9 Key Quality Management Challenges in China

Managing quality in China is tough when you outsource production to a manufacturer (your ‘supplier’). There are a number of quality management challenges to be aware of that can trip up buyers and we’re sharing 9 key ones here. Thanks to China-based compliance officer Clive Greenwood for providing his input to this list.

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Why do importers face quality management challenges when trying to ensure consistent quality, reliability, compliance, etc, from Chinese suppliers?

Chinese business culture is not the same as we’re used to in the West and elsewhere around the world. An issue that seems obvious to a buyer from, say, America, may not even register with their Chinese supplier’s staff, for example. So managing quality for buyers is about being ready to take responsibility yourself, rather than leaving it up to the supplier.

Let’s go into 8 key quality management challenges and some additional points here:

Challenge 1. Poor communication.

There are 2 competing cultural views that lead to the challenge of poor communication between buyer and supplier:

Buyers often don’t communicate their needs clearly to suppliers and withhold product information because they’re scared of it being copied.
Suppliers don’t ask for enough information from the buyer, so they may not actually have the capabilities required for a successful outcome.

Chinese suppliers will usually work by creating a sample of the product. If the buyer likes the sample, they will try to mass-produce the sample as faithfully as possible as far as they are concerned. But the buyer may be expecting compliance with certain market regulations, strict consistency between the ‘golden sample’ and final products, top quality, perfect functionality, etc, in every piece from the production line, but hasn’t communicated this clearly to the supplier. The supplier may make a product that looks ‘OK,’ but doesn’t reach your requirements, but whose fault is this really?

The Western concept of ‘duty of notification’ simply doesn’t exist in China.

If a Chinese supplier knows something won’t work, they may prefer to take your money and have a product that fails rather than alerting you of the possible problem because doing so isn’t in their business culture.

But on the other hand, if buyers keep some important information such as clear information about their expectations to themselves, they are not meeting the obligation of notifying their supplier about what they need to produce, either. (03:20)

Challenge 2. Working with the wrong kind of supplier that you cannot really trust.

There has to be a basic level of trust and openness between the buyer and supplier. If you feel that you can’t give them some information because you worry about what they might do with it, maybe they’re not the right fit for you.

Look at the supplier’s business model. If they are, say an OEM or ODM that has been accumulating different product designs over time and then selling them to new clients to white-label, they could be a riskier partner where your product IP is concerned than a contract manufacturer who works only on a per project basis and certainly won’t have a showroom full of product designs for you to ‘choose from.’

You need to do due diligence on the prospective supplier first, both their paperwork and on-site to check their processes, quality system, and capabilities (of quality levels, regulations, new product development ability, etc). Capability and capacity are keywords here. (08:15)

SMEs have 2 common due diligence & quality approaches when working with Chinese suppliers depending on the type of product development required.

You develop and own your own product – in this case, you will work very closely with the manufacturer and will do a lot of due diligence because you need to be able to work with them for the long run because redeveloping the product with a new manufacturer would be costly, risky, and inconvenient.
You white-label an existing SKU – this is more of a supermarket-style approach, where the buyer finds a supplier with the right kind of SKU on the shelf already, they brand it, get it made, and sell it in quantities often at a low profit margin. In cases like this, the buyer is merely a distributor of the product and the profit made doesn’t support doing due diligence on the supplier.

If you are buying products from China it makes sense to have a strategic long-term plan and to aim to build lasting relationships with suppliers and have a focus on engineering and quality. Buyers who are driven by as cheap a price as possible and don’t tell the manufacturer what the quality should be because they know they’ll increase the price accordingly are a big part of the ‘quality management’ problem. (13:26)

Challenge 3. A supplier who doesn’t provide supply chain transparency negatively impacts quality.

If a supplier doesn’t provide supply chain transparency this is a major red flag these days. At the very least, buyers need to understand where key components like batteries, PCBAs, customer enclosures, etc, come from (in the case of many electronic products, for example) so they can pinpoint where their greatest risks are.

Some Chinese suppliers also discriminate against ‘smaller customers’ only offering them lower quality parts or less experienced staff for their project due to their order volumes being small, but they obviously won’t disclose this! This is one of the quality management challenges that could certainly be avoided by closer project management and clear specifications about what is expected from the start of the cooperation with the supplier. (16:45)

Challenge 4. The supplier is unlikely to inform you about quality issues independently without you doing your own due diligence.

The result of getting the products manufactured and expecting the Chinese supplier to let you know if something is wrong before they’re shipped without you checking yourself is almost certainly you suffering from quality issues with the products. The supplier is likely to consider their bottom line first and the impact on it that delaying the shipment for some issues that no one has specifically discussed might have. Expecting them to put getting paid later is unlikely to happen, even if it’s at the cost of you receiving products that disappoint. (20:48)

Challenge 5. There is no concept of separation of powers at many Chinese suppliers: “If the boss says it, do it.”

Even if you have agreed for certain things to be done one way with the supplier’s quality staff, it could be overruled by the ‘boss’ because it’s too expensive and they determine just not to tell you about it. When working with a supplier, you need to put in place safeguards to prevent this from happening.

This phenomenon probably comes from Chinese politics and filters down. Chinese people are culturally used to a strong leader who makes decisions.

This lack of separation of powers impacts getting good results from factory audits. An effective auditor needs to know what they are looking for. An inexperienced auditor can’t be expected to achieve much when questioning a factory owner who has absolute power. An experienced auditor should be able to walk into a factory and see that things are wrong without needing to discuss anything, whereas the less experienced ones are likely to conduct a tickbox exercise (i.e. they have an ISO 9001 certificate, etc) instead of really digging down into what they can see.

