The Risks of Chinese Sourcing
A few people have emailed recently to ask if I am rethinking private labels and Chinese sourcing in light of recent product quality problems.
My short answer: no. Most of the problems have occurred in food and drugs, although problems in some finished manufactured products have appeared such as the infamous Chinese tire recall. Many people are too quick to throw out overseas sourcing for political reasons. Nonetheless, wholesaler-distributors will have to pay close attention to their sourcing partners or risk future liabilities.
Food, Drugs, and Tires
As I point out in Chapter One of Facing the Forces of Change®: Lead the Way in the Supply Chain, China has emerged as the most important source of imported products for wholesaler-distributors with private labels. Almost 60 percent of wholesaler-distributors with private labels currently source their private label product from an overseas plant. By 2012, more than 80% of these companies expect to be sourcing overseas. (See Exhibit 1-2 ).
At least one distributor’s private label brand got caught up in the recall of tainted toothpaste. According to the New York Times, McKesson, the largest pharmaceutical distributor, recalled its McKesson EverFRESH brand after laboratory tests found small amounts of diethylene glycol.
The Wall Street Journal has a done some nice summary articles on the problems. Two highlights:
- Are Chinese Export Products Unsafe? “In a span of 15 years, China has gone from a country that struggled to feed its population to a major food exporter. … While China has adopted stringent safety regulations, those have been poorly enforced, if at all.”
- Safety Becomes a Hot Trade Issue “Safety and quality standards are increasingly replacing tariffs and quotas as focal points for international trade disputes.”
The second article highlights the analytical challenge -- it's difficult to distinguish genuine safety issues from protectionist rhetoric.
Safe Sourcing
For a different point of view, read What's Going on With China Quality (if Anything)? This ex-Ariba blogger quotes one of his former colleagues as saying: “Companies that source raw materials and manufactured goods throughout the globe need to have sound supply chain practices in place to insure that quality levels are maintained.”
The story of Chinese tire importer Foreign Tire Sales shows what happens when you cut corners. (See Made in China: Faulty Tires.) Keep in mind that FTS sold its products to distributors.
Interestingly, Andrew Berlin of Berlin Packaging echoes the value of knowing your foreign suppliers in this recent interview with Modern Distribution Management, which said:
Still, even with the advent of Internet, "nothing beats walking the factory floors and doing the audits and meeting the principals of these organizations. There’s no shortcut for the hard work that goes into finding these factories." Taking the extra time to find reliable factories will mitigate some of your risks. And as with any investment, sourcing from overseas requires the hedging of bets.
You should also read through Andrew’s presentation slides from the NAW Executive Summit for further insights on protecting your business with sound importing practices.
1 comments:
While I believe the question asked is valid, I completely agree with your comments.
The problems that have occurred, will continue to occur in proportion to the amount of growth in the area of China sourcing.
We should all be reminded that in the United States, we continue to experience problems in the manufactring process.
In the last week alone I have read several stories of product manufacturing issues. One involving contaminated food at a Georgia food plant, and another involving baby food.
One only needs to look at the Government Recall website to see we have manufacturing issues throughout the Country.
Now, does that make it "okay" when we see it happening in China with products destined for our shores? Absolutely not.
But the issue needs to be looked at in the context of the bigger picture.
The real question should be, what can US manufacturuers or distributors (who are sourcing from China) do to lower their exposure in this area?
As you noted in the quote from Andrew Berlin, I think it's important that the US Company importing those products be more "involved" in the sourcing process.
They should know who they are working with, and to do so requires taking the time to meet them face to face.
While the internet has helped to "flatten" the world (as noted by Thomas L. Friedman in his book, "The World Is Flat"), it should not replace good old fashioned business sense. Know who you are working with. Build relationships with the people you work with.
The absence of a strong working relationship will undoubtedly lead to more problems. This is only heightended when working with people overseas.
Additionally, if you are sourcing your products with the assistance of a third party company, their processes should include stringent quality control processes. And, these processes should always be performed by a independent party, who is experienced in this field. Never should the fox guard the hen house.
If the sourcing company does not offer this type of quality control as part of their services, they are not the sourcing company you should be working with.
There are of course other controls that should be put in place as well, but my point is, that part of reason for having a professional sourcing company assist the US Company is to mitigate any risks associated with sourcing/importing their products.
Too often we suffer from the tunnel vision of "price", and forget that strategic global sourcing is about so much more.
It will always be important to minimize our exposure to defective products, both here in the US, and abroad.
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