Tag: manufacturing

The U.S. – China Trade War Creates Demand for Sourcing Diversification

Written by: Alexander Parker, Account Manager (Tampa, FL)

Pro QC International works with businesses to develop and maintain their quality programs. Many of these clients have their primary suppliers based in China. Due to recent trade escalations between the world’s two largest economies, the United States and China, U.S. corporations are finding ways to adapt and avoid extra costs as the tensions continue to escalate.

Some prominent U.S. companies have already directly indicated that the U.S.-implemented tariffs will force them to pass down higher costs to customers and revise their earnings forecast downward. However, there is an alternate solution to pushing costs onto customers.

Large U.S. companies, like Honeywell, Hasbro, and Boston Scientific, have indicated that they will increase the use of supply chain sources from non-China countries to counter growing costs related to the rising tariffs. Compal, a Taiwanese contract manufacturer of electronics, has mentioned that while “assembling notebooks outside of China could cost at least 3 percent more per unit, the possibility of U.S. tariffs could wipe out its gross profit margin of slightly above 3 percent last quarter.” (Wu, 2018) (“Factbox – Impact of U.S.-China trade tariffs on U.S. companies”, 2018).

This is in fact one of the purposes of these U.S.-tariffs, to protect domestic industries and to make goods produced in an outside country less enticing. The goal is to eliminate the cost benefit that leads to companies purchasing from a country in the first place.

Despite some larger companies having opportunities to appeal to the U.S. government for exemptions from tariffs that would directly affect them, most companies do not have the resources or power to make such an impact on the U.S. movement. Being that these tariffs are out of their control, many companies, some of which include Pro QC’s own partners, have begun to diversify their supply chains to prevent and avoid major business disruptions. With tensions escalating and potentially further tariffs to be added in the upcoming months, companies are rapidly looking into this option before costs in China become too high.

For example, we have had clients cancel Initial Supplier Evaluations in fear that the tariffs will no longer make the potential new Chinese supplier a more affordable option than suppliers elsewhere. This uncertainty leads to a risk that is not worth taking.

Diversification to suppliers from various countries will lead to a more robust supply chain that allows for resilience in times of uncertainty like now. However, companies that have limited resources or time to find new suppliers may find it very difficult to locate and transition to these new facilities.

Pro QC can assist during this time with services like supplier selection and identification, supplier development, and inspection services to get new suppliers up to speed and ensure their products are meeting a company’s quality standards. If it is desired to replace an existing supplier, we provide help in identifying or transitioning to suppliers in countries that will not be affected in these trade disputes.

As written about in a separate Pro QC blog post “China Sourcing Alternatives: Thailand,” other reliable manufacturing nations, notably Thailand, as well as Vietnam, India, and Mexico, also offer affordable costs and business environments. With local Pro QC teams in each of these locations and services in a total of 88 countries, our quality professionals will assist in executing any range of solutions required.

It is important to remember that despite China potentially losing some market share to other countries, they will still account for a major portion of trade in the world. For example, China still accounted for 35 percent of global clothing exports last year. Rather than China backing down during this time of intense pressure, the Chinese government and factories are going to respond by searching for methods to increase competitiveness by finding alternative markets, increasing factory automation, and creating more value-added products. Factory owners are not going to be willing to give up and shut down their businesses, but will become increasingly more innovative. (McDonald, 2018)

This trade war will ultimately resolve itself, but when this will happen is unknown. China will remain a prominent player in the manufacturing arena, and removing all connection to the country may be impossible or too inconvenient for many companies. However, diversifying a supply chain can help create a buffer during times like these. Whether it’s needed to maintain relationships within China, or find a way to diversify, Pro QC is here to assist you create dynamic and innovative solutions.