A lot of companies do due diligence in this way, where just getting the paperwork done is enough because that’s a common business culture in China. Everyone finds it easier to just compare documents and tick them off. (23:19)

The role of factory audits.

Quick-look initial evaluation audits are a good starting point and should help you to screen out bad fit suppliers by giving you an idea about how organized they are, how their factory looks, their equipment, in-house capabilities, etc.

Then you progress into more in-depth audits on-site, and on key sub-suppliers (who provide key components), too. For these audits on a supplier, a multi-disciplinary team of experienced auditors who cover quality, finance, etc, could be more effective, and will include a senior auditor with the authority to press an uncooperative factory owner for answers with the threat of not passing the audit. These audits are likely to be more expensive and need to be budgeted for.

From the start, your supplier should be willing to share key sub-supplier information, too, as these will also need to be audited to assure that key components reach your requirements.

Ultimately, the costs of poor quality will far outweigh the costs of having thorough audits done on your Chinese supply chain. (28:36)

Challenge 6. There’s a lack of supply chain transparency, traceability, and compliance.

A manufacturer who doesn’t provide supply chain information puts you at risk of your products not complying with new regulations and being in legal trouble, such as the EU’s Ecodesign regulation which demands supply chain transparency. Not knowing who is in your supply chain also negatively impacts buyers, because they can’t do an effective job and challenge the manufacturer on things like costs if they don’t know what parts go into the products and who supplies them.

As part of the auditing process, buyers need to see who is making the samples being sent off for testing and validation and have an assurance that this is the manufacturer themselves and the production isn’t being subcontracted by them to an unknown third-party supplier. Test reports showing that a product is certified to a specific standard, such as CE, don’t guarantee that subsequent products aren’t being made by a different supplier or even using different components (!), they just mean that the particular samples tested by the certifying body’s lab passed. You need to monitor what is happening in the factory and have visibility over different productions over time, as an accompaniment to getting the products tested and certified. (32:29)

Challenge 7. Cheap and/or fast will usually come with a reduction of quality in the minds of Chinese suppliers.

Buyers who push for the lowest price or very quick delivery times can’t expect high-quality products from Chinese suppliers. If you have a quality standard, your supplier needs to be clear that this is what will be used to verify that they did a good job. Quality corners cannot be cut to lower costs or lead times.

Only giveaway products like pens might be ok to obtain from China quickly within weeks and at low quality. For any other product type of the right quality, you should be prepared to wait for months for delivery. It’s risky to sell poor-quality consumer products these days, because poor reviews can kill a brand, and online shopping platforms will possibly kick out stores with too many returns and poor reviews. In order to get it to you fast, you also don’t know if the supplier is providing you with compliant, fake, or copied products…all of those are possible and could get you into legal trouble. (37:37)

Challenge 8. Inspecting quality too late and not enforcing your quality standard.

Conducting a pre-shipment inspection on finished goods is better than nothing, but if it’s the last line of defence you might be disappointed. Quality needs to be designed into products, not inspected in. So if your completed batch of thousands of products is found to have defects just before it’s due to be shipped, what then? Costly repair and rework that delays the shipment, or having to accept defective products. This is why inspections during production to provide the necessary oversight to find and fix issues are so important and effective.

If you don’t even check the quality before shipment and receive the products having paid for them in full, don’t expect a refund from the supplier. It will be hard to persuade them to even remake the order, let alone offer a refund. They might give you a rebate against your next order if you had an agreement that shows that they didn’t reach your quality standard. But this still leaves you with poor-quality products to sell, which could result in returns, or even a damaging product recall if there turns out to be a safety issue. (42:59)

Challenge 9. There is a lack of risk thinking and acting on problems when they occur.

Chinese suppliers are incentivized to produce products, not to inform you about potential sources of risk for your product. The relationship is often transactional: “You pay me, I make the products and ship them to you.”

They usually don’t want to analyze risks, detect, rate and prioritize them, act on them, follow up, and then keep acting on them to keep risks low. Simply put, they don’t want to know about or address problems because questioning is not as prominent in Chinese culture as in others which goes back to the issue where the factory’s boss or leader is expected to make all decisions. If the boss doesn’t prioritize a structured production process where it will be stopped if issues occur and verification and validation are important, and he focuses instead on chasing payments, entertaining new customers, etc, his subordinate probably won’t want to make those decisions for him. If relevant employees do not have the power to stop production or to escalate issues to management to make the decision, the factory probably doesn’t have a working quality system. ISO 9001 demands joint accountability for quality, but if operators are paid by the piece it’s actually against their incentives to stop production and fix issues! (44:37)

Accountability time: If production is not ok, that failure is probably on you the buyer.

Falling foul of these quality management challenges and ending up working with a supplier who doesn’t operate a quality management system is a failure by you, the buyer. You probably have not communicated your requirements, audited the factory to make sure that they had the capability to reach your quality standard and an effective QMS, nor conducted inspections early enough during product development and production to catch and fix issues. A Chinese supplier can’t be expected to police themselves in this way with no input from the buyer. (52:07)

Conclusion: How to successfully manage quality in China?

Overcoming quality management challenges in China all comes down to prevention, risk thinking, acting on risks, communicating the right information, and getting the right amount of transparency from your supply chain. To learn even more about quality management in China, refer to ISO 37301. (53: 58)

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