7 September 2010 | Angeline Albert
Procurement teams have been caught out by suppliers in China, who in some cases have been delivering poorer quality goods over time, according to research by analysts Gartner.
The study of global firms concluded that while sourcing from China can increase profit margins, purchasers must be vigilant against vendors using fake certificates, price increases, reducing production quality over time and ignoring delivery times and patents.
It found some companies received what they had specified in low volumes, but not for high volumes. Many Chinese suppliers reduce product quality over time in order to increase their margins and profits. Typically this happens after the first few orders, whereby a product’s ingredients or subcomponents are altered without changing the outward appearance, making it difficult to detect.
In one example, a US retailer discovered the diameter of its office chair legs had become 50 per cent smaller. The supplier did this to save on costs but it meant the final sale price had to be marked down accordingly.
The report recommended “vigilance” at supplier sites to prevent fading quality, and using third party inspectors if company officials aren’t present.
Sometimes Chinese suppliers bought fake certificates attesting to ISO quality standards, Six Sigma and social compliance, which prove hard to detect. Gartner also found little or no respect for sticking to delivery times and the violation of patents which can result in lawsuits for infringements.
Mark Berlin, senior adviser at procurement consultancy Greybeard Advisors: “It’s critical that with China sourcing and all other offshore sourcing strategies, plans and execution of those are well understood and supported by the company leadership team and the various supporting functions in the supplier relationships across the organisation. Without this baseline support, China sourcing and offshore activities may be doomed to failure."