Balancing Cost Savings vs. Offshore Sourcing Risks

So many purchasing professionals I meet are wary of exposing their company to a supply line risk by buying offshore. With good reason, it often goes wrong.

An article published by Thomas A. Foster of Global Logistics & Supply Chain Strategies highlighted the issues:

Sourcing from offshore suppliers in China, India, Eastern Europe, Latin America and other low-cost regions is so widespread that few manufacturers and retailers can be competitive unless they join in this trend. In fact, the U.S. Federal Reserve Board attributes much of the recent economic growth and low inflation to this offshore outsourcing “best practice.”

However, the downside of offshore sourcing receives far less attention at the Fed or in any boardroom — at least until something goes wrong.

The more a company sources from distant, low-cost lands where financial transparency, operating visibility and reliable logistics are practically unknown, the risk of serious supply chain disruptions increases geometrically.

In a recent supply chain risk assessment study, Aberdeen Group, a Boston-based research firm, said that more than 80% of supply management executives reported that their companies experienced disruptions within the past two years serious enough to negatively impact their companies’ customer relations, earnings, time-to-market cycles, sales, and overall brand perceptions.

Let’s put some real numbers to this.

The cost of establishing a source offshore in time and out of pocket expenses can exceed $50,000. The cost of attempting to resolve an issue by revisiting a supplier, an equal amount, considering the airfare and hotel alone can top $10,000 per person … and there’s no assurance the problem will be resolved.

Not a huge number to you? Now add the cost of disappointing customers: big. The writeoff of bad product: big. And, to pour salt in the wound, making several trips before you realize there will be no resolution.

Real life case in point. One customer of ours had the unfortunate experience of finding 20% of the goods it received from its Asia-based supplier failed in system in the field. The supplier insisted they did not nothing wrong and would not support any reimbursement. This was after scrambling to replace units in the field for customers, and two engineers flying to China for a week. The customer finally turned to us for the rework at a cost essentially equal to the original purchase price. Ouch.

So, what does the OEM with limited resources do to compete on the same level as the big guys which have deep pockets and feet on the ground in Asia?

The answer is to shift the accountability from the offshore supplier to an experienced provider of managed PCB manufacturing services in the US. They can eliminate the risk of poor quality and greatly mitigate the risk of supply line disruption.

They do this through rigorous attention to technical detail on the front end, using only developed, strong, factory relationships, then thorough incoming inspections, and holding the factories accountable for any errors.

Basically, knowledgeable feet on the ground here, with the skills and experience to manage complex Asia-based electronics projects, and perhaps most importantly, financially accountable for the results.

Eliminating risk and capturing the savings from offshore. That is a pretty decent balance.

EPA TSCA Revision: Casey at Bat

This week, DuPont publicly supported a bipartisan update to the Toxic Substances Control Act or TSCA. This comes only hours after the Chemical Safety Improvement Act was introduced by Senators Frank R. Lautenberg and David Vitter and numerous Republican and Democrat cosponsors.

Swinging for fences… or benches?

The latest attempt to reform chemical management in the United States is not a grand slam home run for the reform team. It’s definitely a compromise compared to the Safe Chemicals Act update that Lautenberg proposed about a month ago. This is called the “Chemical Safety Improvement Act of 2013.” And guess what? The chemical industry likes it! Hey Mikey!

Ken Cook, president of the Environmental Working Group, says the compromise bill fails to give the US Environmental Protection Agency (EPA) firm deadlines or enough funding to review potentially harmful chemicals, and that it doesn’t do enough to protect children and other at-risk populations. The provisions, he said, “make sense for the chemical industry, not kids.”

But Richard Denison, senior scientist at the nonprofit Environmental Defense Fund, has a different point of view. “While this bill isn’t perfect,” he said, it’s a policy and political breakthrough and opens a bipartisan path forward to fix a law that needs a major overhaul.”

Denison went on to say that The Tribune series was a big wake-up call for America, and “there are costs to be paid for a broken system.”

Chemical Safety Improvement Act of 2013 is here. It came suddenly, a surprise to many. It may not be the sweeping reform some environmentalists were hoping for. But what it does have is bipartisan support, which is refreshing to say the least.

