Going along on a topic I have covered quite a bit in the past, responsible sourcing, Ethical Corporation has written a painfully detailed article on Adidas’s recent supply chain woes and how they are handling them.

You may remember my post on their labor issues earlier this year, and as you will remember I have said that companies need to clean up or clean out, but through this article a twist is added… the factories in question are (according to Adidas) previously Reebok manufacturers, and that integrating their supply chains has been a difficult process to manage.

I suggest you read the article in full and then consider how the Adidas supply chain and the Reebok supply chain differ… and what was the source of the difference, and how did the difference impact their ability to work with/ manager their suppliers

Sound familiar to anyone?

Last week while sitting around my mom’s table in Portland, I picked up an article in the local paper (The Oregonian) and had a bit of a laugh when reading the article
More firms hire snoops to get edge on rivals

Speaking about this growing industry in the U.S., the article looked at just what competitive intelligence professionals were doing to learn about new product launches, staff sizes, and other nuggets of data…. and what made this story interesting to me, after doing a lot of competitive intelligence in the U.S. and China, was (1) that the author made it seem very cloak and dagger and (2) the consultant interviewed showed just how fun the job could be

Competitive intelligence analysts like Neubauer collect inside information by simply talking to people who work for or are associated with companies that his clients want to learn more about. At the top of the list, firms want to know what products or services are in their rivals’ pipelines, so that they can plan counter moves.

The article makes out CI to be 100% about collecting insider info, and developing strategies to do so:

Competitive intelligence analysts like Neubauer collect inside information by simply talking to people who work for or are associated with companies that his clients want to learn more about. At the top of the list, firms want to know what products or services are in their rivals’ pipelines, so that they can plan countermoves.

What I have always found interesting about doing “competitive intelligence” is that I would say only 25% requires a different tool set than your average market researcher or consultant. Assuming that market researcher or consultant are (1) knowledgeable of the industry and (2) are in regular contact with others in the industry. In fact, if a researcher is both, then it is really a matter of reframing and redirecting their attention and data to form many of the opinions on an industry, or specific player.

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For those who read Last week, you may have noticed that I made a quick reference some Dr. Tea gave to the boys inside the beltway… well, here are a few more details on Dr. Tea as well as her testimony.

So first… Dr. Tea (Professor Mary Teagarden), is a close friend of mine and of many Thunderbirds is one of those old China hands who have spent the better part of the last 30 years working with China. She lived in Beijing when you still had to ride your bike across town to schedule international phone calls, she has advised dozens of companies entering China, she has worked with various government entities, and that is why she was asked to The Hill to give her thoughts on the recent product recalls.

Next.. the hearings Committee Questions Consumer Product Safety Commission, Mattel on Lead-Tainted Products and Toy Recalls

The session was split into two panels, and while toys were the primary focus, more important issues were discussed (support for agencies, legislation needed, etc). The participants included:

Panel 1 included:
Dana Best, M.D., M.P.H. – American Academy of Pediatrics (PDF testimony here)
Olivia D. Farrow, Esq., R.S. -Assistant Commissioner,Division of Environmental Health Baltimore City Health Department (PDF testimony here)
Michael Green - Executive Director, Center for Environmental Health (PDF testimony here)
Lori Wallach – Director, Global Trade Watch (PDF testimony here)
Mary Teagarden - Professor of Global Strategy, Thunderbird School of Global Management (PDF testimony here)

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Perhaps by continuing to post on product failures, I am flogging a dead horse, but once again I have found another report that should be highlighted

Spoiled, Keeping Tainted Food Off America’s Tables (PDF Here) is written by Jessica Milano for the Progressive Policy Institute. She actually works for Competition Policy Associates (COMPASS)

Written from the perspective of an American looking for ways to protect consumers from imported products, Milano focuses primarily on the government agency infrastructure in her report and offers up the following 5 “simple ideas to improve food safety”

1. Improve and simplify the regulatory process by creating a single food inspection agency.
2. Double resources for food safety by cutting waste.
3. Shift to a risk-based allocation of resources.
4. Create a stronger recall authority.
5. Use the Container Security Initiative (CSI) program to strengthen pointof-entry food inspections.

In coming to these conclusions, she lays out some very compeling evidence and arguments:

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Heidrick & Struggles and Fudan University have just put out what is one of the best pieces I have seen on corporate governance and boards of directors in China. Part of its Asia Pacific Thought Leadership Collection the Benchmarking Corporate Governance in China report (PDF Here) highlights findings of more than 100 companies in China (State-owned, private, and foreign invested)…

The motivation for the study:

Corporate governance is a hot topic in China. As the nation opens to foreign investment and privatizes industries that used to be solely under state control, investors around the world are placing large bets on the country’s future. As the influx of capital grows, so does the pressure on Chinese corporate boards to make sure those investments pay off.

And like other markets worldwide, China has had its fair share of corporate scandal in recent years. Despite the growing importance of corporate governance, so far there has been little investigation into how Chinese corporate boards are formed and operated. A review of existing studies on Chinese corporate governance revealed little about the actual makeup of company boards among state-owned, private and foreign-invested companies.

So we decided to find out for ourselves.

and what they have found is very interesting.

