Executive Briefings

Quality Issues Present Challenge, May Lead to New Thinking on Outsourcing

China may still be attracting new business but, as recent headlines demonstrate, the offshore migration is not without its problems. Quality issues have U.S. and European consumers on alert and are forcing the Chinese government to begin addressing corruption issues that have impacted manufacturing quality. And whether it is lead-tainted toys made in China or foods tainted with E. coli grown in the United States, quality failures can break a company, says a weekly Alert from AMR Research, Boston.
Reassuring a wary public in the aftermath of such a failure is a massive undertaking that requires every member of the value chain. AMR analysts recently gathered to discuss how businesses are being affected and to talk about ways in which companies can deal with the problem. They identified a number of best practices in each area to assure quality control or efficient recalls. Each step will be detailed in a coming report, but here is a preview:
• Despite all the technology to manage global collaboration, some companies are finding that nothing beats an actual physical presence to assure quality in and quality out.
• Top high-tech manufacturers and retailers, including Apple, IBM, AMD, Cisco, Best Buy, Dell, HP, and Kodak, among others, banded together to form a oversight group called the Electronic Industry Code of Conduct (EICC) to assure quality and compliant products from overseas manufacturers.
• If quality does become an issue, retailers need standard policies and procedures in place for recall and reverse logistics, and employees need to be trained on how to deal with it. Since most products for the 2007 holidays are already on their way to or in the warehouse, it may be too late for this year. But retailers do need to plan for next holiday season, not to mention for all the time in between.
• Retailers should join consortium groups to help ensure the products it buys meet environmental, social, and compliance standards. As more retailers launch private-label products, instituting all of these practices becomes even more vital.
• Despite recent recalls, the food industry is better equipped than most to deal with quality issues, because it has long had to contend with regulations requiring thorough food labeling. Other industries can take a page out of their playbook and adopt some of the food industry's best practices in these areas. Ditto the pharmaceutical industry, which has stringent regulations to assure only quality medications and medical devices make it the patient. The recall of a child's toy should be as rare as the recall of a heart stent.
• Turning to other low-cost sourcing options, India is seeing a surge of outsourced manufacturing as quality and corruption issues hamper operations in China. China is about where the United States was 150 years ago in terms of government oversight for environmental health and safety. It will be many years before China will have the rules and bureaucracy in place to put manufacturers at ease. In the meantime, they'll need to take on the expense of self-governing or turn to other regions, like India. Some perceive India to be a more controlled environment, and so able to produce safer products. Call it "different-shoring." Brazil and Mexico may also be options for nearshore alternatives. Some are also bringing it home. That Made in the USA label may mean something again to shoppers if quality problems continue to plague products made overseas.
http://www.amrresearch.com

China may still be attracting new business but, as recent headlines demonstrate, the offshore migration is not without its problems. Quality issues have U.S. and European consumers on alert and are forcing the Chinese government to begin addressing corruption issues that have impacted manufacturing quality. And whether it is lead-tainted toys made in China or foods tainted with E. coli grown in the United States, quality failures can break a company, says a weekly Alert from AMR Research, Boston.
Reassuring a wary public in the aftermath of such a failure is a massive undertaking that requires every member of the value chain. AMR analysts recently gathered to discuss how businesses are being affected and to talk about ways in which companies can deal with the problem. They identified a number of best practices in each area to assure quality control or efficient recalls. Each step will be detailed in a coming report, but here is a preview:
• Despite all the technology to manage global collaboration, some companies are finding that nothing beats an actual physical presence to assure quality in and quality out.
• Top high-tech manufacturers and retailers, including Apple, IBM, AMD, Cisco, Best Buy, Dell, HP, and Kodak, among others, banded together to form a oversight group called the Electronic Industry Code of Conduct (EICC) to assure quality and compliant products from overseas manufacturers.
• If quality does become an issue, retailers need standard policies and procedures in place for recall and reverse logistics, and employees need to be trained on how to deal with it. Since most products for the 2007 holidays are already on their way to or in the warehouse, it may be too late for this year. But retailers do need to plan for next holiday season, not to mention for all the time in between.
• Retailers should join consortium groups to help ensure the products it buys meet environmental, social, and compliance standards. As more retailers launch private-label products, instituting all of these practices becomes even more vital.
• Despite recent recalls, the food industry is better equipped than most to deal with quality issues, because it has long had to contend with regulations requiring thorough food labeling. Other industries can take a page out of their playbook and adopt some of the food industry's best practices in these areas. Ditto the pharmaceutical industry, which has stringent regulations to assure only quality medications and medical devices make it the patient. The recall of a child's toy should be as rare as the recall of a heart stent.
• Turning to other low-cost sourcing options, India is seeing a surge of outsourced manufacturing as quality and corruption issues hamper operations in China. China is about where the United States was 150 years ago in terms of government oversight for environmental health and safety. It will be many years before China will have the rules and bureaucracy in place to put manufacturers at ease. In the meantime, they'll need to take on the expense of self-governing or turn to other regions, like India. Some perceive India to be a more controlled environment, and so able to produce safer products. Call it "different-shoring." Brazil and Mexico may also be options for nearshore alternatives. Some are also bringing it home. That Made in the USA label may mean something again to shoppers if quality problems continue to plague products made overseas.
http://www.amrresearch.com