Agile Electric: Quality Issues in a Global Supply Chain

Case Study Analysis

Group 1

Ashwini Sridhar
Niyati Aggarwal
Shiksha Burman

October 27, 2021

 I. Introduction

The purpose of this case study is to display the risks associated with the quality within
supply chain management and how it would impact the end consumer, in this case, OEM. The
supply chain described in this case study consists of multiple tiers with Automek (Tier 1), Agile
Electric (Tier 2), ECPL (Tier 3), and BIPL (Tier 4). Due to Automek’s close relationship with
Agile and their partnership in previous successful projects, they approached their supplier with a
new actuator assembly product. However, this time, they were not guided by Automek’s
engineering team. Despite this difference, Automek still aided Agile to find suppliers for the
additional components, which resulted in granting the contract to ECPL and BIPL. However,
when the final product reached OEM, multiple quality issues were traced back to Automek’s
suppliers. The situation grew serious since this issue would likely cause recalls. Automek and
Agile quickly began tracing the product assembly through the supply chain to decipher where the
errors could have occurred, but this process was challenging since their suppliers were unwilling
to focus their time and resources on improving their process.

II. Core Issues

The critical issue revolved around supply chain management and quality controls. Lack
of quality protocols resulted in a dangerous situation for Automek. Not only did it cause recalls,
but it also made the traceability process difficult. Agile was also inexperienced in the assembly
of this product and grew dependent on Automek. Furthermore, the suppliers they chose were
unwilling to participate in the discussions to improve the process and displayed more disinterest
in the final product. As a result, a lack of quality of the actuator caused a lack of credibility for
Automek since they could not deliver superior products as they had previously done.

III. Additional Issues to Consider

● Differences in interpretation of contracts

International contracts are affected by various barriers. One of the significant obstacles to
effective international business transactions includes differences in how the contract
agreements are interpreted. While in the west, the contracts are interpreted using a
"literal" approach, the general trend in the east is to interpret an agreement using the
"purposive" approach. (Ashforth, Matthew and Giles, Paul. “Contract Interpretation. 10
Things you need to know.” Lexology. July 2, 2015.)

Automek's (located in North America) contract explicitly stated that the supplier is
responsible for ensuring quality and quantity from sub-suppliers. Despite the given
clause, Agile (located in South India) initially argued that it was not responsible for the
problem since the faulty part was procured from an Automek-recommended source based
 in the United States over whom Agile had virtually no control. The lack of clarity in
sourcing responsibility is an added concern as it raises questions about the allocation of
losses due to failures and delays.

● Involvement of many sub-suppliers

Research has highlighted that Tier II and III suppliers often cause the most supply
disruptions at the OEM and Tier I level as Tier II and III suppliers are more resource-
constrained. This is particularly true in the case of Automek's failure to supply defect-free
products. The deficiencies in ECPL (Tier II) & BIPL (Tier III) processes resulted in
defects in actuators assembled at Agile. Further, the involvement of many sub-suppliers
led to a loss of control over the quality and production process resulting in a higher risk
of variability. (Crane, William. “Supply Chain for Tomorrow’s Technology.” Industry
Star. April 25, 2016)

● Lack of commitment from ECPL

Commitment is a factor that can make a supplier stand out. This involves being a
valuable partner who understands, shares and works to overcome any challenges that
their customer might be experiencing. Chris Cliffe, Director of CJC Procurement,
explains that the most important thing is relationship fit, and it can be measured by
analyzing if the supplier is engaged in the outcomes of the procurement project and the
contract. If they are engaged in delivering and achieving that outcome, that sets them
apart from those just trying to sell their product. (Brial, Pierre. “Procurement. Important
factors when choosing a supplier.” Manutan. January 23, 2020)

While sourcing from ECPL, there was a lack of commitment and supplier involvement.
Since this project was not a significant business for ECPL, its management was not
directly involved in the development activities. ECPL only agreed to take up the contract
due to its relations with Agile and Automek's assurances of support for component
sourcing. Further on observing the deficiencies in its manufacturing process, the
implementation of the correction plan was slow as it was left to the line personnel
without top management involvement.

