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Op-Ed: Avenues to Mitigate Global Sourcing Risks

Global sourcing introduces many benefits into the packaging supply chain, but along with those benefits are numerous complexities that, if not managed with precision and expertise, can lead to increased costs and dissatisfaction. Differences in time zone, language, expectations, compliance, production scheduling and logistics only add to an already complex supply chain.

Simply put, these are commonly referred to as risks. There is a common saying that “getting the China price is easy, but that is typically where the dream ends and the nightmare begins.”

So, what can be done to ensure that these risks are avoided and that the global sourcing process is as smooth and cost-effective as possible? A highly effective approach deals with and manages risk at three phases of the sourcing process.

Phase I: Pre-Production

Everything must start with a factory evaluation, and a comprehensive factory evaluation starts with a physical inspection. While “walking the floor”, it is important to take notice of the cleanliness of the production environment as well as storage areas for raw materials and finished goods. Also, the condition of the equipment can offer insight into the quality of the operations and products that are produced. This portion of the factory inspection should also include a review of the products produced as well as an understanding of current customers buying from the factory.

The second element to a comprehensive factory evaluation is to review the processes used throughout the manufacturing process and the documentation in place to validate this. Typically, this portion of the factory evaluation is conducted with top management in each of the functional areas. As mentioned earlier, social compliance should be reviewed and validated at this point. On a side note, it is recommended that a factory review does not stop short at a review of the factory per se. A study of the upstream suppliers must be conducted as well. This is very important to ensure that the raw material sources that the factory chooses to work with are legitimate and support the overall goal for approval of a stable supply partner.

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The third and final step in the factory review process includes rolling up all of the evaluation detail into a pivotal decision; do we trust that our business is stable with this factory or don’t we? It should come as no surprise that the majority of factories audited do not pass. Now, this isn’t to say that factories that don’t pass the evaluation process are not worth working with. A few minor corrective actions just may bring them up to a passing level.

Now that an approved source exists and a sourcing decision has been made to place valuable purchase order dollars with them, the focus needs to shift to ensuring that all product specifics are defined and offer no surprises when delivered to the final destination. The way to define this is through the use and approval of technical drawings, physical sign off samples, color range boards (light, standard, dark), and item specific sheets or spec sheets. These tools will prove invaluable during the next phase of the global sourcing process.

Phase II: Production

The ultimate goal of a well managed second phase is to ensure that the customer gets what they want, when they want it. A perfect scenario would have “feet on the street” who are “walking the floors” when production is underway. To trust that your production is being effectively managed while you are miles away may lead to dissatisfaction. Many customers can save money by working with a sourcing partner that has the resources to cover numerous, if not all, production runs. Prior to pressing the green start button on mass production, it is best to ensure, through a production line start procedure, that the initial production parts match the quality control tools established in phase one.

As production progresses detailed communication plans should be sent from the factory to the customer. This can be done weekly through an open order report process. The exception would be daily communication if an event occurs that may ultimately delay the confirmed ship date. Finally, advanced shipping notices or cargo bookings should be made at least two weeks prior to a communicated ship date. This will ensure that the cargo capacity will be available with the freight forwarder or steamship line directly. Also, this will allow for scheduling of a final inspection, which will be discussed below.

Phase III – Final Inspection and Logistics 

Up to this point, there has been a tremendous amount of effort and communication put into the development and production process. It would be a shame to have all of the work fall to pieces because of a quality control issue or a shipping delay. Prior to loading a container and sealing the doors, a final inspection of the goods must happen. The tools used during the final inspection are the same ones that were established previously and are guided by acceptable quality levels dependent on the full size of the production run. Assuming that the goods pass final inspection, they are then loaded on the container and delivered to the port of loading in preparation for their journey to the customer. This is when an outbound quality control report should be sent from the factory and kept on file. If the goods do not pass final inspection, a plan will then be put in place to sort out the defective product and replace if necessary. Assuming the proper measures were taken up front to ensure the quality of the goods, the percentage of shipments that do not pass should be very small. However, it is much less expensive and time consuming to remedy a quality issue at the factory than on a U.S. loading dock, not to mention the dissatisfaction and lost business that may result from delivery of a defective product.

As mentioned earlier, the logistics process contributes one third of the overall project management timeline. The only way to gain true visibility into this leg of the process is to work with a steamship line or a freight forwarder that offers on-line track and trace tools. Continually working with a freight forwarder vs. one steamship line ensures access to many steamship lines that fall under their umbrella. This is beneficial because it greatly improves the chance that a shipment will move according to schedule and not be bumped due to over capacity. On a final note, working with a supply partner that is C-TPAT (Customs Trade Partnership Against Terrorism) certified is another way to ensure that product delivers on time. C-TPAT offers businesses an opportunity to play an active role in the war against terrorism. Essentially, this means that U.S. Customs recognizes them as a trusted importer doing business with trusted exporters, which ultimately leads to a reduced number of inspections which can delay delivery.

By: Jeremy Lagomarsino of Berlin Packaging