There is another supplier quality conformance scandal involving a major Japan based supplier, and this time, the implications could involve multiple industry supply chains.

Kobe Steel Ltd., one of Japan’s largest aluminum producer, disclosed earlier this week that workers had doctored or altered product quality certification paperwork involving multiple produced aluminum, copper, and steel metal products. In-essence, the declared specification standards of certain shipped metals were doctored to make shipping commitments. The widening scope of the current crisis has reportedly wiped out $1.8 billion of Kobe stock value.

Since Kobe is a prime supplier to Toyota Motor, there was initially a belief that the potential for below-standard aluminum sheets would involve that specific auto manufacturer. A stream of subsequent admissions and disclosures since Sunday now point to the potential for sub-standard aluminum product involves multiple industries.

Today, the CEO of Kobe revealed that upwards of 500 companies may have received falsely certified products, which is more than twice the original assessment. A published report by Reuters today characterized the latest disclosure as: “confirming widespread wrongdoing at the steelmaker that has sent a chill along global supply chains.”  Industry supply chains that were in receipt of Kobe metal components include automotive, commercial aerospace, transportation, and defense equipment supply chains.

Multiple Japan based automotive manufacturers including Honda, Mazda, Nissan, Subaru, and Toyota have been analyzing the inbound supply chain shipments specifically related to the production of automotive hoods, since this particular component represents the highest potential for a safety concern. While Kobe metal products were likely utilized in doors, rear hatches and other major metal structures, the initial concern is focused on whether a product safety recall needs to be initiated, and in what countries.  Initial reports had indicated that Kobe had supplied the needs for primarily the Japan based market, but with the new revelations of more widespread doctoring of metal specifications, the scope could be larger. A report from Japanese newspaper Nikkei indicated more than 30 Japanese customers had been affected by the data altering.

Business media has also made mention of Boeing as a potential recipient of Kobe metal components used in the production of commercial aircraft, however that manufacturer has initially indicated it does not consider the issue to be a safety concern for passenger jets. Japan based media has mentioned some of Japan’s bullet trains as potential recipients of the non-conforming metal products. One bullet-train manufacturer reportedly has already declared that it will seek compensation from Kobe.

Of far broader global supply chain significance is a growing concern that multiple Japan based manufacturers have exhibited a systemic culture of doctoring material and component specifications. The most visible prior incident involved automotive air bag inflator supplier Takada which prompted the largest automotive recalls in history and have subsequently led to the supplier filing for bankruptcy protection in Japan and the United States. In January, a U.S. federal grand jury indicted three former Takata executives overseeing air bag product management and engineering. charging them with conspiring to provide auto makers with misleading test reports on rupture-prone air bag inflators.  Takata separately pleaded guilty to criminal wire fraud and agreed to pay $1 billion to resolve a two-year long U.S. Justice Department probe of the supplier’s handling of rupture-prone air bags. The faulty air bag inflators from the supplier have been linked to 16 deaths and upwards of 180 injury reports globally, while 50 million of the faulty devices still need to be replaced as of the summer.

In its reporting, The Wall Street Journal pointed out that Kobe has had a series of past issues related to supplier data integrity including a year-ago incident involving business division Shinko Wire Stainless that reportedly over a nine-year period, falsified data relative to the actual strength of wire products.

Supplier quality and integrity is sacrosanct in a supplier relationship and patterns of product specification altering do not make for a long-term relationship. When such incidents take on a systemic pattern involving multiple suppliers and industry supply chain impacted, the issue obviously becomes far more concerning as to implications of trust.


Bob Ferrari

© Copyright 2017. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.