Question

The Importance of Supplier Management and Measurement: Koito Industries Ltd Sometimes it is not enough to merely have a supplier performance measurement system in place. The buyer must also ensure that the performance data is accurate and all encompassing. Any given supplier may be able to manipulate or falsify the product performance data that it provides to its customers. Koito Industries Ltd, a Japanese aircraft seat supplier based in Yokohama, admitted to irregularities in certain safety testing data regarding approximately 150,000 aircraft passenger seats supplied to Airbus SAS and Boeing Co., ultimately impacting some 32 airlines worldwide. Due to growing demand of its aircraft passenger seats that had resulted in extremely tight production schedules, Koito utilised a computer program that created false safety data to meet standards regarding seat safety strength. In addition, some safety tests were omitted in their entirety, and in other cases safety data came from tests conducted on different production lots. The Japanese Transport Ministry determined that Koito altered its computer testing programs so that seat shock levels would read higher than they actually were. Additionally, some aircraft seat designs were unilaterally modified without proper notification. This erroneous safety data was revealed only when a whistle-blower made the information available publicly. As a result of this scandal, the president of Koito Industries made a public apology and promised to retest all of the aircraft seats in question, repairing or replacing by the end of the year those that did not meet safety requirements. In addition, he admitted that falsification activities had dated back to the mid-90s and had been ongoing “organizational culture” emanating from the department which oversaw the testing.The European Aviation Safety Industry (EASI) pulled its approval for Koito seats and contemplated issuing an airworthiness directive (AD). The net effect was that Airbus was unable to meet delivery dates for certain aircraft equipped with Koito-sourced seats. For example, Airbus had to delay delivery of Singapore Airlines’11th A-380 and indicated that about 2 per cent of the global Airbus fleet were equipped with Koitosourced seats. In addition, delivery of Boeing aircraft, such as the 777-300ER, was affected as well. Some of the other airlines affected included: Japan Airlines, Air Canada, KLM, All Nippon Airlines, Thai Airways International, and Scandinavian Airlines. In addition to affecting new aircraft production, substantial delays in retrofitting and updating existing aircraft have also occurred. Due to its large number of affected aircraft, including Koito seats installed in first, business and premium economy, and economy classes, Boeing was affected more severely than was Airbus. Therefore, Boeing sent a supplier development team to Koito to assist in reviewing and redeploying its quality management system. In addition, Boeing has had to work individually with each affected airline customers to ensure that no safety of flight issues existed.

Based on the case study, discuss the disadvantages of a rationalized and optimized supply base. Give examples from the case ?

Answer 1

The primary disadvantages of having a rationalized and optimized supply base, are as follows:

• The positives of price dispersion will get compromised. Price dispersion is the state where different suppliers bid for the project and the best bid is selected based on various constraints of the company.
• The rationalized and optimized supply base may increase the chances of maverick spending. Maverick spending basically is the phenomena where the purchases are made outside of the agreed and signed contracts between the company and suppliers and usually pose to be quite costly
• The rationalized supply base creates chances of supplier monopoly. The variety in the bid process gets compromised and the price negotiations get discouraged
• Too much dependency on same set of suppliers: If the company is focusing on having an optimized supplier base, then the company will show too much dependency on same set of suppliers. This can have considerable effect on the overall business of the company. For example: A disturbance in the production rate of the supplier company Koito, impacted the business of Airbus. Airbus had to delay delivery of Singapore Airlines’11th A-380 and indicated that about 2 per cent of the global Airbus fleet were equipped with Koito-sourced seats.