Sage advice for securing the supply chain
December 30, 2011
There’s an ancient Chinese legal concept known as “Lian Zuo” or the “Five Degrees of Culpability.”
Jack Daniels, president of EastBridge Engineering – a company providing manufacturing engineering, vendor development and supply chain management services in the Asia Pacific region – has this to share with our readers:
In the year 221, the rule of China was unified under the Qin Dynasty. The emperor implemented a draconian set of laws to help with keeping the empire whole. One of these laws was Lian Zuo, or extended culpability, whereby not only the criminal, but also those around him are punished for committing a crime. This effectively formalized a system of guilt by association for the five people linked to the criminal.
In the modern era, Lian Zuo is making a comeback in China in an effort to improve the very sketchy food industry there. You get caught making instant noodles that contain recycled antifreeze – the fellow that sold you the plastic packaging and the trucker that hauled the goods to the supermarket are all going to jail.
How is this relevant to us in the West? We find time and again that at least half the product quality problems we encounter in Asia result from low quality, discrepant or out of spec coatings, components, materials and sub assemblies that filter into the supply chain from a cohort of subcontractors and vendors. The out of spec product that you discover may have been built by a forthright and honest vendor, but her supply chain is out of control.
To combat this problem, there are concrete steps that should be taken. These involve executing audits of not only your direct vendor, but also his or her downstream suppliers. We recommend the following:
Require your suppliers to have a strong system of incoming quality control (IQC) that includes mandatory annual audits of their suppliers.
Include language in your supply agreements that force the burden of proof onto your first degree supplier to verify the capability and trustworthiness of the second, third and further separated vendors.
Make them pull representative samples and send them to you in advance of production.
Maintain the right to enter and tour these downstream suppliers yourself for surprise audits.
Incorporate financial penalties into your agreements as compensation should you find inferior workmanship, substituted components or lousy materials.
In the end, knowing your supplier is absolutely necessary – arm’s length relationships fostered by the Internet don’t make for happy and long lasting supply relationships. This extends to your vendors’ supply chain. It’s to your advantage to get as close as possible.
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