Made in “I Really Don’t Know”

In this week’s Ripped from the Headlines segment, another example of how many companies still have poor visibility and control of their end-to-end supply chains. As first reported by Fairfax Media, a factory in North Korea has been making high-priced surf and snow gear for Australian surfwear company Rip Curl since at least 2014, with the garments labeled “Made in China.” In a statement, the company’s chief financial officer Tony Roberts said [emphasis mine]:

“This was a case of a supplier diverting part of their production order to an unauthorised subcontractor, with the production done from an unauthorised factory, in an unauthorised country, without our knowledge or consent, in clear breach of our supplier terms and policies. We do not approve or authorise any production of Rip Curl products out of North Korea.”

In other words, the garments should have been labeled “Made in ‘I Really Don’t Know’”.

It’s very likely that North Koreans are producing garments for other brands too, either in the country or as slave labor in China. As reported in USA Today:

[In a sourcing practice nicknamed “China plus one”], big brands like Rip Curl send their specifications — what they want made and how much they’re willing to pay for it — to sourcing agents, who find factories that agree to fulfill them. These factories then sometimes subcontract other suppliers, with or without the brand’s permission. As the cost of Chinese labor rises, outsourcing to one of the few countries on earth cheaper than China is becoming more and more common.

“Australians would be shocked to hear that an iconic Australian brand with roots on the surf coast of Victoria can’t confidently track clothing produced within its own supply chain,” said Oxfam Australia’s CEO Dr Helen Szoke​. The sad truth is that American and European consumers would also be shocked if they knew how many of their own beloved brands, which include some of the world’s largest and most profitable companies, have significant blind spots in their supply chains too.

I give credit to Rip Curl’s founders and directors for taking full responsibility for this incident. “[We] take full responsibility for this screw up,” the company stated in a Facebook post. “We are very sorry that Rip Curl has breached the trust our customers put in us to make sure that the products they wear cause them no moral concern. That’s our responsibility to you and we have let you down on this one.” In other cases, companies have tried to distance themselves from these supply chain failures, passing the buck of responsibility and accountability to their suppliers or others (see GM Supplier Factory Explosion: Thoughts on Supply Chain Visibility and Responsibility).

As I’ve said many times before, there is no silver bullet for supply chain visibility. Despite all the buzz about supply chain visibility software, it’s a worthless investment if companies don’t also invest the time, money, and resources to see and walk their supply chain, from start to finish, with their own eyes and feet. Simply put, achieving true end-to-end supply chain visibility takes considerable more time, money, and resources than many companies are investing today — and it also takes a more enlightened approach to supplier selection and management.

How do you begin to improve supply chain visibility and control? Here are some recommendations:

Identify and document the root causes of poor supply chain visibility. The root causes generally fall into three categories: IT issues (e.g., lack of data capture systems or software, poor integration of systems); People issues (e.g., poor training); and Process issues (e.g., no metrics, operate in functional silos). Simply put, if you don’t understand the root causes of poor supply chain visibility, you won’t know what corrective actions to take.

Quantify the financial impact of poor supply chain visibility. We all know that poor supply chain visibility results in lost sales (out-of stocks), higher transportation costs (expedited shipments), excess inventory, reduced customer satisfaction, and damage to brand reputation (among other negative consequences). Putting a dollar figure on poor supply chain visibility, and how the costs break down, not only helps you gain upper management support to take corrective actions, but also helps you to prioritize those actions.

Enlist internal and external stakeholders to develop and execute solutions. To paraphrase a popular saying, it takes a village to achieve and maintain high levels of supply chain visibility. Assemble a team of internal stakeholders (including store operations, distribution, transportation, and procurement) and external stakeholders (including suppliers and third-party logistics providers) and provide them with a clear and measurable mission to improve supply chain visibility — and also provide them with the necessary support, in terms of technology, resources, and decision-making authority to accomplish that mission.

Define and document Supply Chain Mapping business processes. The reality is that very few companies have well-defined or formalized Supply Chain Mapping processes. Therefore, the first step is to define those processes, along with who will execute and manage them and what the right metrics should be.

Identify which SKUs take priority for supply chain mapping. Simply put, gathering location and material/product flow information for every SKU that you buy may not be practical or feasible. Therefore, you have to determine which SKUs are worth the effort, and generally speaking, the ones that are high volume, high revenue, and/or high margin should take priority.

Leverage new technology and third-party services to facilitate your supply chain mapping processes. Over the past few years, several software and services companies have emerged specializing in supply chain mapping. Some companies are also using social media sites like Twitter to actively monitor for events that could impact their supply chains. Of course, supply chain mapping is a service that third-party logistics providers (3PLs) could potentially provide too, but they would need to define and document their own supply chain mapping processes too.

In short, when it comes to supply chain issues related to labor, safety, environmental, or legal practices, saying “I didn’t know” is no longer an acceptable excuse (if it ever was). What Rip Curl and other companies are learning is that when it comes to supply chain management, ignorance is not bliss.

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Comments

  1. Made in “I really don’t know” is one of the hidden risks of offshoring. The damage to a brand from an unauthorized supplier can be devastating to a company. We have seen it many times.

    The easiest solution to improving supply chain visibility and disruption is with shorter supply chains via reshoring to produce goods in the market where they will be sold. With the use of the refined metrics of total cost of ownership to uncover the hidden costs and risks of offshoring and reducing costs with sustainable strategies such as robotics, improved product design and automation companies can increase competitiveness and manufacture profitably in the U.S.

    The Reshoring Initiative Can Help
    In order to help companies decide objectively to reshore manufacturing back to the U.S. or offshore, the not-for-profit Reshoring Initiative’s free Total Cost of Ownership Estimator (TCOE) can help corporations calculate the real P&L impact of reshoring or offshoring. http://www.reshorenow.org/TCO_Estimator.cfm

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