Have you been following the recent stories about "defective" products from China? It seems that a new defect is found each week on something imported from the rising economic giant. The cases included toothpaste, pet food, and seafood tainted with hazardous chemicals, lead paint on toy trains, and defective tires. In some cases, the consequences have been fatal.
The recent trend has been for companies to locate to China to take advantage of the low labor costs and market potential. There is no ignoring that labor costs are less but what we are starting to see, in my opinion, is the total cost of doing business with China.
The Food and Drug Administration samples (I am researching the sampling plan but at this point I am assuming they don't 100% inspect all shipments) imports into the United States. The graphs above are a summary of their findings from June 2006 through March 2007.
The first graph above (click on each graph to enlarge) shows the top exporting countries to the United States. Note that China is the second largest exporter. The second graph shows the mean number of "refused shipments" by exporting country June 2006 to March 2007. If the FDA finds a defect in its inspection, the shipment is refused and held for the exporting country's disposition. Note the top three are India, China, and Mexico. These are the shipments that were rejected in the sampling plan. What about the shipments that were not inspected at all? Well, in the case of China, we know they contain defects.
To be objectively fair, the third graph converts the refusals into a rate (number of refusals per $100,000,000 imported). This statistic clearly shows India as the "worst" exporter to the United States. I have not read many stories about Indian products. Have you?
I'll make this analogous to what most of you do every day: Your customer gives you a specification for the product or service you contracted to produce. As the supplier, it is your job to determine (in advance) if your process can capably produce to the specification on time, with good quality, and at a competitive price. If your process is not capable, you have three choices:
1. Ask your customer to change his specification to meet your process
2. Change your process
3. 100% inspect the output of your process
Number one rarely happens. Numbers three and two are costly.
The data above suggests that China's economic system is not capable of supplying defect free product to the American public. So, China has three choices to make. Throw number one away. The American public will not loosen its expectations for toothpaste, food, and tires. Clearly number two must happen and can't happen fast enough. In the interim, number three should happen because we (America and the world) purchased from China without knowing China's capability. Now we depend on China' imports to keep our economy moving. We can't simply desource them.
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4 comments:
My belief is you "Get what You Paid For". Yes it may be cheaper labor, but what about the costs involved in recovery from such defects and also the possibility of the cost of lost consumers/buyers. I also would like to know what about the committment to providing a "Quality Product" at the best price and delivery. It seems to me that the focus was all about the cheap labor and all else fell to the way side. Hmmmmm
This seems to me to be a question of large volume more than anything. When one provides a very large volume, the process capability must be higher unless the defects are de facto acceptable to the customer. As you mention, we don't read much about problems with Indian goods even though their rate of defects is much higher than China's. If India's defects are shoddy sportshirts, the ones that get through don't make the news. They are "de facto acceptable" by which I mean that the customer doesn't complain even though the product isn't truly up to specs.
The Chinese goods are lower in defects but the de facto acceptance isn't their because of the big threat to health. When the stakes are high, and you have a high volume, you need a really exceptional capability.
This is a case, I think, where one has to be sure the numbers truly represent all the factors. If one weighted the defect rate based on the impact of the defect, I wonder if the Indian rate would drop compared to the Chinese rate.
That saying is definitely fitting for this case.
We are truly seeing the total cost of business.
Key question: Is this the true cost or will these exporters develop capable systems and processes that can provide good quality products at competitive prices?
Stew,
You are correct. There certainly needs to be a weighting applied to the numbers. A defective paper weight is not the same as contaminated food.
I will say that I browsed through India's rejections and they seemed to be for the same general reasons as China. I thought about including a pareto chart of rejects for the top five countries but did not. Perhaps that will be my next post.
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