MBT: How do manufacturers best plan for supply chain disruptions? What does that process involve?
Ken Katz: Each business is unique, so planning for supply chain disruptions partly depends on its specific vulnerabilities. Businesses can identify weak spots in their supply chain by getting to know their suppliers and their suppliers’ suppliers. Ideally, businesses would negotiate to require a review and approval process for any changes at the supplier and their suppliers. The more they can learn about each player in the supply chain, whether domestic or international, the better they can control and manage imported goods and services.
Even when manufacturers have a firm handle on their supply chain and potential weak spots, the reality is that the origin of the materials, products and services won’t always stay the same. Every time a supplier or their supplier changes, the risk changes. That’s why it’s vital to regularly reevaluate the regulatory, environmental, safety and backup standards and controls.
MBT: What steps should manufacturers take when considering overseas suppliers, especially for the first time?
Ken Katz: When introducing foreign parts, products and services into the supply chain, risks and liabilities can be amplified from complications with cultural and legal differences, time and distance constraints, and operational variations. There are several ways to help manage risks when using overseas suppliers:
Adopt Industry-Approved Standards – It’s important that manufacturers pay close attention to the standards and regulations that apply to importing products and services. In addition, a manufacturer may also be responsible for verifying whether the imported product complies with applicable industry standards as well as any related legal obligations.
Trust, but Verify - It’s important to continually review, approve and periodically test quality control processes for the parts, products and services contracted from overseas suppliers. Manufacturers should be mindful of regional conditions that could affect offshore supplier operations, too, such as labor unrest, political upheaval or weather events.
Understand Risk - Due to the difficulty in litigating product liability issues against foreign manufacturers, domestic handlers of a product manufactured outside of the United States will often be held solely accountable for the safety of foreign-made products. In the event of a product liability claim, it is important that a manufacture has strong relationships with its supplier to help trace product problems at their source and have access to documents to help the manufacturer defend the claim?
Document Everything – All transactions, contracts and agreements with foreign suppliers need to be documented. Businesses can protect themselves from liability and lawsuits by having proof of any efforts to control the quality and viability of the parts and components.
MBT: How can manufacturers improve visibility deeper down a supply chain?
Ken Katz: One of the best ways to learn more about suppliers is to invest time in building relationships and understanding their financials, quality of work, reputation, environment, health and safety records, certifications and exposures to disruptions. Two ways to help get a better understanding of supplier practices is to regularly have in-person visits and ask suppliers questions about their risk management practices and requesting supporting documentation that demonstrates their resiliency to recover from disruptions.
MBT: What are some red flags/warning signs manufacturers can look out for from suppliers?
Ken Katz: Making sure suppliers are staying on top of regulatory oversight is certainly important. After all, just because a business follows the rules does not mean that its suppliers will. Parts and labor conditions may be subject to U.S. regulations, even if they are imported. Oversight of suppliers’ policies and practices can help ensure compliance with safety, environmental and industry regulations.
Another issue to be mindful of is counterfeit items, which can lead to injury or property damage, failure to comply with safety and environmental standards, increases in warranty repairs and costs, damaged reputations or decreased sales and satisfaction. These risks may be elevated when overseas suppliers are involved. Without rigorous oversight addressing criteria selection, engineering controls, component sampling, and inspection and testing, it can be difficult to spot the counterfeits in the crowd. There are numerous industry associations and government agencies dedicated to preventing counterfeiting. Monitoring and/or joining anti-counterfeiting organizations is an excellent way to stay current and develop effective anti-counterfeiting controls.
Ken Katz is a National Property Risk Control Director at Travelers.
