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Why Good Supplier Relationships Make Product Recalls Easier

Product recalls are never fun but, manage them well, and procurement process teams can see their stock rise at the company; the key is proper preparation with suppliers and colleagues in other functions.

Tesla Motors managed to provide both good news and bad news in the announcement back in April that it was recalling 2,700 Model X sport utility vehicles.

During a test, the electric-car maker (showroom in Palo Alto, California pictured) said, the recliner in a third-row seat had slipped. But at the same time affected customers found out about the problem, they also learned of the solution. “A fix to this issue is already in place,” said Tesla’s 11 April e-mail.

“We have worked with our supplier to develop a new recliner design with improved quality that resolved the issue.” Tesla would complete the recall and replacement within five weeks, according to the company’s note.

Onlookers approved. “It’s good for Tesla to get out ahead of this,” said an analyst at Robert W. Baird & Co. quoted by Bloomberg, adding that the auto manufacturer has “always been proactive about recalls.”
Building strong relationships with suppliers as best purchasing practices

Taking After Tesla

While any recall is less than ideal, it’s important for procurement teams to prepare in case problems like this do come up. Good preparation will lead to decisive action and avoid the headlines playing out over a lengthier period.

Beyond this, recalls present an opportunity for Procurement to support corporate priorities in a way that’s beyond its traditional remit. For instance, for a company that prizes speed or quality, Procurement’s attention to these priorities during a recall can make a significant difference.

At Tesla, the fast action served as a foil to the company’s past high-profile production delays. The Model X, for instance, had launched nearly two years behind schedule (paywall).

To make sure it’s ready to act quickly in case of a recall, Procurement needs to make sure it is managing relationships with suppliers and colleagues in both the Quality function and other corporate functions such as R&D, Legal, and Market Research.

Working with Suppliers: Track Emerging Quality Issues

Procurement should segment its supply chain managment to work out which its most important suppliers are. The function can also add certain vendors to its top tier if they are especially important to the business — such as sole-source suppliers producing a component unavailable elsewhere.

Next, Procurement should make sure it has a robust system in place to manage the performance of its top-tier vendors. The function should use scorecards to evaluate suppliers’ performance and identify areas for improvement; it should also hold regular review meetings with key vendors to go over their performance and set up improvement plans.

This will help the function stay aware of emerging or ongoing performance issues and can take action accordingly — so if a vendor routinely experiences quality issues, Procurement will know to begin looking for an alternative. If problems persist, Procurement can then start initial communication with a new vendor (for example, starting to vet the supplier for risk). This will mean the function will be ready to switch with minimum hassle if it becomes necessary.

Other options include building buffer stock, exploring bringing the production or service in house, or developing a substitute.

Working with Quality Teams: Recall-Specific Preparation

Beyond these basic improvements, Procurement should also work with suppliers to prepare for recalls, and liaise with its company’s Quality function to do so. Procurement should:

  • Add information-sharing protocols to contracts with vendors to make sure it has the data it need to spot emerging issues.

  • Have permission to audit suppliers’ quality and safety systems.

  • Check that suppliers have a strong process in place to implement changes to products that could affect quality if not executed correctly.

  • Make sure suppliers have traceability systems in place to help pinpoint causes of errors.

Procurement can also establish a “real-time” tracking system so both the function and the supplier will be up-to-date on quality issues. The function can also ask Quality to inform it of product defects so it can then pass the information on the supplier, take action, and monitor performance. If its supplier assessments don’t currently monitor quality, Procurement should add the relevant metrics. It can also work with Quality to complete these evaluations and identify red flags.

Procurement should keep in touch with senior executives from its critical suppliers about any quality issues that occur. It should also make sure they know what the function will need from them in case of a recall, so they’ll be prepared to do their part. Procurement can also ask suppliers important to its business to take part in mock recalls to make sure all parts of the process run smoothly.

Another key step to consider is setting up a cross-functional committee to look out for emerging issues and take action when necessary. Establishing these relationships in preparation can help a company act quickly if it needs to issue a withdrawal.

If a Recall Takes Place

Recalls can be especially challenging if the supplier involved is one critical to the business. A recall relating to a lower-tier vendor providing a part easily sourced elsewhere will have different implications than one involving the source of a unique part designed especially for a specific company.

If a recall does take place, procurement teams should consider their supplier relationships as they decide what to do next. First off, they should ask two questions:

  • Is this a one-time difficulty or does the supplier regularly experience quality issues?

  • Did the company perhaps inadvertently contribute to the quality error with its requests to the vendor?

For instance, did the procuring company seek something especially difficult from the supplier (such as ordering a part the vendor hadn’t produced before, or asking for faster production)?

In some cases, suppliers might be making harmful trade-offs in order to fulfill their customers’ requests. This is why strong relationships with important suppliers — especially single-source suppliers (where all of a company’s business for a component is with one vendor) or sole-source suppliers (where only one vendor makes a specific part or provides a specific service that a company is sourcing) — are critical to running a fast and effective recall.

Suppliers are more willing to go the extra mile for companies they consider a customer of choice. The key to achieving this status isn’t down to how much a company spends with a particular vendor — instead, suppliers assess how willing customers are to partner with them.

Procurement teams should concentrate on mutually beneficial collaboration activities to boost their relationships to this customer-of-choice level for their most important suppliers. For instance, procurement teams can identify and eliminate hidden costs that might be overburdening vendors and driving up the cost of serving Procurement’s company as a customer.

Finally, although dropping a supplier would be a last resort, Procurement must be prepared to do so in case it needs to.

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