As explained by the Washington Post, the Lautenberg-Vitter “Chemical Safety Improvement Act of 2013? would give the EPA new tools such as:

  1. The EPA would review all actively used chemicals and label them as either “high” or “low” priority based on their potential risk to human health and the environment. The agency would then subject high-priority chemicals for further review
  2. Regulators would no longer have to go through a long, protracted rule-making process to get information from companies about their chemicals
  3. The EPA will also have greater flexibility to take action on chemicals deemed unsafe, ranging from labeling requirements to outright bans on things like asbestos

Heavy hitters  “DuPont strongly supports TSCA modernization, and we believe that successful reform requires this sort of bipartisan approach,” said Vice President and Chief Sustainability Officer Linda J. Fisher.

Cal Dooley, president of the American Chemistry Council, commented that this “constructive, balanced proposal” wasn’t perfect, but was a step up.

This may not be bases loaded with Casey at the bat, but even a solo home run would be better than a never-ending partisan stalemate tied at zero. There’s reason for enthusiasm. But, in the words of Joe Walsh, we’ll be taking it play by play.

REACH Fees Shrink for SMEs

Last year, a review of Europe’s REACH regulation concluded that complying with REACH regulation obligations posed a disproportionate cost burden on Small to Mid-sized Enterprises, or SMEs, relative to the burden of larger companies.

Depending on the size of the company, SMEs could benefit from reductions of 35%-95% in relation to standard registration fees, and of 25%-90% in relation to standard fees for authorization requests, says IHS, a provider of global market and economic information

REACH fee increase for larger companies. However, REACH fees for larger companies will actually increase. Your company is considered large if the headcount is above 250 and revenues are higher than 50 million euros per year.

The hope is that

  1. increasing fees for larger companies and
  2. decreasing fees for small to mid-sized companies

will level the playing field, and overall the revenue paid to the European Chemicals Agency will be balanced and unchanged.

However, again. But all fees will also be adjusted for inflation. This means increased. Confused? Welcome to REACH!

I’d say don’t worry too much about the fee change, just be aware it’s happening. Changes will be rolled into REACH-IT by Friday, March 22, 2013.

REACH-IT is closed until that date for maintenance / adjustments towards a new fee structure.

Apple Supply Chain Takes a Green Arrow

Interestingly, nearly half of Apple’s suppliers that underwent a focused environmental audit last year violated the company’s standards.

Those who violated standards were cited in China’s Institute of Public and Environmental Affairs (IPE) pollution database.

Apple inside

The IPE was founded by environmentalist Ma Jun, and has already gained renown for its China Water Pollution Map and China Air Pollution Map. These online maps, linked to databases of government-sourced information on pollution, give citizens, corporations, media, and other interested parties access to details related to water and air quality across the country.

The air and water pollution web site lists 80,000 records of violations by noncompliant enterprises.

The surprising thing is that the Chinese government is letting these things be tracked publicly. Perhaps Ma explains why with this statement:

“China’s environmental problem is so big that it can’t be resolved without engaging the public,” said Ma, “and access to information is the pre-condition for any meaningful public participation.”

Apple core suppliers

The report revealed other tidbits:

  • 147 facilities were not properly storing, moving or handling chemicals, e.g., some facilities did not provide anti-leakage protection or provide separate storage for incompatible chemicals.
  • Some 85 facilities failed to label hazardous waste storage locations and chemical containers, while 119 facilities lacked management procedures for labeling hazardous waste.
  • The report also outlined wastewater and stormwater management issues, and found that 96 facilities failed to adequately monitor and control air emissions.
  • Apple found only one breach it labelled as a “core violation”: a supplier intentionally dumping waste cutting oil into a restroom receptacle.

Apple’s “responsibility policy” is online, here.

OSHA’s Public Cadmium Poisoning Assessment Tool

As of today, January 2, 2013, the US Environmental Protection Agency (EPA) is withdrawing the final Toxic Substances Control Act (TSCA) Rule that was issued on December 3, 2012 regarding cadmium. The rule being withdrawn would have required some manufacturers of consumer goods containing cadmium to report on health and safety data to EPA. 