● Lack of proper sourcing strategy

Automek has invested resources to build knowledge and improve its tired suppliers,
Agile, ECPL, and BIPL. It further deputed its engineers each time to study the process
and resolve the problem. Automek relies on supplier development instead of sourcing the
component from a producer that already has the required competency to meet its
requirements. This illustrates that Automek's procurement team has failed to identify a
source that can supply at a reasonable cost and acceptable quality without Automek
investing in developing the suppliers’ manufacturing capabilities.
IV. Industry Analysis

For manufacturing companies, it is imperative to control their supply networks

concerning quality. Several factors contribute to quality risk in a supply network:
- The ongoing trend towards specialization has decreased the in-house production of
manufacturing companies and has led to a reduction of direct influence on the quality
characteristics of a product
- The diversity of companies in a supply network due to globalization and integration of
low-cost country’s suppliers has led to higher variation in product characteristics. These
suppliers often have different and, in many cases, stronger monetary-focused objectives.

Organizations are challenged by the assessment and mitigation of quality risk induced by
longer and broader supply networks. Examples of supplier originated quality issues, and their
consequences in industry companies are summarized below:

In general, supply networks consist of different companies, where each company has its
objectives and acts autonomously. Therefore, practical analysis of supply networks should
consider the companies' objectives and the specific network configuration. Suitable quality risk
mitigation measures need to be found for products having high-quality significance and financial
risk if quality requirements are not met. (Book, Johannes; Kumar, Mukesh; Lanza, Gisela and
Srai, Jag. “Quality Risk Management in Global Supply Networks: An Agent-Based Approach.”
Research Gate. January 16, 2016.)
 V. Key Players and Analysis

Before any solutions can be presented, it is essential to understand the key players of this
case, their functional roles, and their location in the supply chain. All these players play crucial
roles in providing the best product to the end consumer, Ford.

Tier 1: Automek is the direct supplier of the Electronic Component Assembly or ECA for Ford's
vehicles. They are the supplier that the end consumer interacts directly with and would be the
primary contact for any issues that arise within their vehicles. Having an annual turnover of 10
billion and headquartered in North America, they approached supplier sourcing with a "low cost,
high quality," mindset due to the rising manufacturing costs, which led them to approach Agile
Electronics.

Tier 2: Agile Electric is located in Chennai, India, and supplies electrical components, sheet
metal, and plastic parts to domestic and international clients. As the leading supplier for
Automek, it is crucial to understand the advantages and disadvantages of having Agile Electric
as a supplier, and this can be further evaluated by conducting a SWOT Analysis displayed
below. Through this thorough examination, we can determine this company's strengths and
weaknesses, which will enable us to arrive at better solutions for the issues presented in this case
study. Agile Electric sales turnover reached $56 million in 2007, and their plants were ISO 9000
qualified, meaning that they met the basic quality standards. With their continuous work with
Automek, they soon became a trusted supplier since they could produce components that were
not in their existing portfolio as long as they had Automek’s guidance in the developmental
phase. However, their main weakness was that they were too dependent on Automek to produce
new products and could not deliver high-quality outputs with complicated products. They were
also dependent on the quality service of the 3rd and 4th tier suppliers for the PCB assembly,
which they were not able to close the quality gaps that Automek had initially urged them to do.
Agile also faces international competition from other suppliers, even a threat of being replaced
by a North American supplier if they cannot deliver or solve the quality issues. This is primarily
due to the lack of process improvement capabilities from poor visibility of the upstream
suppliers. Without understanding their processes and closing the quality gaps, it would lead to
continued failure in the final delivery of the product to the end consumer. However, there are
significant opportunities for Agile to improve by continuing to work with Automek. For
example, they would be able to gain more knowledge in the design of new products and improve
their process capabilities which would be a considerable asset when finding new business with
more clients. A continued relationship with Automek and OEM would increase their credibility
in the automobile industry and provide more growth opportunities.

Tier 3: Electronic Components Private Limited or ECPL was an electronics manufacturer that
had a previous relationship with Agile Electric with a sales turnover of $35.5 million. The
supplier was both 5S and ISO 9000 certified, which, similar to Agile, claimed that they fulfilled
basic quality standards. While Automek’s teams did audit ECPL, there were quality gaps found,
but Automek passed the responsibility to Agile Electric to make sure they were fixed.

