Assess Your Risk, Plan, and THEN Outsource to China

Recently I have been spending a lot of time on the responsibility companies have when they outsource to ensure the integrity of their supply chain by investing in a solid quality control process, and recently this resulted in an editorial writer from the Wall Street Journal sent me an email as for my comments on the following:

Most, if not all, coverage I’ve seen has focused on the role regulators in Beijing and Washington need to play to clean things up. But I suspect that’s missing the big role for the private sector.

After all, don’t a lot of western companies sourcing in China have a major financial incentive to enforce quality standards independent of regulators? They have to defend their brand reputations in the eyes of consumers back home, don’t they?

First, I totally agree with his initial assertion that it is there needs to be more focus away from just the actions of those in Washington and Beijing. In fact, given the primary decision makers on outsourcing are from the private sector, the primary bearer of responsibility is on the private sector (i.e. those who chose to outsource) to ensure the quality of the goods they are bringing in from China, components or finished. By “ensuring the quality” of the goods I do not simply mean that they look pretty good, or that price-to-quality differences are the same, but that these products are being produced as they were in the U.S. and being inspected as they would be in the U.S.

With regard to the second question, the correlation between quality and brand is without a doubt positive all levels,and what is so interesting to witness is how many firms will add large amounts of risk (knowingly and unknowingly) to their brands when outsourcing. Luxury, midlevel, and low end brands all try to balance brand image, quality, and pricing at some levels, and there are thousands of brand managers spending billions of dollars every year to create brand identities that will lead to customer loyalty as the desired market segment. From the management/ operational standpoint though the decision to outsource to China is a seemingly pretty easy one:

China is low cost, we can save money, and someone needs to fly to China.

Yesterday!

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