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February 14, 2016

4

Why making quality product is so hard!

by mikediliberto

Recently I’ve been sharing an article that I wrote for Quora some time ago, about the challenges of sourcing and manufacturing in China, especially for a start-up firm or those not buying items by the millions.  The original question was, “Why are Chinese products of such low quality? If apple can make the iPhone in China, why do we still struggle?”

As a sourcing professional in China, I can safely say that if I had a nickel for every western manager that pulled out an iPhone during a discussion about product design or quality control in China, I would have retired a few years back.

The comparison is inappropriate because the iPhone is not made in China.  The iPhone is assembled in China.  I could just as easily ship all of the parts, assembly and testing jigs, and production instructions to Vietnam, Italy, Mexico, or even the United States of America, and I would churn out identical iPhones to ones we assemble here in China.  The important distinction is that the iPhone is made from parts manufactured all of the world, but it was designed by a top team of engineers at Apple’s headquarters.  Those engineers designed not just the iPhone, but also the methods of manufacture.  They created tight tolerances between parts and found suppliers that could build to that tolerance level; in some cases those suppliers are in South Korea or the USA.  That same engineering team made test jigs for the iPhone so that at each station of assembly a worker can insert their sub-assembly into a jig, and get a simple green light (send phone to the next station) or red light (kick out phone to the re-work line).  That engineering team did all of the work of not just designing and engineering the iPhone, but also designing and engineering the complete production process. The processes of designing for manufacture and process engineering are not nearly as simple or easy as they sounds when I describe them in ten sentences.

The next question I inevitably get asked is what it takes to “build our products like apple builds the iPhone”. Ok, no problem.  But, first, lets look at some numbers.  Apple, according to their most recent earnings report spent just over a billion dollars in R&D costs.  The iPhone makes up about half of apple’s revenue, so it would be fair to guess that they allocated five hundred million US Dollars of R&D spend towards the development of the iPhone 5S (and 5C).  Even if we say that we could further divide the cost (we probably can not, but hey suspend disbelief, we are on the internet, after all) between the two phones released this year, that is still allocating two hundred and fifty million US Dollars towards the research and development of a single phone.  Divide again the costs between product development and manufacturing, and that is one hundred and twenty five million US Dollars that Apple spent just to design the best way to make a phone. (And that is, I believe, a conservative figure)

Ok, now that we have the iPhone question out of the way (can you tell I have given this speech before? Exiting soap box now…), lets get to the meat of this question, which is, “Why are Chinese products of such low quality“, which, by the way, is a massive question, but one that can be stated simply:

Most firms spend way too much time thinking about WHAT they are making and not nearly enough time thinking about HOW they will make it.

A little background on Chinese manufacturing (in general!):

Lets assume for a minute that you are asking why Chinese firms turn out poor quality products on their own. Not all factories do. Some factories, especially those that have exported products on their own or worked as contract manufacturers for western firms will consistently and without excessive guidance turn out high quality product. However, there are an equal number of factories that will turn out anything you ask them to produce, defaulting to minimum cost and minimum quality unless otherwise specified.  There are number of factors here that are worth exploring:

First, and foremost, Chinese domestic market consumers generally (it’s changing, but for now) go for either the best product or the cheapest product.  So if you are not making the best, you are racing to the bottom to make the cheapest.  Chinese consumers are not generally looking at quality; it is assumed that if you want quality, then you buy the best one; otherwise just buy the cheap one.  So manufacturers are not rewarded for making incrementally better products.

On top of this race to the bottom mentality is the attitude of customer service taken by some mainland firms.  Since production costs are very cheap, and few people generally call to complain about their cheap products, the customers that do complain of issues are usually given new product by the supplier.  China is one of the few places where a supplier having to replace a defective product several times is tolerated by consumers, and in the eyes of some suppliers, this is not an issue.

Lastly, with lax enforcement of a lot of product safety requirements, many Chinese domestic suppliers become accustomed to cutting corners where possible.  Plastic too expensive? Add some re-grind material back into the hopper.  Solder hard to work with? Use the one with lead in it, as it flows better. Price of copper rising? Get thinner printed circuit boards. You get the idea.

So lets continue the discussion of Chinese products that are made and imported into another country. 

Here is an example.  Meet Joe Blogs, American Entrepreneur.  Joe heads over to the consumer electronics show with his idea for an awesome mp3-o-tron.  Joe, knowing that he needs to get his product made in China as his start-up is lean on cash, heads over to the Asia pavillion and meet with some more polished Chinese suppliers, probably from the pearl river delta region.  They show some examples of other products they made before, and Joe finds a supplier that made a similar enough product that he believes they can make his mp3-o-tron.  Also, their prices are a lot more reasonable than some of the other vendors he has met at the show.

After reviewing Joe’s engineering drawings and documentation, the supplier explains that it is much cheaper to have Joe modify their existing cassette-tape-o-tron into his mp3-o-tron, since Joe didn’t have any design for manufacture work done, nor had he done any process engineering (lets assume joe is a few million shy of the millions Apple would have spent in manufacturing process development). The supplier explains that they have produced millions of cassette-tape-o-trons, and have ironed out the issues, so this is the safest route to take.  So, Joe goes along for the ride.

Unfortunately, the cassette-tape-o-tron is a Chinese domestic market product, which means it has not passed the rigorous testing that exported product might have been subjected to.  FCC approval? UL? Lead in the solder? Lead in the plastic? Have any of these tests been done? The biggest issue is that Joe doesn’t know to ask, and the supplier doesn’t know it will be an issue.

A few prototypes later, the mp3-o-tron is not looking all that great. There are performance issues with audio playback, and on top of that, three of the ten prototypes that Joe brought back from his last trip stopped working, one right in front of a customer. Joe calls the supplier to complain, and the supplier says “no problem at all, I will give you three new ones when you get back here”.  Joe is not pleased.  When Joe’s customers ask about FCC approval, Joe just nods and makes mental note to ask his supplier; surely they know that his product needs FCC approval to be sold in the USA, right?

Costs keep mounting as Joe demands approvals, testing, certification.  RoHS, fair trade, you name it.  The supplier keeps raising the price, but Joe balks.  “Lower the price or we are not buying mp3-o-trons from you!”.  The supplier obliges, but where did they save the cost? fake chips? thinner than specified printed circuit boards? Tin screws instead of stainless steel? Unless Joe is testing for each of these possibilities, Joe is at risk for unapproved component substitutions.

The first containers of mp3-o-trons finally arrive in the USA.  The costs were higher than budgeted, they just barely passed all of the certifications required for sale in the US market, and are of dubious quality.  Joe, not having budgeted for his own QC team to be on site at the factory during production has had to rely on the supplier to confirm the quality of his goods.

Soon word gets out about the mp3-o-tron;  another low quality Chinese product.  But how did we get here? That journey, as you can see, is not that simple.

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