Undisclosed subcontracting is where one or more of the links in your supply chain subcontract out the merchandise or components they supply without notifying you or another of their partners.
So, how is this a threat to your supply chain?
By implying or misrepresenting to you that they supply, manufacture or create these components themselves, these partners add invisible links to your supply chain. Problems, delays, or improper goods can come from any of these links, and you would have no way of knowing there was a danger, and no strategy in place to mitigate problems. These hidden links are making true transparency impossible, and making it extremely difficult to fulfil obligations to customers and partners. You cannot be sure of the quality of your components or materials. You are unable to respond properly to recalls, or even to know when to issue them.
Worse still, this practice commonly results in Chinese knock-off goods and materials (with their deserved reputation for poor quality control and occasional toxicity) sneaking into your final products. A recent report from Walmart (owners of Asda) suggests that undisclosed subcontracting is becoming more common among suppliers in China, Indonesia and Pakistan, and that the resulting hidden, unethical or illegal practices were resulting in increasingly large problems for the mega-retailer.
Sure, if your agreement with the supposed supplier is specific enough you may have a tort action against them, but if they are already engaging in shady business practices, how likely are they to pay a judgment?
As supply chains become longer and more complicated, companies need to be ever more vigilant about actively or passively disguised links in partners’ own supply chains. In the coming few years, retailers, suppliers and distributors will all have to develop strategies for dealing with undisclosed subcontracting and a host of other threats to the new global economy.