In October 2017, Supply Chain Matters and global business media called reader attention to a parts specification scandal that involved Japan based Kobe Steel. The disclosure indicated 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. Once more, subsequent information disclosed that the practice had occurred for years.

This week, the postscript of the crisis was the announced resignation of this manufacturer’s CEO, along with resignation of five other executives including the head of the firm’s aluminum and copper division. Other executives are reported to have had their compensation levels slashed by more than 80 percent. The company further admitted that some of the falsification of records date back to 50 years, a staggering revelation.

Kobe serves as a prime supplier to global auto producer Toyota Motor. Initially there was a belief that the potential for below-standard aluminum sheets would involve that specific auto manufacturer. A stream of subsequent admissions and disclosures pointed to the potential for sub-standard aluminum product involving multiple industries. A published report from The Wall Street Journal’s Asian Business desk this week indicates that to-date, Kobe has disclosed that 605 customers received product affected by quality data falsification. Of that number, 222 customers were noted as external to Japan. The revelation has since forced receiving customers to have their re-check their own manufacturing processes and audit information to determine if any below specification product made its way to finished products.

Outgoing Kobe Steel CEO Hiroya Kawasaki pointed to a corporate culture that prioritized winning orders and meeting delivery deadlines over quality needs. That, from our lens, does not solely pertain to Japanese based customers, but does have a special meaning to a country-wide culture and reputation anchored in a perception of superior quality and process standards.

Nor was Kobe the only Japan-based producer to admit to falsification of quality data. Additional revelations have come from Mitsubishi Materials and Suburu. In the case of Mitsubishi, the manufacturer disclosed in November 2017 that three of its supplier subsidiaries had each tampered actual quality specifications related to components shipped to respective customers in automobile, aircraft and power-plant sectors.

The granddaddy of falsification remains that of Takata, which doctored product design and quality specifications for millions of auto airbag inflators and subsequently succumbed to bankruptcy and acquisition.

Reader Takeaways

While the global supply chain management community has witnessed similar acts of high level executive apologies and resignations from Japanese senior executives in the past, we can perhaps take some solace that the latest incidents have been painful in financial terms and in fraying longstanding supplier partnerships.

Obviously, Japan is not the only country with a culture that values delivery over quality. Our readers among multi-industry sourcing and procurement sectors can likely cite other countries as-well. Japan, however, is something altogether disappointing.

The difference is damage to long-standing reputation and trust, and that will take some time to restore.  Regardless, a change in senior leadership is an ideal first step, particularly when a younger form of leadership takes the helm. No doubt, lots of additional focus on altering systemic business culture remains.

Bob Ferrari

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