New Trend in Manufacturing: Vertical Integration Through Strategic Supplier Relationships. But What About Quality?

May 20, 2014

By Sparta Editorial


The first question that comes to mind is “how can you ensure quality, reliability and safety amid your expansion and vertical integration of your supply chain through greater industrial partnership, equity ownership, joint ventures and other relationships?” Lately, there has been a spate of high profile recalls. The root cause for greater than 50% of those recalls or post market issues have been attributed to suppliers. What this means is when you have visibility, you can respond and react faster to remediate issues early on. Let’s look at some examples of how industry leading technology companies are taking vertical integration to the next level:

  • BMW: is investing in carbon fiber which is raw material for the CFRP in the BMW M models and i-series of cars. The joint venture called SGL Automotive Carbon Fiber in Moses Lake, WA is the world’s largest CF manufacturing operation and is poised to triple the present output (current capacity of 100,000 cars per year) by 2016.

  • Apple: is investing in Sapphire Glass manufacturing operations through its capital infusion for GT Advanced in Mesa, AZ. What this investment provides Apple is mass production of high quality sapphire glass for its future iPhones, iPads, iWatch and other devices at a lower price point and with superior optical quality.

  • Tesla: is building its own Li-Ion cell manufacturing plant in TX so not to be slowed down by the limited global supply chain headed by Panasonic. As Tesla increases its output with new models, they foresee supply disruptions that can lead to critical mass issues as they strive to reach global scale.

As the quality guru Ed Deming stated in his 1-10-100 rule, having visibility to the issues earlier in the supply chain costs less to fix and remediate than if it had been discovered later or even once a product makes it into the marketplace. Recalls cost a lot of time to resolve, costs a lot to remediate and takes away resources from other value added activities. The cost elements bleed into long term financial effects via legal, civil and criminal charges and long term brand value devaluation, Ultimately, the effects of recalls are brand reputation, market share erosion and adverse shareholder value.

The challenges that this complex supply chain presents are not the lack of supply, delivery, inventory, critical supply data, but the visibility of critical information to perform proactive tasks or to make impactful decisions. When multiple stakeholders are present in a vertically integrated “out-of-the–four walls” supply chain, it is imperative to provide near real-time access to a common system so there is no latency in using leading indicators instead of trailing indicators to initiate critical tasks.

Just ask yourself this: Is it possible to ignore supplier or material issues that feed your business and still make equity or capital investments for JV partnerships, or to buy out other vendors to improve your competitive advantage, or provide the means of business continuity to expand output and market position? The answer should be that it is imperative to have full control and visibility of issues caused by these suppliers for safety, reliability, high quality products, brand value and profitability.

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