Environmental Impacts & Solutions Within the Textile & Garment Industry

Written by: Stephen Moglia, Business Development Manager

Sustainability, green fashion, circular economy: we hear and see those words almost everywhere now. They multiply with the growing interest of consumers and companies for the environmental impacts of the industry. In fact, the textile industry has become the second most polluting industry in the world, right after oil, as stated at the sixth edition of the Copenhagen Fashion Summit last May. Globalised, complex, including a wide range of techniques, the textile industry affects the planet on many different levels, including very sensitive areas such as water, air pollution, chemicals, electricity consumption or waste. Being aware of the impacts of production processes has now become essential.

Moreover, damaging the environment also has an impact on humans, whether it is the workers, the consumers or people leaving nearby a factory. Cotton illustrates this in a tragic way. It is a very affordable fabric, widely used to make inexpensive clothes. To boost the production and fight the worms that attack the plants, a lot of farmers worldwide use pesticides. Those pesticides contain extremely toxic substances such as metals (aluminium, nickel, lead), barium or ethion that was banned in Europe. Farmers, in contact with those chemicals can get more cancer, liver and kidney diseases. The chemicals also cause freshwater pollution affecting a wider range of people. Hopefully more and more farmers are turning to organic cotton that is more respectful of the environment and uses no such pesticides. (Article Reference)

Another example is chrome tanning that was also banned from Europe for being too toxic. This tanning is faster, easier than other techniques. However, the leather is weaker and doesn’t last as long, thus creating more waste. Chrome is a heavy metal and damages the environment in the same kind of way pesticides do. It infiltrates the water and in contact with the skin can also have an impact on the consumer’s health. (Article Reference)

Brands, then, have a responsibility: choosing well where they source their materials and where they out-source the production. The consumer, getting information easily on internet is more and more aware of those issues, which reflects in its purchasing choices. Sustainability concerns have only been increasing since the 1990s and in 2015, 66% of global consumers were willing to pay more for environmentally sustainable products. It damages the image of brands to be involved in environmental or social scandals. On the contrary, sustainability can be a real marketing opportunity. Showing concern, sharing the origin of the materials, revealing « who made [the] clothes » attracts customers, reassured that the product they are buying is safe for themselves and the planet. It is part of the « look good, feel good » trend when buyers don’t want to feel guilty wearing their favourite sweater. (Article Reference)

Transparency is trendy, however it is not always easy for brands to control their supply chain. How can a company based in Europe, or North America be sure of the quality of the products they buy in Asia? How can it know in which conditions clothes were made and with which means? The information given by the factories can be altered or fake, a website, mails, phone calls, those are only words and chosen images. It is also tricky for brands to plan a visit of the factories of their suppliers and manufacturers. When knowing someone is coming to check on the working conditions or on quality, it happens often that companies adjust their installations only for a day, adding fake security signs, changing displayed products or hiring more people to show wealth.

This is when audits can be extremely useful. The information obtained is more accurate and real. For environmental responsibilities, audits are made according to the ISO 14000 environmental standard, covering energy usage, renewable energy, greenhouse gas emissions, materials and waste reduction, life cycle management, supplier’s supply chain activities and more. ISO 14000 audits can be combined with SA8000 for social responsibility for a more thorough inspection, helping brands to have a better control on their supply chain and with time, to select their most reliable partners.

These audits can be applied to various fields such as footwear, garments, accessories, textiles, bags, soft toys, electrical & lighting, gifts, home & garden, hardware, furniture, industrial & construction, sporting equipment & fitness, toys, assemblies & molds, maintenance solutions, automotive parts, and medical devices.

Review an example report ISO 14001 here.

How does your organization ensure sustainability and environmental stewardship?

(Image Source)

 

China Sourcing Alternatives: Thailand

Written by: Daniel Ben-Ezra, Pro QC Country Manager 

Many companies are looking for alternatives to China these days with regards to their supply chain. Most often the driver is costs. We’re seeing an increasing number of clients contemplating a shift, or already being in the process of implementing one towards other Asian nations with regards to their manufacturing base. This post is the first of a series discussing alternative options to China, and starts with Thailand.