Tier 4: BIPL was responsible for the production of the PCB boards and had a previous
relationship with ECPL, which was why they were suggested as a potential supplier for this
project. They were worth $28 million and also had a basic 1SO 9000 certification. The primary
concern was that the PCB boards were smaller than the existing product range; however, the
company still agreed to be part of this project due to the supply chain's big names, which could
increase their credibility for potential future offers from other clients.

Automek Agile ECPL BIPL

Reason to Agile had no No experience Low Margins Smaller product

Decline experience High Volumes Not lucrative
No experience
 Reasons to Relationship Sales Relationship Working with
Accept Sales Top Customer No need to Big Names
address issues Sales
Boost Export

It is also essential to understand the perspectives and highlight the relationships between the
suppliers and why they did not want the contract. For example, Automek knew that Agile had no
previous experience with the actuator assembly, which is a significant concern since an
inexperienced supplier could critically impact the delivery of the final product. They accepted
the contract due to the relationship with Agile and to the increase its sales with the new product.
Agile was also hesitant to accept the contract since they knew they were not familiar with the
product but believed that Automek had enough trust in them that they believed that they were
able to succeed. Therefore, they ended up accepting this deal due to the increase in sales and
business and the opportunity for Automek to be one of their top customers. As a potential third-
tier supplier, ECPL suffered from low margins and was also alarmed at the high volumes
required by Agile. Despite having no previous experience, they still accepted the contract since
they were local, had a relationship with Agile, and believed they did not need to be responsible
for any issues. Finally, BIPL realized that the PCB boards required by Agile were smaller than
the products in their portfolio, and they believed the business not to be lucrative, which was why
they were not willing to move forward with the project. Eventually, they accepted the contract
since they knew working with big names would help develop their repertoire in the industry and
boost their export and sales.

VI. Alternatives

The case study provided a few alternatives to consider when approaching potential solutions.
When analyzed for their advantages and disadvantages, they can be incorporated into a final plan
which could best aid Automek in solving the problem.

Option 1: Working with Global Suppliers instead of ECPL and BIPL

It was clear that ECPL and BIPL were not interested in the relationship with Automek,
and due to this, it was suggested that the 3rd and 4th tier suppliers be sourced from the global
network of suppliers. Agile had always been a supplier committed to providing quality products
to Automek, and they also yearned to find another alternative high-quality supplier who could
help alleviate the stress. While this would help bring in specialized and high-performance
suppliers, it would also take time to implement, and there would be a high cost to pay due to the
loss of time and money spent on the development and sourcing of ECPL and BIPL.
Option 2: Increasing Supplier Margins
For suppliers to deliver their best, incentives should be provided so they care for the end
product. This would help increase quality and urge the suppliers to perform their best and adhere
to the correct process and standards. A few disadvantages that can arise with this option is the
supplier's lack of expertise and resources to complete any process improvements on their end,
and it could also require a more significant investment from Automek to transfer the knowledge
upstream to improve the processes of the tiered suppliers.

Option 3: Find a new North American Supplier

Automek initially used the "low cost, high quality" approach to source Agile as the 2nd
tier supplier, but due to the complications of this product, it was clear that they could not manage
the upstream production of this product by themselves. Therefore, another option would be to
find a new North American supplier to eliminate Agile from the supply chain. While this would
improve quality and consistent production, it would take a long time to implement, and Automek
would face high costs when switching to a new supplier.

VII. Recommendations

When developing strategies for the future of the business, it is essential as a company to
acknowledge the errors in the process to understand where the improvements should be
implemented. The lack of communication and visibility to the upstream supply chain, cultural
differences, and poor supplier incentive policy contributed to the production of a failed product
and the loss of credibility with Ford. In order to amend the trust in our customers, radical options
must be considered to transform the supply chain.