One of the first things that caught my eye (see from the above image) is the underlying criteria by which boards are evaluated have some big differences. for SOEs, the primary measure of performance is return on assets/ equity where as both private and FIE are judged on profitability and market penetration… . More interesting than that though is the fact that while 50% of private enterprises are evaluated on public comments, SPE and FIE are in the 20s.

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The last 3 months have been a nightmare for anyone with a Made in China sticker on their goods, and for China as a whole.

Through this process, one of the things I keep coming back to is “what level of product failure is acceptable”. For consumers, the first response is none. No product failures should be accepted. that 1 is too many…. but is that reasonable? Is it economical?

or have consumers gone a bit overboard?

In debating this, there are three examples that have particularly bothered me, or at least have led me to ask this question:

1) FTS/ Hongce Tires – One of the first cases to hit the press, this story received a lot of attentention early on.

Through press accounts, of the 450,000 or so tires imported, 2 tires failed. a failure rate of .0004%.

2) Mattel – Probably the most covered of all the recalls, Mattel has announced 3 recalls this year of more than 20 million toys across multiple categories. 20 million toys is a lot of toys, and according to a WSJ article today 2.2 million of the toys were recalled for led paint and 17.4 million pieces for magnets being too small
So, 19.6 million toys were recalled… of the more than 800 million Mattel produces on an annual basis. That is a 2.45% failure rate (manufacturing failure rate was .275% vs. product design failure rate 2.18%) assuming all the toys were made this year…..

3) Baby Cribs – The most recent recall, this is the one that really makes me scratch my head. Following the death of 3 babies/ toddlers, a recall of more than 1 million baby cribs has been initiated.

That is a failure rate of .0003%

But according to reports

in all three deaths, consumers had installed the drop-rail side of the crib upside down, the agency said. This creates a gap in the crib that children can slide into and suffocate.

so… 999,997 put the cribs together properly?

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It is funny how 6 weeks can make all the difference, and how villains today can be vindicated through time.

Well, China… take your victory lap!

Maybe I am going making too much of it, but the fact that the COO of Mattel recently apologized to senior leaders of China for the recent recalls (and their failure to properly assess the responsibility) must be a huge boost to Beijing who has contended all along that the majority of recalls were design related.

Now.. if only FTS would come out and take responsibility for their products….

Business or Social Responsibility has come out with an excellent 20 page brief entitled Beyond Monitoring (PDF download here).

A very timely piece, the article does an excellent job of showing the reader the various angles and approaches that a company must take in building a sustainable supply chain… something Mattel Toys did years ago, something RC2 wished they had done, and something you should be looking at as you assess your supply chain risks

“Beyond Monitoring” presents a four-part approach that is designed to address the root causes of social and environmental shortcomings in global
supply chains. Our objective in producing this paper is to encourage companies to remake strategies, redeploy resources and consider new partnerships in pursuit of a model that has the potential to achieve more lasting change. The approach we are advocating integrates labor and environmental considerations more fully into companies’ procurement efforts. It also seeks to re-emphasize the roles of two often overlooked constituencies, workers and governments, who should be more fully at the center of sustainable supply chain management.

Now, before readers dismiss me as a Treehugger (you wouldn’t be wrong), I believe that it is in the long term best interest of every firm manufacturing or sourcing in China to read this.

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For the past several weeks, China has been the punching bag of international supply chain management.

The underlying problems are very serious ones as a number of people and animals have become sick and even died as a result of using goods that have been manufactured in China.

There are dozens of news reports in the press (print, cyber, TV, and other) that look to judge China itself rather than explore the role of business , and this clip is a perfect example of that

Why reports like this have me scared more than using a tube of Chinese toothpaste is simple… they make no attempt to highlight the critical issues that underly the problem and in the end, the problems are not solved

Lou Dobbs, and others like him do not understand the fundamental reasons of where the breakdowns occured, nor does it appear they want to. They are only concerned with finding new ways to inflame the public into believing that products Made in China are bad.

• They spend no time educating the public of the role American importers played in distributing thee products
• They spend no time educating the public of the real difficulties of supply chain management or the responsibility of various parties within the supply chain to ensure quality

In my mind, reports like this offer no solutions to the problem, and only make the problem worse as these reports create more misinformation of what the core problems and fear of anything made in China.

Which wil only result in more blog posts like this, stories like this, and tit-for-tat trade disputes like this.

Part 3 really focuses on how buyers can ensure the quality of their products, and at this time there really is no greater topic of interest for many.

The purchase order is the beginning of the vendor coordination
process, not the end

His strongest statement so far, and possibly in his entire presentation.

These 14 words are words that many companies have wished they paid attention to, including Iams. There is a lot of hand holding that needs to, primarily in the beginning, but also ongoing. Goods do not just show up 3 months later without help anymore than a 5 year old learns how to read without a teacher. this time is THE MOST CRITICAL in the entire process as it is where the bar is set.

Quality standards, material specifications, tolerances.. EVERYTHING.. should be discussed at this point, particularly if there are international and Chinese inputs that can be used. One should always understand the qualities of the various inputs that suppliers have access to, the costs, and the quality differences.

One recent example of this is that we have one product that requires a glue to be applied to a foam piece. After 6 months, we had gone through 50 different varieties of glues and come to the realization that the only glue that would be good enough was the U.S. glue. had we not gone through that process with our supplier (together), we may have had a lot of returns.

then he gives some helpful tips on how to ensure quality on a limited budget

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