Mattel Inc.'s drama and the latest scare over Chinese consumer goods are raising doubts worldwide about doing business with China. But some U.S. companies say there's no secret to assuring the quality of outsourced products.
Electronic Hardware Corp. said the quality of its products improved after it moved production from Farmingdale, N.Y., to China in 1998, after it exhausted all internal resources trying to cut costs. In two years, profit increased 48 percent - and product rejection dropped to just 0.41 percent.
The company took the time - three years for the transition - to find qualified plants, and employed a very intensive inspection system, made possible by the lower labor rates.
With its successful experience having proprietary and custom-made instrument knobs made in China, the company started a consulting business division: Smart Sourcing Inc.
Frank Pellegrino, head of SSI's plastics division, explained his method of ensuring the quality of outsourced products.
``You just need to identify vendors' core competency [and] attitude - make sure they are enthusiastic, and put quality control people and systems on the plant floor,'' he said.
U.S. buyer beware
``Quality on any products you are sourcing, especially from sources you are not familiar with, has to be a major concern, no matter where they are at or where they buy from,'' said Craig Messerknecht, vice president of marketing and world product management of mold components supplier D-M-E Co.
He said the Madison Heights, Mich.-based company has had positive experiences in Asia, thanks to a strict process of dealing with suppliers.
``The steps we take to ensure quality from any source, whether from Bowling Green or Beijing, we have the same concerns, and we have the same system in place to make sure the products we bring in are of the same quality,'' Messerknecht said.
He called for U.S buyers to be aware of all the risks and not make assumptions.
``In China, you have everything from an extremely world-class system to the opposite end. You need to know who you are dealing with,'' Messerknecht said.
American quality standards are several steps ahead of those in China and other Asian countries, according to Jeremy Haft, founder of Washington-based BChinaB Inc. ``Chinese consumers and producers just aren't accustomed to this quality level,'' Haft said.
He said some Chinese companies employ alternative and primitive methods of production. For example, unlike in the U.S., a progressive die in China will be split into a series of line dies fed by hand. ``The risk of human error will skyrocket in these conditions, and mistakes are much more prone to happen,'' he said.
But SSI's Pellegrino said he does not believe the problem lies in Chinese standards and enforcement.
``It's the purchasers' responsibility to see that everything is in place and followed,'' Pellegrino said. ``If you have people on the plant floor every day, how can [something like Mattel's case] be happening under your nose?''
The quality issue associated with overseas manufacturing is no news in itself.
BChinaB's Haft said multinational corporations have struggled for years to bring reliability and visibility to their China production. However, the recent rash of consumer product scandals has given the general public its first good look into the global supply chain and the basics of quality control.
``It's taken us a long time to develop the relationships [in China] and the staff,'' Pellegrino said.
SSI now maintains a network of 50 plastics factories in China, with a staff of 35 in Shanghai and seven in its Ningbo office, which opened Aug. 1.
``We have two to four quality control staffers - engineers with at least five years' experience - for each of the three departments in Shanghai,'' Pellegrino said.
Three of SSI's seven employees in Ningbo specialize in quality control, and one lives at the factory, according to Pellegrino.
``We are not there carrying a stick. We are there to help the vendors. They look to us as an aid,'' he said.
Xia Bingyu, a quality manager at SSI's Shanghai office, said the company constantly is focused on improving the quality of its suppliers through routine evaluation procedures. Those include assessing the quality of their suppliers' manufacturing operations, as well as their delivery and service; doing annual facility checks; and providing training.
``We eliminate the bottom 15-20 percent [of our vendors] every year,'' Xia said in a telephone interview. The pressure of competition keeps vendors working hard, he said.
Although many critics blame the long supply chain in China as a loose link in the quality chain, Pellegrino said that is not fair.
In fact, some Chinese vendors do subcontract out manufacturing when they are facing overextended capacity, expedited orders, machinery failure or the shutdown of the power supply - which occurs frequently in China's industrial centers, Pellegrino said. But a company needs to apply the same level of scrutiny to those subcontractors as it does to its own vendors, he said.
``We have the same access to the subcontractors as to the primary vendor. We are not allowing them to take shortcuts,'' he said.
