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Management article
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Reference no. ICR081D
Published by: International Commerce Institute
Published in: "International Commerce Review", 2008

Abstract

High profile product recalls are on the increase. One reason for this is the development of extended supply chains involving high degrees of outsourcing and sub-contracting which compound the difficulties of monitoring product quality. To rise to the challenge, supply chain managers need to rethink their sourcing strategies along many dimensions. For example, while the immediate cost benefits of ''playing the market'' on price are obvious, the hidden costs of reduced transparency - including difficulties in monitoring and certification - may be high. Perhaps a longer-term relationship with fewer trusted suppliers is a better way forward. Likewise, negotiating hard to deliver the ''best price'' may encourage suppliers to agree terms to win the contract, and then to recoup their losses by underhand means such as cutting corners on quality. The actual management of product recall processes also needs revisiting. For example, the growth of secondary markets such as on-line auctions means that ''recalled'' products may continue to be sold outside the control of traditional distribution channels. The only way to avoid future reputational risk is to build these emerging considerations into the design and implementation of day-to-day operations.

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Abstract

High profile product recalls are on the increase. One reason for this is the development of extended supply chains involving high degrees of outsourcing and sub-contracting which compound the difficulties of monitoring product quality. To rise to the challenge, supply chain managers need to rethink their sourcing strategies along many dimensions. For example, while the immediate cost benefits of ''playing the market'' on price are obvious, the hidden costs of reduced transparency - including difficulties in monitoring and certification - may be high. Perhaps a longer-term relationship with fewer trusted suppliers is a better way forward. Likewise, negotiating hard to deliver the ''best price'' may encourage suppliers to agree terms to win the contract, and then to recoup their losses by underhand means such as cutting corners on quality. The actual management of product recall processes also needs revisiting. For example, the growth of secondary markets such as on-line auctions means that ''recalled'' products may continue to be sold outside the control of traditional distribution channels. The only way to avoid future reputational risk is to build these emerging considerations into the design and implementation of day-to-day operations.

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