In an unrelated move but worth mentioning, some factions of the U.S. government (led by OSHA*) have developed and made available a tool for cadmium poisoning mitigation. The idea is that you interview someone who may have been dangerously exposed to cadmium. You enter their answers into the tool, called the OSHA Cadmium Biological Monitoring Advisor.

The data you enter, simple answers to simple questions, is rationalized, then crunched against known data points and thresholds for cadmium exposures of various types. Instructions for quickly and rightly mitigating any toxicity related damage are provided instantly.

Technically, the tool exists to address the federal monitoring and surveillance requirements of the general industry Cadmium Standard (summary can be found here). But if you feel you or an employee may have been overexposed to cadmium, read on.

The OSHA Cadmium Biological Monitoring Advisor. The tools works by prompting the user with key questions and relying on data from biological monitoring tests to determine an appropriate course of action. This Advisor analyzes biological monitoring lab results for currently exposed workers. It determines the biological monitoring and medical surveillance requirements of the general industry Cadmium Standard, 29 CFR 1910.1027, applicable to those results.

Technically, the tool is designed for experienced medical professionals, but it is also available to workers and the general public. There’s no requirement for using the OSHA Cadmium Biological Monitoring Advisor. The results presented by the tool are, obviously, critically dependent upon the accuracy of the input data.

If you have any questions or concerns, OSHA asks that you contact them directly or find the advice of an expert.

There are subtleties to the restrictions around industries regarding cadmium exposure. For instance:
For general industry, an employer has 30 days to reassess the employee’s occupational exposure to cadmium. For the construction industry, there’s no time limit to reassess occupational exposure. (The logic of this escapes me, perhaps someone can clarify in the comments section.)

Similar rule notes can be found here: a few subtleties.

Cadmium poisoning sites and signs.  In its elemental form, cadmium is either a blue-white metal or a grayish-white powder found in lead, copper, and zinc sulfide ores. However, most cadmium compounds are highly colored from brown to yellow and red. Cadmium’s uses vary from an electrode component in alkaline batteries to a stabilizer in plastics.

OSHA estimates that approximately 70,000 employees in the US construction industry are potentially exposed to cadmium. Specifically, OSHA asks employers to establish regulated areas whenever the following construction activities are conducted:

  1. Electrical grounding with cadmium welding
  2. Cutting, brazing, burning, grinding, or welding on surfaces that are painted with cadmium-containing paints
  3. Electrical work using cadmium-coated conduits
  4. Using cadmium-containing paints
  5. Cutting and welding cadmium-plated steel
  6. Brazing or welding with cadmium alloys
  7. Fusing of reinforced steel by cadmium welding
  8. Maintaining or retrofitting cadmium-coated equipment
  9. Wrecking and demolishing where cadmium is present

Symptoms of cadmium poisoning are listed here.

Start using the tool here: OSHA Cadmium Advisor.* Groups who made the Advisor Tool available: Occupational Safety and Health Administration of the Department of Labor (OSHA), along with the Office of the Solicitor of Labor (Who?) and the Office of the Assistant Secretary of Labor for Policy (OASP)

Korea’s REACH Chemical Law

In February 2011, the South Korean Ministry of the Environment released a draft of “the Act on the Registration and Evaluation of Chemicals.” The Ministry of Environment is the South Korean branch of government charged with environmental protection. The present minister is Lee Man Ee. Notably, in addition to enforcing regulations and sponsoring ecological research, the Ministry manages the national parks of South Korea.

The new chemical restriction Act has often been called REACH-like. It will have a list of substances of concern, like REACH. The current Act on the Registration and Evaluation of Chemicals will be updated significantly by the new Act, which will regulate both new and existing substances.

The legislation is expected to come into force in 2013.

About the new Korean REACH. The new draft Act requires manufacturers and importers of chemicals to notify substances (i.e. submit data such as quantities of production or import in the previous year) to the South Korean Ministry of the Environment.  There will be a list of substances of very high concern, there will be preregistration, registration, and authorization.

Sound familiar? If you put it to your ear you can hear oceans, all the way to the land of REACH.