Despite not being a low-cost production base, Thailand is seen as a viable option by many companies to set up a manufacturing unit or to source from. This stems from its reliable business environment, well-developed logistics infrastructure, vast natural resources and existing functional industrial base. The government of Thailand is also taking active steps towards improving the country’s position by pushing investments in technical equipment, allocation of SEZs along its borders, and developing cluster structures.

As share of GDP, major product categories produced in Thailand include food items, metal and construction materials, rubber, plastics, electrical appliances, cars and related components, jewelry and handicrafts. Coupled with its natural resources and easy connectivity with other ASEAN countries (notably Cambodia, Laos, Myanmar and Vietnam), Thailand makes a strong case for itself as alternative to China for specific product categories.

A downside to manufacturing in Thailand is that its labour pool is relatively expensive and unemployment stands at low rates. In order to tackle this, the Thai government has come up with the strategic decision of allocating 10 SEZs (Special Economic Zones) in the years coming. Planned along the borders, companies locating themselves within these zones would be able to enjoy low-cost, easily-commuting workers from areas such as Tak and Kanchanaburi (bordering Myanmar); Sa Kaeo and Trat (Cambodia), Mukadahan, Chiang Rai, Nong Khai and Nakhon Phanom (Laos); and Songkhla and Narathiwat (Malaysa). Other incentives to attract FDI include infrastructure creation, fast processing of licensing and permission applications and creating one-stop service centres with customs checkpoints. Additional incentives are planned for companies active in specific sectors, which include tax reductions, low or zero import duties for parts & materials exported afterwards, low interest loans and more.

Similar to China’s Made in 2025 initiative, Thailand 4.0 is a key element in the government’s mid to long term strategic development plan. It aims to create the foundation for production of high value added products and services, and focuses extensively on technology and innovation. Despite hefty competition from China specifically in that regard, manufacturers are moving into Thailand also for risk diversification and access to the ASEAN market.

Pro QC’s team of quality engineers are based in Bangkok and surrounding areas, from where we are able to provide nationwide coverage. For those companies looking to explore possibilities in Thailand with regards to their supply chain, we offer a variety of solutions. The careful screening of vendors is naturally a highly critical process that will influence subsequent developments. Popular services in this regard include our Supplier Verification and Quality Process Audits. Sample reports can be downloaded here.

World Bank Projects Growth in India

Guest Blogger: Daniel Ben-Ezra, Country Manager (India) 

The World Bank has recently released encouraging figures with regards to India’s projected growth rate for the next two years, expecting 7.3% and 7.5% for 2018 and 2019 respectively. They have further stated the country has ‘enormous growth potential’ compared to the economies of other emerging markets. To put matters in perspective, the GDP of the other BRICS (Brazil, Russia, China and South Africa) countries are projected to grow as follows in 2018:

Brazil: 3.0%

Russia: 1.7%

China: 6.4%

South Africa: 1.1%

Source: reuters.com

India’s projected growth is all the more impressive considering recent disruptive government policies with regards to the implementation of GST in July 2017, as well as demonitisation earlier in 2016. It is noticeable that Prime Minister Narendra Modi’s “Make in India” campaign has resulted in more positive sentiment towards the country with regards to local manufacturing. Important to note that a large driving force behind production in India also involves circumvention of the country’s relatively high import tariffs – local manufacturing/assembly allows companies to tap India’s vast and increasing consumer market in a more competitive manner.

What’s more, India’s rise on the world stage is notable, as the country is playing an increasingly important role with regards to stability and international order. Illustrative of this is for example the India-Israel Business Innovation Forum, taking place next week. Prime Minister of Israel Benjamin Netanyahu is joined by over 130 delegates from 90 different Israeli companies to discuss business & trade opportunities in Delhi & Mumbai with local government and business representatives.

The above is in line with our own experience on the ground, as Pro QC International has seen an increase of business in India of over 30% when comparing 2017 vs. 2016. We are proud to have supported many new clients with their supply chains South Asia in 2017 and expect this trend to continue for 2018.

