US manufacturers know all too well the competitive pressures and the shortage of stateside supplies that drive the use of overseas supplies. Foreign suppliers often deliver quality parts at affordable prices and for US manufacturers to stay competitive, there’s often no way around utilizing these resources. However, working with foreign suppliers can be confusing and risky for both new and experienced manufacturers.
For all industries, and perhaps even more so in manufacturing, risk management is as much about prevention as it is about insuring against losses. Companies can successfully manage these complex risks by putting the following best practices into action:
Know your suppliers. It’s important to do your research on the companies that supply to you as well as their suppliers. Ask questions that help illuminate sourcing and origin of materials, quality control, and general business stability. For starters, understanding the supply chain includes delving into the track record, finances, and customer base of each supplier you rely on. Perhaps most importantly, find out what contingency plans the supplier has in place should there be a disruption to their production such as a natural disaster or political unrest.
Scrutinize the product. Quality control is essential and should be an ongoing process. Understand how your suppliers produce the materials or components you use. When they make changes to a key process or part, make sure you are told in advance and can weigh in. Then test the revised component or material to make sure it meets your standards and the previously established specifications.
Be prepared to shoulder product liability risk. It can be difficult, if not impossible, for an aggrieved party to pursue a foreign manufacturer when a product defect rears its ugly head, so the US-based company often ends up bearing the full weight of litigation. To defend effectively against claims, make sure that you have agreements in place with your foreign suppliers that allow you access to information that could help during a lawsuit.
Adopt industry-approved standards. Know your industry's regulations that apply to importing and outsourcing products and services, as well as any related legal obligations. Be sure that every operator in your supply chain understands and adheres to these regulations.
Document, document, document! When it comes to arrangements with foreign suppliers, get all of it in writing—everything from purchase contracts to certificates of insurance where applicable to safety and quality control measures you've mutually agreed upon. Written proof of your high standards to ensure regulatory compliance and quality control is the best defense against adverse legal action.
For more information on how to manage risk when working with foreign suppliers, review this checklist of best practices. Still have concerns about working with foreign companies in your supply chain? Marsh & McLennan Agency (MMA) has a team of experts that can help your manufacturing business manage the inherent risk that is part of these important relationships.