Korean REACH registration. Registration will apply to two categories of substances:

  1. new substances
  2. priority existing chemical substances (priority on the basis of assessed risk)

The law firm Keller and Heckman summarized the landscape recently by saying that are many favorable aspects of the Draft Act. But there are also many uncertainties, and potentially unfavorable, aspects from the perspective of U.S. industry.  We are well-advised to be alert to the following:

  1. The criteria for deciding whether substances are of priority for registration are unclear
  2. The exemptions are far fewer than they should be, given the substantial burdens
  3. The South Korean Ministry of Environment is given unbridled discretion to decide the scope of the exemptions
  4. There are significant issues surrounding provisions for maintaining the confidentiality of data
  5. There is no provision for utilizing the information already assembled under REACH in order to avoid duplication of effort
  6. The standards by which the South Korean Ministry of Environment will decide whether a substance is of concern are not specified
  7. There are many other uncertainties that should be addressed during the legislative process
  8. The deadlines for Registration are too compressed
  9. The minimum tonnage band that triggers the registration obligation is too low
  10. No procedures are set out to challenge MOE’s decisions

PwC: Climate Change Breaks Supply Chains

PricewaterhouseCoopers (PwC) is the world’s largest professional services firm. It’s not known for scare tactics or liberal crazymaking. Yet PwC’s new report on climate change says that investors in long-term assets or infrastructure, particularly in coastal or low-lying regions, need to consider pessimistic scenarios. climate-change-risk

In other words, risk assessors must plan for flooding, shutdowns and delays in the supply chain. If Hurricane Sandy didn’t make that obvious, this report will.

“The International Energy Agency, for example, now considers 4C (Celsius) and 6C scenarios as well as 2C in their latest analysis,” says the report. Under those conditions, the broken supply chain is a major business problem.

Specific sectors of concern Sectors dependent on food, water, energy or ecosystem services need to scrutinize the resilience and viability of their supply chains, while carbon-intensive sectors need to plan for more invasive regulation and the possibility of stranded assets, PwC said.

Drought, poor quality, flooding and other water-related challenges negatively affected 53% of the world’s largest listed companies in the past five years, up from 38% last year, yet there’s been no increase in the number of corporations providing water-related risk assessments to investors, according to an October report by the Carbon Disclosure Project.

In September, CDP’s Global 500 Climate Change report found 81% of reporting companies have identified physical risks from climate change, compared to 71% in 2011, with 37% perceiving these risks as a “real and present danger,” up from 30% in 2011 and 10% in 2010. —Environmental Leader

PwC suggests that many companies now view preparation for climate change as not only an indicator of resilience, but also as a competitive advantage.

Action your company can take:

  • Consider getting involved in a program like the Corporate Leaders Network for Climate Action.
    Consider investing in risk mitigation technology, such as a software module that tracks emissions and waste from your manufacturing processes.
  • Consider a web-based (subscription) module for VOC and HAP management, such as Actio Regulator.

Review the PwC reports:

  • PwC Report 1
  • PwC Report 2


New Module for Supply Chain Risk Management

Bank of America Merrill Lynch has announced a supply chain risk mitigation software module on an electronic platform. This is in keeping with the way things are going. Supply chain risk is the big topic of Q4 it seems, and likely a hot pain point in 2013. Even USA Today is telling the story, exposing the international and vigorously complex pharma supply chain.

Supply chain financial compliance tool. The new online supply chain finance module is available on Trade Pro. It’s called Trade Pro Supply Chain Finance. It offers buyers and suppliers around the world what BOA is calling “a powerful, collaborative tool and leading-edge technology to manage risk while freeing up working capital, streamlining business processes and reducing the costs associated with supply chain management.”

In other words, you log in and share information is a sort of material disclosure portal, or knowledge share central software platform.

BOA says the module is available in nine languages. The idea — a good one — is that the online software offers robust online reporting, allowing suppliers to create dynamic reports on a scheduled or ad hoc basis.

The expectation is that subsequent versions of this module will incorporate meatier collaboration and automation functionality. We’ll keep our eye out for any user notes we find.

The expectation is that subsequent versions of this module will incorporate meatier collaboration and automation functionality. We’ll keep our eye out for any user notes we find.

