Agile Electric: Quality Issues in a Global Supply Chain
(9 pages of text)
The case describes the evolution of a global multi-tiered supply chain involving one of the world’s largest automotive original equipment manufacturers (OEMs), its tier 1 supplier — Automek, a U.S.-based global corporation — and the tier 2, tier 3, and tier 4 suppliers based in India.
With Automek’s engineering support, India-based Agile Electric had successfully developed many parts for the OEM in the past. Based on this experience, Automek buyers placed an order with Agile for a new product — an actuator assembly. In developing this product with little support from Automek, Agile was concerned due to its lack of knowledge concerning the suppliers for the actuator assembly components and the critical requirements. To allay its concerns, Automek promised to locate suppliers and assess and validate the suppliers based in India. Agile then invested in the assembly line and developed the actuator assembly. When supplies started, the OEM reported many quality problems, traceable to the tiered suppliers.
Along with quality and parts supply issues, the issues of subsequent liability in the case of a recall by the OEM were faced by members of the supply chain. Agile felt that since Automek had selected or approved the suppliers, and since Agile had had no original product expertise, that Automek should take responsibility for resolving the quality problems.
The case is designed for a course in operations management. It can also be used for a short-term training program on supply chain management. The instructor can focus on the risks that both buyer and supplier face in a global supply chain and the various factors that should be considered by both sides before committing to a relationship. The case can also be used to analyze the necessity, significance, and methodologies for the transfer of (process) knowledge between buyer and supplier.
Specifically, the following objectives can be accomplished:
- Understand the risk of incurring major liabilities in an international supply chain, resulting from Western business practices of passing on liability, field failures, warranties, delivery defaults, and carefully worded legal contracts. If a supplier were to understand these risks and incorporate them in the costs, product costs would move upwards significantly.
- Highlight the consequences of subverting established procedures such as advanced product quality planning in developing new sources of supply.
- Understand the importance of process knowledge and the internal quality practices of members in a supply chain. This includes the importance of supplier assessments and protecting oneself through enhancement of controls at suppliers’ end and/or one’s own end.
- Highlight the importance of supplier development and the willing participation of both parties (buyer and seller) in the development process. The case discussion may be used to emphasize the concept of long-term co-prosperity as essential to supplier development.
India, Medium, 2010
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