard as industry ‘authorities.’ This may be true on the technical side of things, but when dealing with the nuts and bolts of your supply chain, the Buyer must retain authority. Be confident in your instincts.

Perform a Factory Audit

Factory Audits are used for a variety of purposes such as ensuring social standards, evaluating production capabilities, or just confirming that a factory does indeed exist. During an audit an Inspection Agency will visit your factory (or potential factory) as well as conduct any supplemental research required, and then present you with a detailed report of their findings.

Performing an audit on a Supplier prior to entering into a relationship with them is strongly advised. Many companies also carry out routine inspections after they get started, allowing them to check on a Supplier’s on-going activities and maintain the integrity of the relationship. Further, you don’t have to be a big Buyer with a big budget to pay for audits; many can be performed for under $300. Consider this a small price to pay when transparency is at stake!

Since dealing with domestic Suppliers in your home country means that you have the ability to visit or research yourself, audits are primarily performed on behalf of foreign buyers. Still, some version of having ‘eyes on the ground’ when working with a Supplier is good practice, even if it is just mean you informally visiting your production location.

Liz is currently teaching an online course:  How to Make a Product – The A-Z Guide to Product Manufacturing