How can we maintain quality standards in China?

[Starbucks Junkie]

I would be interested to hear forum member views on how far east suppliers can be used to manufacture products with greater due care and attention to quality?

We have seen over previous months large recalls of products due to Far East manufacturing not to specification.

How can this be addressed?

What is the best method of guaranteeing a quality product from this region that conforms to specification and legislation?

Your views and opinions please.

[TopLink]

Originally Posted by Starbucks Junkie

I would be interested to hear forum member views on how far east suppliers can be used to manufacture products with greater due care and attention to quality?

We have seen over previous months large recalls of products due to Far East manufacturing not to specification.

How can this be addressed?

What is the best method of guaranteeing a quality product from this region that conforms to specification and legislation?

Your views and opinions please.

SJ.

The companies that I have seen do this best, have either a very good agent 'in country' assessing quality, or for the larger companies, they have set up their own procurement/purchasing offices in the country of manufacture. But I think this is one of the inevitable challenges of off shore manufacturing.

[Starbucks Junkie]

Originally Posted by TopLink

SJ.

The companies that I have seen do this best, have either a very good agent 'in country' assessing quality, or for the larger companies, they have set up their own procurement/purchasing offices in the country of manufacture. But I think this is one of the inevitable challenges of off shore manufacturing.

Is there any Chinese Standards, equivilent to the BS that British companies adhere to?

What are the most common quality issues surrounding Chinese manufacturing?

Have any of these issues been root caused to ascertain point of non conformance related issue?

[TopLink]

Any comments from some of our Chinese members?

[TopLink]

Any comments from some of our Chinese members?

[Bradley A Feuling]

I have been out of the loop a bit. I came across your question and would be happy to provide some thoughts. Hope this helps. There is a lot to this question. I have also written on this topic and can post the article, if you would like and if it isn't seen as advertising. Just let me know.

Concerning quality, you really have to take a close look at the downstream supply chain to ensure the product you are purchasing is exactly what you are looking for. This is both in regards to actual physical product appearance and assembly, but also with regards to raw material inputs. The later is where many product recalls arise from. Due to this fact, there must be someone closely monitoring the suppliers process i.e. How do they select suppliers? Is it just based on cost or other factors? What are those factors? What are the inventory management policies? (Raw materials that do not meet foreign standards may be utlized because of poor inventory management - example a key material is out-of-stock and customer requirements specify delivery in a limited window. To maintain low cost they choose an alternative as no prior contracts stipulated the terms of such an event. It is a form of risk mitigation and cost savings in the eyes of the manufacturer. The end result however proves otherwise.) In all, there are a number of questions that should be considered and scenarios to plan for.

In terms of standards, some exist and many are in development. The Chinese government is working with many global companies and organizations to establish standards. This will take time however, and enforcement is difficult, simply because of the sheer size of China. China is after all the largest empire governed by one body, based on population, in the history of the world. When thinking about this question, take for example, plywood.

Plywood is made with glue that in most cases contains formaldehyde. Different levels exist, such as E0, E1, E2, F (Japanese scale) and formaldehyde free. With each level, the formaldehyde content varies and the cost changes. Formaldehyde-free has relatively low demand, E1 is fairly common and has a higher demand. The cost of E1 is lower, so many manufacturers use for this grade. Are their standards? Yes! E2 for example is not supposed to be suitable for indoor products. Does everyone adhere to these standards? No! When their is a buyer and a seller, rules of business fall more on supply and demand than standards and policies. Today, we consider the US and Europe a buyer market and China/much of Asia a sellers market because the price gap still exists. The stars are aligned.

The most common quality issues we see are high quality variability. This factor significantly impacts the cost of operations. Some materials may meet requirements, others do not. When your production schedule requires a quantity of 100 for a particular input product, but you only receive 60 you can use, there is a problem. How does a customer then plan for this high variability? What can be done to lower product quality variability? The answers really results from a particular cause in the downstream operations. This could be a sub-contracting network, poor inventory management, tooling issues etc. First, you must identify the problem to fix it.

TopLink is right on here. The best watch the process very close locally, either through their own internal staff or through an agent who really understands quality. The problem however, is the number of people who watch the downstream supply chain is very limited. Most people are still concerned simply with price. Many agencies boast great service, yet when it comes to understanding supply chain, quality and other factors included, their knowledge is limited. Understanding the supplier and downstream operations fully is the key. You have to be a part of the system or you will remain on the outside.

[Starbucks Junkie]

Bradley,

Again another concise and detailed explanation.

With regards to posting your article, I believe that it would be beneficial to the regular users of this forum and indeed to the many guests who browse the threads.

So please do post your article.

[Bradley A Feuling]

SJ,

I am glad you found these thoughts helpful. As requested, I have posted the article in its entirety as originally published in CHaINA magazine Nov/Dec. As always, if you should have further thoughts or questions, I am happy to contribute where applicable. Enjoy.


Considering the Downstream Supply Chain
Bradley A. Feuling
October 15, 2007

Sourcing and manufacturing in China is no secret. With an FDI increase of 12.8% from January to August of 2007, according to the Ministry of Commerce, it seems more and more companies are entering the game. This means new supply chains are created daily and existing supply chains are reorganized just as frequently. As a result, the competitive landscape is changing and low cost sourcing from China, merely based on price, is losing its competitive advantage. Hence, the entrance of Vietnam and other LCCs.

As many note, today’s global competition is based on supply chain versus supply chain. This perspective considers the process of value creation including material and information movement. It doesn’t however discuss geographic location, and herein lies the key question. How will supply chains in China remain competitive? The answer is in the continued development of the downstream supply chain. To move in this direction, companies must ask what factors should be considered when identifying new suppliers? What is the impact these downstream effects have on upstream operations? How can a company effectively coordinate with suppliers to improve downstream processes?