Xia said quality control people have to be on-site with subcontractors and attain certification from customer-approved third parties if needed.
Will the recent flurry of incidents put a deep dent in China's exports?
Some experts say no.
SSI sees no sign of impact on its business in China.
``We've had questions about products. People are once again asking for certifications that we normally have anyway. They just need reassurance,'' Pellegrino said.
``As far as our industry goes, I don't anticipate there will be any significant changes,'' said D-M-E's Messerknecht. ``I don't think it's going to stop U.S. companies from buying tooling or tooling components from overseas. They may think a little harder about some of the quality and lead-time issues and look at the bigger picture.
``The problem is magnified when you are buying from a country that's not nearby, that has different languages and cultures than you are used to dealing with,'' he said.
The immense volume the U.S. imports from China - some labeled ``made in China'' and some not - contributes to China being in the spotlight more than other countries, Haft said. But, he added, the quality of China's supply chain is not necessarily worse than that that of other countries importing into the United States.
``My personal feeling from experience is that China is generally better than a lot of developing countries, in terms of manufacturing and assembly prowess,'' he said. ``It's hard to turn back a raging river.''
Doreen Michelini, president of Chicago-based consulting group China Mexico Solutions LLC, said there always have been quality problems in China, just as in the United States, India, Mexico and other nations.
``Because we are closer to the problem and feel more comfortable [when] U.S. agencies are involved, we minimize the problem,'' she said. Even so, Michelini said, the orders are not relocating from China to Mexico because of quality concerns.
The United States' unrelenting demand for cheap products secures China's position as a major outsourcing destination and offshore production location, Pellegrino said.
``China's exports are demand-driven, and the particular demand is also price-driven,'' he pointed out. ``People that are manufacturing in China - where would they switch to and at what cost? They are certainly not coming back to the U.S.''
SSI has done some exploratory work in India. But, ``China is still the place to be now,'' Pellegrino said. ``India still is lacking infrastructure.''
Haft said multinational corporations doing business in China today always are evaluating alternative sources of supply, and many already are sourcing goods in other countries.
``But regardless of the recalls, there are still many areas in which China's manufacturing environment is superior to other countries,'' Haft said.
``It'll be tough for [multinational corporations] just to shift supply, lock, stock and barrel, to other countries - especially when, in many cases, the quality will be even worse,'' he said.
Quality control tips
Haft said his firm, BChinaB, literally inspects every single product, as opposed to doing statistical sampling.
``That takes a lot more time and money, but it's necessary. Otherwise, you're prone to either greed or mistakes,'' he said.
While that might not be doable for orders of millions units, SSI's Shanghai quality engineer for plastics, Clark Wang, said factory operators do check every product.
For smaller orders, the final inspection can cover all units as well.
For larger orders, ``we allocate more people and increase the frequency of sampled inspections,'' Wang said, ``sometimes up to every two hours during the production.''
More diligent work in the very beginning helps too. ``During contact review, we evaluate the possibility of any problems that could happen in fulfilling the order,'' he said. ``We let our factories [help make] quality plans, so that they truly understand all the details.''
Xia said he believes the attitude of a supplier is most important in the selection process.
``Many Western buyers only look for factories with certain certification, such as ISO 9000, but certification is no guarantee,'' Xia said.
Lee Der Industrial Co. Ltd., in the heart of the Mattel recalls, is ISO 9000-certified for all its factories, according to Chinese media.
``Those certified ones can fail too. On the other hand, those without certification can also make high-quality products, if they are willing to cooperate,'' said Xia, emphasizing why attitude is important.
Sometimes, companies' attitudes are determined by the deals themselves.
In the wake of policy changes, cost increases and strengthening yuan, Chinese factories have a lot of balls to juggle at the same time. And in harsh conditions, balls can drop.
``We are tough price negotiators, but we don't cut everything out of vendors,'' Pellegrino said.
He said buyers need a more complex approach of understanding than just a dollar-and-cents approach.
``In some cases, we absorb [the cost increase],'' Pellegrino said of SSI's experience. ``In some cases, we take the hit along with the factories, and sometimes we are passing it on to the customer.
``If you keep expecting the vendor to eat all this [cost pressure], you are just setting yourself up for something to happen,'' he said.