Supply chain failures seem inevitable these days, but are especially disconcerting when they indicate a larger systemic problem in critical equipment that is supposed to save lives. The U.S. Army just announced a recall of 44,000 Advanced Combat Helmets (ACH) manufactured by ArmourSource LLC (formerly Rabintex) due to concerns that they provide substandard ballistic protection. Another similar recall of 34,218 ACHs manufactured by Gentex Corp. occurred in May 2009. The Army did not reveal exactly how they discovered these defective helmets and what led them to quarantine some of the inventory. This recall affects about 4 percent of the one million ACHs in inventory. The helmets do not meet Army specifications. According to an announcement by the Army, “There is evidence that ArmorSource and Rabintex ACHs were produced using unauthorized manufacturing practices, defective materials and improper quality procedures which could potentially reduce ballistic and fragmentation protection.” The Army is not sure about either the exact risk to soldiers wearing the recalled helmets or whether any are being worn in a war zone. In the Gentex recall, the company alleged that a subcontractor had falsified certificates of compliance for the steel screws that it supplied. The exact nature of the ArmourSource recall has not been reported yet.

This situation highlights supplier management and supplier performance issues that the Army needs to address and raises more questions than answers. Some of these questions are:

• How does the U.S. Army in particular and the U.S. military in general determine whether suppliers are meeting its specifications and meeting its quality standards on an ongoing basis?
• How will the Army determine that the defective helmet problem is not more widespread than reported, particularly if so many aspects of ArmourSource’s manufacturing practices and process seem to be out of control?
• What is the Army doing about sub-tier supplier risk? What processes and practices are companies such as Gentex using to manage their suppliers and ensure that these suppliers are complying with their standards and government standards? How are these standards communicated to suppliers?
• How does defective sub-tier supplier material get into the product in the first place? And how do these quality escapes to the end customer, our troops, occur?
• How does the military track and trace products in the field? In the case of products critical to the lives and safety of U.S. troops, why is there no traceability? Soldiers have been give instructions about how to determine whether they are using a defective helmet so that they can exchange their helmets, but there seems to be no tracking system in place to know immediately where defective product has been deployed.

While the suppliers in question are saying that the defects affect a very small percentage of the helmets, why did it take the customer, the Army, not these prime contractors, to discover the defects and in this case, long after the fact? And how did these suppliers allow the defective product to escape to the customer? The supplier management and supplier quality systems do not appear to be in control, and the chances of more widespread problems are very high. The Army needs to do a thorough investigation of its procurement, supply management, and quality processes and practices and uncover how such situations can occur and potentially overhaul its approach to supply management and quality management. Then, it needs to take the necessary preventive measures to avoid these risks in the first place. Quality should not be left to the end user, our troops, to uncover defects in the equipment that their lives depend on. The recalls and finding solutions to these problems are costly to all. But no one should have to pay with their lives.

For more information on sub-tier management, here are a few of my previous posts:

Supply risk: the sub-tier or multitier challenge

Sub-tier supplier challenges loom even for the savvy

Sub-tier risk factors: trying to control the uncontrollable 

-Sherry R. Gordon

A recent article in the Manchester Guardian reported on the latest sub-tier supply risk horror story. It is alleged that British supermarket chains Tesco, Asda, Marks & Spencer and dozens of other supermarkets may be inadvertent parties to a different kind of laundering scheme – beef laundering. Greenpeace, after a 3-year undercover investigation, called this situation to the attention of Brazilian authorities, who are investigating reports that major cattle farms and slaughterhouses are sourcing some of their beef from illegal sources. These illegal farms have been deforesting the rainforest to raise cattle. Illegal sources are alleged to have been purposely mixed with legitimate sources in order to hide the illegal beef and leather. This illegal beef is nearly impossible to trace. Apparently Brazilian supermarkets are cancelling contracts with the illegitimate farms, but the British supermarkets are still in the process of auditing and verifying that their meat sources are, in fact, contaminated with illegitimate products.

This situation is disturbing from many points of view. The lack of traceability of the meat is certainly a problem because it is causing deforestation of South American rainforests.  Food safety should also be a critical concern. How does the consumer know that the illegal farms adhere to proper health standards and are not putting sick cattle into the food chain? The meat, leather and cosmetic ingredients that come from Amazon cattle are shipped worldwide, which may mean that many more companies are inadvertently supporting deforestation activities and global climate change.

Sub-tier supplier risk surfaces again. Beef laundering is the latest in a series of unpleasant supply chain discoveries. While such situations may be hard to predict or prevent, they can be mitigated. As companies address supply risk, they need to be continually vigilant about potential risks. And when supply chain problems surface, firms need to act quickly to verify and remedy, if necessary, not wasting time denying the charges. Being proactive goes a long way to avoiding even more damage to the perception of corporations. When the public perceives that a company is not proactive about supply chain risks, the damage caused by poor public perception can easily translate into lost revenue.

The failures at Peanut Corporation of America are tragedy in every way. This supplier failed to meet both regulatory and customer requirements. Its customers failed either to uncover or report the failures, and people died as a result. Now a healthy, everyday product is suspect, and faith in the U.S. food processing industry has been shaken by tainted product. Food contamination isn’t just a Chinese problem any more. According to Lora Cecere, an analyst at AMR Research and a food supply chain expert, food safety has ranked low in the U.S. as a supply risk concern (12th out of 15 in AMR surveys). However, in China it is ranked second. The peanut scare has been a wakeup call and confidence buster about U.S. food safety.

This situation illustrates an order-of-magnitude regulatory failure, compounded by lack of state inspection resources and lack of oversight. It also illustrates a worst-case scenario of supplier risk and abdication of responsibilities.

Why did this failure occur? In quality terms, the food industry relies more on inspection than prevention (and even inspections don’t always occur or are poorly done). And it is well known that quality inspection is far more expensive and far less reliable an approach than problem prevention. Preventive versus reactive is basic when it comes to quality.

While inspection is important in the food industry, preventive actions need to be institutionalized and enforced to avoid food contamination in the first place. Inspection, in fact, should focus on assessing preventive measures in the area of quality and safety. Do we want to know how many contaminated batches of food are found? Or worse, do we want the food industry to leave quality control in the hands (or stomachs) of the customer? Or would do we want verification that that all food safety rules and cleanliness standards are in fact followed to prevent contamination?

And when supplier evaluations and inspections are outsourced to third parties, how do customer firms assess those third parties and ensure that they are not, in fact, just the foxes guarding the chickens? The complexities of the supply chain no longer allow a reliance on good intentions or lackadaisical supply chain management practices downsized in the name of cost. Since second and third-tier suppliers, often invisible or barely visible to the customer, can adversely impact our food supply, understanding their operations and performance becomes essential. Food contamination falls into the category of supply risks that can be prevented (preferably) or mitigated. They are not an unavoidable natural disaster. Not only should companies consider these risks in their sourcing strategies, but they should also have robust supplier assessment systems, including regular site visits to higher risk suppliers, to prevent the occurrence of such failures. The costs of food contamination in illnesses and deaths, lawsuits, brand damage, consumer confidence – and even company bankruptcies and job loss – are far higher than the basic sourcing and supplier management activities needed to prevent them.