Daily Archives: December 20, 2010

Car Companies Do It Again!

Editor’s Note: Today’s post is from Dick Locke, Sourcing Innovation’s resident expert on International Sourcing and Procurement. (His previous guest posts are still archived.)

For a blog post, I don’t often get off on international issues but this one has been making me crazy for years.

From an op-ed in last Wednesday’s New York Times:


In addition, even when it comes to the trucks and S.U.V.’s that Americans actually do want to buy, the bailed-out automakers are building vehicles faster than they can be bought. Inventory levels at both companies have ballooned this year, to the point where G.M. now has nearly three months’ worth of sales sitting on its lots and Chrysler’s excess inventory (in terms of days of supply) is exceeded only by such marginal players as Saab, Mitsubishi, Suzuki and Mazda.

Allowing new cars to pile up on lots may well be the most deadly of Detroit’s new-old bad habits, as the practice not only artificially inflates sales numbers (which, ridiculously, are booked upon production, not when a vehicle is driven off the lot), but also lead to yet more incentives, fleet sales, subsidized leases and subprime lending.

     from A Green Detroit? No, a Guzzling One by Edward Niedermeyer

The auto companies’ manufacturing people love to brag about low in-plant inventory. But can you think of a more expensive way to hold inventory than in the form of finished goods?

Between inflexible supply contracts and labor contracts that required paying laid-off employees, the car companies had really no short-term variable costs, so it paid to continue to run factories when there were no sales. However, the labor contracts should have gone away, and I hope they negotiated more flexible supply contracts. Maybe this is just habit?

Thanks, Dick!

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Another Reason to Be Wary of Outsourcing

As per this recent article in Industry Week on how the New CPSC Complaint Database Is Trap for the Unwary, as of March 2011, the US is going to have a searchable electronic database of consumer complaints, implemented by the Consumer Product Safety Commission (CPSC). In a mere four months, instead of having to file a request to the CPSC for the release of documents and wait for the results of a manual search, a consumer will be able to go online and do their own search at any time — and retrieve all complaints that are over 10 days old unless the manufacturer has proven (and the CPSC agrees) that the reports are inaccurate.

However, instead of having 15 days to review a complaint, a company will now have as little as 5 days (as the CPSC will have 5 days to forward a complaint to the manufacturer) to review a complaint and, whereas before the CPSC would not release the documents until the manufacturer’s response was reviewed (provided the response was provided by the deadline), the CPSC is now required to release all complaints after 10 days, whether the manufacturer’s response has been reviewed or not.

As per the article:

[I]ncorrect reports are likely to be included in the database and available to consumers, reporters or advocacy groups. … [T]he CPSC could perform compilations that may lead it to believe that a substantial hazard is presented by your product. Finally, plaintiff’s attorneys will use these complaints to prepare class action petitions, which will require significant resources to derail or defeat.

In other words, if a product that you manufacture fails, you could be in serious trouble … even if you outsourced the manufacturing to a contract manufacturer. It’s yet another reason to be wary of outsourcing, because if your contract manufacturer doesn’t enforce strict quality control, and the product fails, not only will everyone be able to find out each and every complaint 10 days after it is filed, but every class action lawyer in the country looking to make a quick buck will be automatically compiling evidence against you!

Maybe it’s time to bring (some of) your core supply chain back in house?

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