Last week I met with an importer who complained that her long-time suppliers don’t make efforts any more. They assume they are doing a “good enough” job, since they have gotten orders so regularly for so long.

The problem is that the importer’s own customers are raising the bar in terms of quality standard–by being very tough and by regularly refusing shipments—and that, on the other hand, the Chinese suppliers don’t do anything to increase their quality level. If anything, their reliability is going down.

Causes of complacency in Chinese manufacturing

Complacency is a natural phenomenon. All organizations, in all countries, have to fight it. However, it is very present in Chinese manufacturing for the following reasons:

• Chinese suppliers (factories and intermediaries alike) tend to get very excited about new large customers, and favor them in every way possible (low prices, priority in capacity planning, best merchandisers, more attention from top management…). This is often at the expense of older customers.
• Quality systems are either not in place or not respected.  So getting consistent quality requires constant attention. The customers who don’t get this precious attention usually do not receive quality products.
• Most factories make little to no margin. There is always a temptation to purchase substandard components and to cut corners in production, in an attempt to widen the margin. This is what Paul Midler calls “quality fade“. As Dan Harris wrote, “we are always telling our clients to prepare for the fourth shipment. In our experience, quality fade tends to happen disproportionally on the fourth shipment, probably because it is at this point that the Western importer is feeling comfortable enough with its Chinese manufacturer to place a large order and the Chinese manufacturer is feeling comfortable enough to cut corners.”

What can a purchaser do to fight complacency?

For what it is worth, here is my advice for importers:

• Never rely on 1 supplier for your important projects. Many trading companies fold their operations every year, and a money-losing factory can close its doors overnight. More generally Chinese suppliers are not as reliable as Americans or European vendors. If a given production is of any importance to an importer, he should arrange at least one back up supplier.
• In parallel, keep your suppliers in competition for your new products, and make sure they are aware of it. If you have a stable product line, get quotes from different sources and communicate about it with your current supplier(s). If your supplier thinks you are locked into the relationship, he won’t make any effort. Keep the option to switch suppliers!
• Keep applying regular pressure with quality control (with the mix of product inspections and lab tests that is appropriate for your product). The supplier will get immediate feedback every time the customer’s quality standard is not met.
• Put procedures in place. Doing business on friendly terms can work, but it is the exception. You might need a stick–not only the carrots of repeat orders. Penalties keep suppliers on their toes.
• When you see that one of your suppliers is growing fast, your weight in its business is probably going down. As explained above, it is important to keep the management’s attention. Don’t be a very small fish in a big pond. Good relationships with Chinese suppliers seldom last for many years, and you have to plan accordingly.