Option 1: Avoid “Hands Off” Approach

This option would involve Automek reworking the 3rd and 4th tier suppliers' sourcing
and completely removing ECPL and BIPL from the assembly process. It would be beneficial to
choose North American suppliers and work closely with Agile engineers on this product's
expectations and specifications, which were not clearly laid out with the initial development.
This way, they can rebuild the trust by involving them in the process and clearly understanding
what is required. Automek should also control the sourcing decisions of the new upstream
suppliers and be clear of the contract details. Since these suppliers are North American, it can
lower the issues with understanding the contract details and they will be clear that they are the
word of the law. The drawback is that this would increase transport costs since Agile is located
in India, and a larger distance can cause issues in meetings if operational complications arise.
Furthermore, choosing new suppliers would mean losing trust with ECPL and BIPL and the
potential to work with them in the future and extra investment to rework the supply chain to find
new suppliers and make sure they are trained and understand the expectations. When sourcing
suppliers Automek should ensure that they do not have only the basic quality qualifications but
also a reputation for excellent customer service. This should further be examined through
implementing a thorough engineering and quality audit program to access the operations. While
this would mean that most of the responsibility of any potential losses would fall on Automek,
the supply chain would be robust enough that fewer errors would occur. It is also crucial to plan
and implement a supplier incentives program that rewards suppliers for exceeding KPI levels.
Such examples can be early payment options (15 days instead of 30), the opportunity to work
closely with new projects, and being included in the preferred supplier list. Delivery of a quality
product requires the proper time and investment in ensuring suppliers are clear of expectations,
involved in the development process, and provided the incentive to care for the final product.
Before this can be implemented, they would need to slowly transition out of using ECPL and
BIPL since a change in the source can take up to a year. For the limited time, they are using
ECPL and BIPL, they can implement supplier development programs to fix the gap in
production.

Option 2: Supplier Development and Dual/Multi-Source

Another option to consider would be to stay with Agile, ECPL, and BIPL and implement
an extensive supplier improvement program to revise their operations and ensure they fulfill
Automek’s quality and engineering standards. By doing so, Automek is taking full responsibility
for the supply chain, and this offers them better visibility to the supplier's operational process,
which can eliminate any blind spots that result from the issues within this case. However, this
can cause a lot of investment in training the suppliers, but it would avoid any hostility or tension
between the 3rd and 4th tier suppliers when choosing to walk away or break ties with them. In
addition, Automek should also consider dual or multi-source with a North American partner to
provide the PCB board and produce them in-house. While their "low cost, high quality" approach
has worked for the past projects, the complications with this new product and the "hands off,"
approach created a plethora of issues. Therefore, it would be an excellent alternative to have a
North American supplier who would not have any misunderstandings with the contract and will
be able to understand and follow the requirements as opposed to foreign suppliers who may not
completely adhere to the contract and can refer to them as guidelines due to the difference in
culture. Most importantly, Automek should also incorporate an incentive plan with its suppliers
to ensure they are committed to the project. The determination to offer their best outputs for the
end consumer would help align the ideals of both the suppliers and Automek, demonstrating a
mutually beneficial relationship.

Option 3: Avoid Agile and Produce with North American Source

A final option would involve Automek completely breaking ties with Agile for this
project and producing in-house with a North American supplier. This option would dismantle the
relationship with ECPL and BIPL, and a long-time trusted supplier - Agile. This would be quite a
radical move since this can cause the supplier to feel that their buyer had lost their trust and
could prevent future involvement in upcoming projects. However, this move would also allow
Automek to have better control and visibility over their supply chain by utilizing suppliers within
their home country who would adhere to the contract. Furthermore, it was seen that Agile was
only capable of delivering higher performance in quality with less complicated products. The
actuator assembly proved to be more challenging for them, and since they were not involved in
the development phase, they were less knowledgeable about the specification, which led to
multiple issues with the end consumer. While working with the new domestic supplier, Automek
should involve them in the design phase and provide incentives for high performance. This will
urge the supplier to care for the product and its impact when installed in Ford's vehicles.
Furthermore, it would strengthen the relationship with Automek, and this mutual understanding
can help further their involvement in future products.

