In the first of a two-part series, Jon Backes, vice president customer experience at The Crosby Group, explains why end users should appeal for greater transparency of manufacturing supply chains.
I recently found myself in need of a mini fridge. As most people in an e-commerce dominated world do, I began my search on Amazon. When searching for a “mini fridge,” a person is inundated with endless options – not only in aesthetic and functional choices, but also supply chain related. Fulfilled by Amazon. Shipped by FlybyNightAmazonSeller. Made by NoNameFridgeMaker. Get it as soon as Sunday! 5 left in stock!
These options seemingly led down a rabbit hole of what I was really after – quality workmanship, transparency and warranty by the manufacturer. After endless searching, I turned to a trusty big box retailer. Why might you ask? They offered brand names, with warranties and return policies that were easy to understand. It was also evident that some of the products were made and serviced in the USA. I was confident, based on the facts provided, that I was purchasing a good product.
While the evidence wasn’t 100% conclusive, it was exemplarily of a highly vertically integrated supply chain. My mini fridge example is similar to the rigging industry – trusted distributors partnering with trusted, well-integrated manufacturers to provide high levels of service and quality products
In this article, I aim to explore the differences between vertically and non-vertically integrated supply chains. I was motivated to discuss and explain the differences between different types of supply chains by discussions with our distributors. Given that distributors interact with end users daily, they see the confusion with end users that can be generated by the number of options in the market place.
I aim to build a robust case for vertically integrated manufacturing and campaign for greater transparency when riggers or representatives of end users try to trace back to the origins of the equipment they source and use. The industry must strive to eradicate the gray areas that currently exist. A rigger wouldn’t be expected to use an item that he or she didn’t know the capacity of, so why should it be ok if they don’t know where and how it was made? It is a startling gap in some users’ knowledge base.
Understanding the difference
There are three main kinds of supply chains that exist in the lifting and rigging marketplace:
- Those where the vast majority of a company’s product is vertically integrated.
- Those where a significant portion of materials or goods used for manufacturing is out-sourced, potentially from abroad.
- Those where product is sourced wholly made in another country but branded and claimed as one’s own.
The first point is interesting because it doesn’t say 100% of a company’s product is vertically integrated. That’s an important point because it acknowledges that even those companies with the highest level of control of their supply chain, still source components and services from other providers. That is perfectly fine provided it is done with transparency. After all, a product isn’t safe or otherwise because of the extent to which it is vertically manufactured. It just means complete knowledge about a supply chain is important, as we will explore.
Vertical integration provides complete control of the manufacturing process from raw material to finished goods. This control ensures product inspection throughout the process, affording a high level of quality and consistency across all product lines. It gives a manufacturer supply chain control over inspection, machining, forging, scheduling, engineering and other related processes. It also gives the manufacturer the ability to adapt and react to market needs and trends on a much shorter time line.
One of the most important aspects of vertical integration is transparency. The more vertically integrated a company is, the easier it will be for those further down the supply chain to find out the origins of the remaining percentage. That makes sense because the more a company invests in vertical integration, the greater the emphasis they place on supply chain transparency. That transparency will cascade down to distribution partners and end users.
More vertically integrated companies will also have strong relationships with the few, select supply chain partners they work with. Take a look at the raw material suppliers of a company that favors vertically integrated manufacturing. Most will be transparent about who they work with, and you’ll probably find that they have long-standing relationships with each of them. Consider the strength that those connections play in supporting the manufacturer, to the distributor, all the way through to the end user.
The gray areas
The second type of supply chain is where end users can start to see gray areas or find obstacles when they try to trace back to a product’s origins in terms of its country, steel mill or otherwise. Differences in regional legislation plays a part here because it dictates the extent to which a manufacturer might be able to imply that a product is manufactured in its entirety in a particular country. Based on these regional differences, certain processes related to the steel for example—cutting, bending or assembling—are completed overseas. When a product is prepared for shipment, in most cases, only the final phase is evident on the packaging or branding.
The final model is where an item of lifting or rigging gear is manufactured in its entirety overseas and brought into a country where it is stored in a consolidated warehouse. There, it is branded by a company and sent to customers with documentation and letterheads of that provider. In many cases, it is obfuscation at work. Unsuspecting end users could acquire, say, a dozen ratchet lever hoists from a UK-based supplier and assume that the batch was made up the road in Birmingham. In fact, its origins might be five thousand miles away and the integrity of the manufacturing unknown even to the retailer, let alone the rigger who gets to grips with the crank handle.
It’s a situation that rigging suppliers and distributors shouldn’t have to be in, but end users are beginning to demand higher transparency. Sophisticated users and companies are seeking to better understand their providers supply chain, and we as manufacturers should be happy to comply. In fact, we should be leading with highest level of transparency.
Distributors and end users alike should challenge suppliers, who in some cases don’t fully disclose the origin of raw material sources. Multiple manufacturing processes and standards are at play throughout the journey from raw material to finished goods, and there’s often a lack of product life cycle commitment. How much control really is there over safety, quality and responsibility? Suppliers should be forthright about answering this question.
I acknowledge that the re-branding market isn’t new and many have been sourcing from non-vertically integrated manufacturing supply chains for years without significant problems. Nor can it be said that non-vertically integrated supply chains are inherently unsafe. And I reiterate that I’m not suggesting 100% ownership of such processes is even a realistic business model to aspire to. However, right now, too many people don’t know enough about the products they’re using—and that’s the point.
Imagine if something goes wrong with a product or an issue arises during pre-use or periodic inspection. In a vertically integrated manufacturing supply chain, it is very easy to trace that issue back to the source of the problem. In fact, it is likely possible to find the batch of steel it was machined from, the hammer where it was forged, and the individual who signed it off. Think about a similar scenario where a product has been shipped on a boat for three months to a consolidated warehouse, stored for weeks, buffed up and re-branded. Where would you start? It’s a case of tracing a process back through inventory, overseas and so on. Perhaps a shipment date when it left port will eventually be found. It is the difference between hours and weeks, which might one day be important.
Ask yourself: what does the supply chain of the equipment in your rigging store look like? Do you even know? Have you asked but struggled to get clear answers? What does that say about the integrity of your equipment? If there are many more tiers than End User—Authorized Distributor—Manufacturer—Raw Material Supplier, you might want to find out what they are.
In my next article, I will look at vertically integrated manufacturing from the perspective of the manufacturer looking to gain greater control over a supply chain.