I think an interesting approach is to divide the market into 3 wide categories where the reality is quite different.
In the end, the conclusion is simple.
- If buyers can’t tolerate bad quality, then they will get better products. Whether in China or somewhere else.
- If they can tolerate a substandard batch from time to time (even if they protest, scream, jump on a plane… and they lose serious money), the rate of improvement will be slow… or nonexistent.
Let’s see how it plays out…
Market 1: poor quality absolutely not tolerated by buyers
Do you think a tier-one supplier of seats to Ford Motor Company is allowed to ship 2% of defective products? No way — all the chargebacks would bankrupt that supplier. They’d get a lot of verbal abuse too, but that’s not sufficient. They would get hit where it really hurts — their bank account.
Do you think Microsoft lets a contract manufacturer (CM) that assembles the ‘Surface’ laptop ship computers that have a fan problem or a screen problem 1% of the time? Definitely not acceptable.
Do you think Siemens buys wires for its FMRI machines from a manufacturer that hasn’t already checked them very thoroughly? Not a chance. They can’t afford a 4 million USD piece of equipment to fail and be returned from a hospital.
Automotive OEM. High-end consumer electronics. Medical devices. In these three industries and a few others, buyers in Europe and North America have long decided bad suppliers’ quality is ABSOLUTELY and ALWAYS unacceptable.
The result? The Chinese companies that have managed to fulfil their expectations have risen their quality standards spectacularly.
Market 2: poor quality not accepted, but in facts still tolerated
Most consumer products made in China fall into this category.
I’d guess 99% of orders sent to the “Fulfilment By Amazon” model are on this market, too. Even though any serious quality issue means Amazon can close the seller’s account once and for all.
If you buy less than 1 million USD a year of a specific item, it is probably in this category. Why is that? Because you haven’t done all the upfront work required to “build quality in”:
- You haven’t done reviews and iterations on the product design (based on drawings, functional prototypes that get tested in a reliability lab…)
- You haven’t forced the manufacturer to prove that the process was capable of churning out good products the first time at a high percentage (thanks to a solid control plan, a pilot run…)
- You haven’t qualified the main component suppliers and then forced them to prove their processes were capable too (same idea as the previous point).
Of course, I do understand it is not always realistic.
In many cases, the importer simply selects a product already “on the shelf”, with or without slight adjustments. Going into mass production straight away is very tempting. And the manufacturer, which has already made that same product before for another customer, is not willing to go through all the upfront work I listed above. I get that.
But you should be aware of the consequence: an inconsistent process that yields inconsistent product quality.
Can you push the factory very hard and get them to make efforts in order to improve quality? Yes, sure. But, since they haven’t “built quality in” the product, they will have “inspect it out”. It means greater QC resources and higher prices.
Market 3: price drives the deals, at the expense of quality
I have observed this when it comes to discount apparel and footwear that are made in Shantou, Quanzhou, and other similar places. Same thing with all the cheap ‘fancy jewellery‘ products made in Yiwu.
Here are the mechanisms at work:
- Discount retailers keep looking for lower prices and de facto tolerate lower levels of quality.
- Importers/wholesalers got squeezed on price every year and had to find cheaper sources.
- Manufacturing gradually moved to the cities that offered lower prices… and where the average salesperson never heard a customer say “I wouldn’t mind paying a bit more if quality were better”.
A lot of this business has already left China. More labor intensive productions are often made cheaper in Bangladesh, Pakistan, or Vietnam, for example.
I always wonder if there is a bottom these players will hit. Or if their standards will keep getting looser. We had a few such clients 7-8 years ago and I am glad they left. Price was the over-riding factor in all their decisions, and they tended to work with the worst manufacturers…
Note, sometimes the price is not given a much stronger priority over quality.
Sometimes it is timing. When I think of all the give-away promotional items that HAVE to be shipped out by a certain date… and also made cheaply, of course… There are no real quality standards, and corners are cut all the time. Buyers know that and it’s the name of the game!
Will your company switch from market 2 to market 1?
I guess many readers who have made it so far are wondering, ‘how about us?’
If your margins have been eroding over time and the constant risk of quality issues puts your business seriously at risk, then maybe it is time to do the hard, upfront, preventive work.
It might mean working with a good contract manufacturer that already has all the right systems in place. It might mean giving an “upgrade now or we are leaving in 3 months” warning to your key suppliers. In all cases, it means looking at your supply chain and making changes.
At CMC, the consulting firm I am a partner of, we have seen a strong uptick of clients who have decided to take things into their own hands and force key suppliers to change their ways. It looks like a strong trend.
What do you see in your industry? Is your supplier’s quality killing you? What do you do about it?
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