Final Recommendation
The major error that led to the final product's multiple issues was the lack of visibility in
the supply chain, which stemmed from an adopted "hands-off" policy. Agile was always a good
supplier, and they always delivered. The only issue in the actuator assembly process was that
they were urged to produce this product with less guidance or early development participation
with Automek’s engineer’s which ultimately led to the downfall.
Therefore, to prevent the future of another quality complication, it would be best if Automek
sourced the 3rd and 4th supplier from North America and proceeded with Option 1. Since quality
is the main issue, Automek will be involved in sourcing all their suppliers and controlling their
supply chain. Without clear visibility, potential issues cannot be traced back to the operational
process to allow a quick mediation plan. Furthermore, to develop a quality product for the end
consumer, it is not enough for suppliers to only be 1SO 9000 approved since this is only the
basic quality requirement. A thorough examination and audit process should have been
implemented with BIPL and ECPL by Automek’s engineering team to closely understand
whether the assembly processes were constructed correctly. Instead, it was left to Agile to close
the gaps. This means that it was ultimately Automek who was at fault due to their poor decision-
making process. By eliminating ECPL and BIPL, who were not interested in this relationship
since this was a non-strategic business, Automek will not be focusing on supplier improvement,
which could have cost them more time and money. Instead, they can use their efforts in
finalizing a better supplier to provide them with enhanced quality and service. A North American
supplier would understand the wording of their contract and adhere to the document's details,
thereby preventing any miscommunication. Including them in an incentives plan with early
payment options, an opportunity to work closely on NPDs, and being included in the preferred
supplier list can persuade suppliers to deliver their best output on a day-to-day basis. It is also
important to note that any costs due to potential mishaps with Ford would ultimately fall on
Automek since they are in complete control of their supply chain. However, having a robust and
thorough supply chain can prevent these issues and deliver more promising and consistent
performance results.
VIII. Conclusion

Internal quality practices significantly influence this case study, even when all supply
chain members are considered. Automek should be in charge of the quality of the final product
that Agile delivers, and Automek is expected to manage quality properly. Both Automek and
Agile should audit and monitor the quality of the outsourced components; Agile is responsible
for closing the quality and process gaps between lower and higher-tier vendors. In this instance,
the final product is highly dependent on each supplier, whose quality management would
significantly impact the quality chain. The ORM must test the parts at the right temperature to
avoid future defects. Because the completed component is quickly destroyed and exceedingly
fragile, Agile should develop better procedures to monitor its quality.

Having ISO 9000 certified suppliers and sub-suppliers is not a guarantee that there will
be no problems, but it is a sign that it will be able to locate the underlying cause by following a
well-documented procedure. If Agile had spent more time and money developing its suppliers, it
could have sped up the investigation process and avoided any potential suspicion of its ability to
deliver a quality product. Everyone in the supply chain must take responsibility for speeding up
quality procedures by lower-tiered suppliers. The higher the supplier's responsibility, the closer it
is to the OEM. If each supplier accepts responsibility, a quality system will emerge.

The issue of quality control and supplier development can also be applied to our
workforce. For example, there was a particular case in my company where we were going
through an artwork transition for a sleeve, but when it came time to produce, the supplier sent us
the sleeve with the old artwork. Due to this error, our timeline had to be pushed out, and we
could not place the product in the market during the time we were supposed to. In the end, we
had to work with our supplier to rework the sleeves and provide the correct order with the new
artwork, which delayed our launch. Although this is not as intense as this case where there would
be potential recalls, it shows what happens when quality controls measures are not taken
seriously.
 References

"Agile Electric: Quality Issues in a Global Supply Chain." GraduateWay, January 22, 2017,
https://graduateway.com/agile-electric/

Ashforth, Matthew and Giles, Paul. “Contract Interpretation. 10 Things you need to know.”
Lexology. July 2, 2015. https://www.lexology.com/library/detail.aspx?g=a3daf093-efcc-4223-
b569-4e736f5fad17

Book, Johannes; Kumar, Mukesh; Lanza, Gisela and Srai, Jag. “Quality Risk Management in
Global Supply Networks: An Agent-Based Approach.” Research Gate. January 16, 2016.
https://www.researchgate.net/profile/Mukesh-Kumar-
66/publication/291337746_2012_09_04_Cambridge_Symposium_Quality_risk_strategies_in_gl
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Brial, Pierre. “Procurement. Important factors when choosing a supplier.” Manutan. January 23
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when-choosing-a-supplier

Crane, William. “Supply Chain for Tomorrow’s Technology.” Industry Star. April 25, 2016.
https://www.industrystar.com/blog/2016/04/supply-chain-visibility-tier-iis-iiis