2014’s Record Auto Recalls Are a Teachable Moment in Vendor Management

Published : February 18, 2015

chalkboardSpeaking in a business metaphor, if you've got a collection of beautiful, shiny red apples, the idea that a single bruised-up piece of fruit can turn the bushel to mush seems outlandish at first blush. It's easy to fall into complacency, especially when wrangling a substantial supply chain that's hard to adjust quickly. But that complacency can cause some serious profit-wrecking ripples down the line.

One of the most visible real-world case studies for vendor management best practices comes from 2014's numerous automobile recalls, prolific enough to cause some major headaches for some major names. As a whole, these companies survived problems that seemed far more difficult: bailouts, bad press, an increasingly crowded marketplace and demanding consumers. So what went wrong?

The Mouse That Scared the Elephant

According to Elementum writer Kalvin Fadakar, a surprising amount— just over 25%— of auto recall culprits can be traced back to small companies and manufacturers of add-on parts. A plastic hinge, a switch, or a door handle can seem like an afterthought when so much time and attention is poured into more visible components like engines and airbags, but sometimes those little pieces start off a Rube Goldberg machine that ends in an embarrassing recall. Once the damage is done, a company not only has to make it right at a cost of millions of dollars, they also face the need to counterbalance the bad press at a cost of millions more in marketing budget dollars. With tighter vendor management, this scenario won't need to happen in the beleaguered auto industry, or your own.

Don't Play Favorites with Oversight

Consider the 'star' piece of the consumer item you're creating. For cars, this may be the engine, for computers the processor. This piece is engineered and marketed obsessively—a level of attention that needs to be duplicated across all working parts of your supply chain.

Each node of your supply chain needs to be aware of how their piece fits into the finished product. If, for example, the component manufacturer of a vehicle air conditioner doesn't understand and plan for the shape of the finished metal housing, you may end up with a high-quality fan that breaks down quickly due to lack of proper ventilation ports. Even with rigorous testing of the finished product, a component creation team will understand those rigors in theory well before the first finished product rolls off the line.

As with most supply chain solutions, this is only sustainable with frequent, open communication along the full length of your supply chain.

Verify Ownership and Operations

With smaller overall operations and the margins to match, component manufacturers are more likely to be bought and sold than 'finished product' companies over their lifespan. While this can occasionally spell good news for lower negotiated rates, according to industry blog Arena Solutions, it can also translate to disaster if there's poor communication from a new management team in the event of a merger or buyout.

Don't limit your assessments of these add-on companies or start conversations that begin and end with the components themselves. Make sure that you participate in frequent check-ins on the health of the business as well as its overall direction. If you're only finding out that a business is changing hands or owners after the fact, you're too far out of the loop and need to step a little closer. 

Staying properly informed about the status of each component that creates your product is a challenge, but it isn't impossible. Delegate, set up periodic "state of the company" chats with your suppliers and stay informed on a consistent timeline, and you'll be well on your way to avoiding the cringe-worthy missteps of your auto industry peers.

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Topics: Vendor Management

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