The Size of Boeing’s Supply

Good news: Boeing will continue assuring a worldwide supply of C-17 aircraft, the giant behemoth aircraft with payload potential of over 85 US tons (pictured below). All this is possible via a $2 billion follow-on contract from the U.S. Department of Defense.

Reuters published a small story yesterday about Boeing. The piece mentioned inherent “difficulties in managing 325 suppliers building parts for the 787 at 5,000 factories worldwide.” [Related article, see: 10 Best Practices in Managing Suppliers]

Boeing supply chain size. According to a Boeing internal document, Boeing had reduced its sprawling supply base to 6,450 suppliers in more than 100 countries (see gray box “Suppliers by the numbers”) in 2005. The supplied parts are (or were) organized as depicted in the image below, which is interesting even if it’s dated material: here’s how a product supply chain can be blocked out:


Take a look at the more specific 787 supply chain, sourced from the APICS blog and copyright of Boeing:

The 787 supply chain consists of 325 suppliers for one airplane. And the supplier relationship model is different.  The model takes Boeing’s well-touted supplier-partner roles a step closer to a true partnership.

“There will be only a few dozen large suppliers [on the 787 program] and they will carry a greater responsibility than on previous commercial new airplane projects,” Walt Gillette has said. Gillette of course is the esteemed former 787 program vice president of Engineering, Manufacturing and Partner Alignment.

Suppliers on the 787 program were not just consulted on how to improve current systems or components they provided, they were sharing risk by participating early in the design-build process.

This model seems to have worked and is fuel for thought for the rest of us.

EPA’s Sustainable Materials Management (SMM) Electronics Challenge

Executives from LG Electronics, Panasonic, Samsung, Sharp, Sprint, and Staples and Best Buy convened at a certified electronics recycling facility in Romeoville, IL. Lisa Feldt, deputy assistant administrator for EPA Office of Solid Waste and Emergency Response, attended representing EPA.

The occasion was EPA’s Sustainable Materials Management (SMM) Electronics Challenge. Apparently Dell, Sony and Nokia have also signed up. Also, if anyone’s keeping score, in the past, Dell, HP, Samsung, Apple, and Best Buy have been public supporters of a bill along these e-waste lines, in particular the Responsible Electronics Recycling Act.

Sustainable materials management itself is not a new concept, the buzz and energy around it perhaps is. Today’s event was essentially a signing party.

For readers interested in sustainable materials management software, Gartner Group, the renowned analyst firm, puts out annual reports around this subject. Oftentimes sustainability is lumped into GRC, or Governance, Risk and Compliance.

A Gartner paper called “Hype Cycle for Governance, Risk and Compliance Technologies, 2011” mentions that “safety and sustainability priorities, in addition to the ongoing legislation mandating compliance, put a spotlight on safety and environmental performance. Businesses are demanding standardization, simplification, transparency and speed.”

For software to manage the challenge, the Gartner report mentions companies such as Actio Corporation, EtQ, IHS, Medgate, ProcessMAP, PureSafety, SAP, and The Wercs.

By participating in the SMM Electronics Challenge, leaders in the electronics industry are committing to send all — that’s 100% — of the used electronics that they collect to third-party certified refurbishers and recyclers and to increase the amount of used electronics they collect.

Through this challenge, EPA is providing a transparent and measurable way for electronic companies to commit to safe and environmentally protective practices for the refurbishment and recycling of used electronics, and publicly show progress toward recycling goals.

For more on this initiative, see

*Attendees of note at signing ceremony in Illinois:
Lisa Feldt, EPA Deputy Assistant Administrator for the Office of Solid Waste and Emergency Response
Laura Bishop, Best Buy Vice President for Government Relations
Y.K. Cho, LG Electronics Senior Vice President
Peter M. Fannon, Panasonic Vice President for Corporate and Government Affairs
Mike Moss, Samsung Director for Corporate Environmental Affairs
Jim Cole, Sharp Director of Technical Services and Support
Ralph Reid, Sprint Vice President of Corporate Responsibility
Bob Wolfe, Staples Regional Vice President for Chicago