Hidden Realities in the Downstream Supply Chain
Downstream supply chains extend deep into China. With existing and new supplier bases, sub-contracting networks, and increasing logistics infrastructure, the reality in China is, a supply chain may change without one even knowing it. This leads to a fundamental lack of control and greater potential for a loss in competitiveness. In talking with executives, many will state visibility is critical to developing a competitive supply chain. Due to a number of factors, downstream coordination currently extends beyond the realm of software and RFID. What then lies below the surface?

To build visibility a company must first peal back the layers of the downstream supply chain. Beyond the first layer exists a complexity of operations that few are willing to examine. It seems a lot like the independent operator model, and that is because it is. In China, questions concerning inventory management, capacity and planning, demand scheduling, raw material ordering and logistics management are commonly left to the supplier. This action or rather inaction, contributes to a number of hidden realities in the downstream supply chain.

In many cases, the same control and monitoring policies utilized overseas will not be consistent in China. This creates a primary challenge for local suppliers and foreign customers, a misalignment in the coordination of operating processes. For many Chinese manufacturers limited demand scheduling processes are effectively employed therefore capacity constraints are likely to and are occurring. With overwhelming local and foreign demand, capacity is now increasingly maximized, further reducing resource availability.

We must remember that ERP and MRP systems are still fairly new in this environment. Supplier scheduling is based more frequently on an as needed basis, instead of future forecasting models. The effects are a reduction in flexibility, which means materials may not be on hand to account for new orders. Inventory is not managed to account for accurate buffer stock, further preventing the supplier from meeting required quantity and delivery windows. Logistics routing is identified by selecting the lowest immediate cost provider. These decisions can affect the delivery time and landed product quality. In some cases, companies face a loss of product entirely. These considerations only address the direct supply chain the company is working with.

When considering Chinese manufacturing, companies must understand service level maximization is the number one priority, not profit maximization. The two are fundamentally different. With capacity constraints, suppliers may sub-contract a portion of the demand quantity to ensure an order is fulfilled. Here enters a new supply chain the customer may be unaware of. New material and logistics inputs, as well as operational procedures are now a part of the process that dictate when and how a company receives product. Costs will remain low to generate increased revenue through sales, but not necessarily profit. This limits the ability to expand. The problem has been compounded even further, indirect influences effect the supply chain, and a different system of thinking dictates material flows.

With ineffective and limited focus on downstream supply chain operations, the customer generally only sees the direct product cost, and this may not change. But this is the core reason downstream operations are gaining emphasis, as companies consider the operating procedures they don’t see. How will the costs attributed to product from these processes effect future pricing and viability?

Effects on the Upstream Supply Chain
What few companies actively consider are the direct effects these downstream considerations have on the upstream supply chain. Although, delays, product quality issues, increasing costs and redundant processes are felt, little if any changes are pursued to correct these issues. Herein lies the problem.

When a foreign customer experiences longer lead times due to product shipment delays, the costs are related to the reduction in service level. Simply put, the end-customer demand is not being met in-full and on-time. This means cash flow velocity is reduced and profit is not maximized.

Quality variability is another effect rippling through the entire supply chain where costs multiply as problems remain unaddressed. In this case, orders must be replaced to meet quality expectations. This takes time, further lengthening the delivery speed and increasing the challenges faced by the upstream supply chain. Production schedules are affected as is the service level. As a result, the reduced effectiveness of material flows leads to higher actual costs.

In some extreme cases, insufficient knowledge of the downstream supply chain can lead to supplier inputs that do not meet local regulations. This can have devastating effects on the brand and industry as a whole. Large product recalls mean significant losses in potential revenue and earnings. This forces a redevelopment of the whole downstream supply chain, a very costly process.

Lastly, redundant processes are common between Chinese operations and their foreign customers. Language barriers can certainly increase the potential risks of repeat processing, but are not the primary factor. Without an understanding of downstream procedures, coordinating material and information flows is nearly impossible. When a company is unaware of these operating policies, the customer will frequently find samples have to be shipped multiple times, product resent, or documentation reprocessed. All these factors increase the delay time and hinder payment transactions.

Developing the Downstream Supply Chain
As supply chain’s become more competitive, companies must actively coordinate downstream operations, looking at product flow as one seamless process. This means moving beyond the independent operator model. Each stakeholder should be involved under one design, identify roles and responsibilities to grow and develop a sustainable advantage.

Training and especially education is one key component. Currently, the demand for supply chain professionals in both local and foreign entities far outweighs the supply in China. To offset this growing trend, companies should actively invest in their supplier’s processes. With a hands-off approach, you can be assured your supplier will do the same. By taking a more active role, a company can stress the importance of downstream procedures and collaborate on building new working models for continued expansion.

Another area of focus is increased inter-organizational coordination. This means working more closely with a supplier to identify underlying challenges in inventory management, demand planning and logistics operations. By approaching the issue as a relationship, local partners will see an opportunity for further advancement through knowledge exchange. This is an ongoing process, and one that must be approached from the standpoint of continuous improvement and ongoing collaboration. To effectively grow, the supply chain must grow as one living organism.

[TopLink]

Bradley,

Very interesting. And thanks for following the guidelines on the posting of articles.

For others who would like to post articles.......

Posting articles is fine and in fact encouraged. As long as they are not advertising products/services.

Posting the whole article is better than just creating a link, as it helps the search engines find us.

[Sporkman]

Didn't China execute the head of their equivalent of the FDA over the poison toothpaste debacle?