For more information on our services across the region, kindly surf to www.proqc.in or contact directly on daniel_ben-ezra@proqc.com.

Case Analysis: Reducing Risk in Supply Chain Management (Textiles)

Our team in India recently presented with the Indo French Chamber of Commerce and discussed a few applicable case studies related to “Reducing Risk in Supply Chain Management.” Daniel Ben-Ezra, Pro QC’s Country Manager in India, provided the following summary highlighting one of the cases presented:

Client  – European company that has been in business for +200 years, serving top end clients with their carpets globally. Production of all carpets was being done in India and Nepal.

Additional Context – A long term (+32 years) relationship had been there with one of their main vendors in India. This relationship had originally been rather informal in nature, with owners of both companies frequently visiting each other and developing a good understanding. In the past years, the relationship had become more formal in nature as new management succeeded the original owners of both firms. In this case, the client identified Pro QC as a quality solutions provider online, and requested a meeting at our office in India during one of their upcoming visits. We were aware of the client meeting competitors at the same time, allowing them to compare profiles & rates before making a final decision on their quality control partner.

Issues Noted – The buyer was facing several quality problems with the carpets and negative feedback in the market from their clients. Despite years of efforts to correct these problems, the Indian vendor continued to be unable to deliver the required quality. Lead-time was an additional issue, promises were not being kept and delays led to further customer complaints.

Because of the persistent quality issues, the client for many years inspected the carpets at their own warehouse in Europe prior to shipment to their clients worldwide. In case carpets were rejected, they could not be sent back to India as costs would be prohibitive, hence many items were scrapped. Further, as one can imagine, the overheads involved in performing their own inspections in Europe and additional shipping costs were putting pressure on margins.

Unfortunately, due to continuous complaints by the buyer for an extended period of time regarding quality & lead-time, the supplier had become agitated and was seriously contemplating parting ways with the client. The buyer represented a relatively small % of business for this particular vendor, and the headache that resulted from servicing this buyer was become more and more of an issue for the vendor. They were close to severing ties, which would have been a big problem to the buyer as they were very dependent on this particular vendor. It would be lengthy and costly process to sample and produce the same types of products with another vendor.

Other Developments – The buyer had hired a reputed creative director to steer the company in a different direction. This led to new and more demanding designs, putting additional pressure on an already strained relationship. Because of persistent quality and lead-time issues, many different people from the buyer’s organisation started communicating with the vendor – designers, buyers, quality control staff, marketing, logistics and sales people. The vendor was struggling maintaining all these stakeholders. Another issue was presented by the weavers and other subcontractors of this particular vendor. They had their own aspirations if becoming an exporting company, and also flat out refused to carry out certain processes as they were deemed to costly and/or complicated.

Goals – Pro QC established the following goals:

  • Re-establish trust between the buyer and the vendor.
  • Improve processes so that client production requirements could be met.
  • Reduce costs.  Through enhanced quality, the client could do away with their internal QC process in Europe and experience a lower number of rejects.
  • Get to zero customer complains in terms of quality and lead-time.

Actions Deployed –

1) Supplier audits and corrective action plans were generated and executed.

The first step involved auditing this particular vendor and developing a corrective action plan for improved quality and lead-times. Various processes at the vendor’s facility were identified that were leading to structural issues. Through corrective actions after the audit had been completed, we worked diligently together with the vendor on fixing these.

2) Alignment of quality expectations between Pro QC and the client’s QC team.

In order to better understand the exact quality issues being identified by the client’s QC team in Europe, for a period of time quality inspections were carried out both in India and afterwards in Europe for the same pieces. By comparing findings, we calibrated our own quality engineers in terms of the client requirements. After several of such inspection rounds, we were confident that were looking at the products in the exact same way as the client, allowing for direct shipment of the carpets to end user clients across the globe. This lead to substantial cost savings and lead-time improvements.

3) Monthly calls for follow-up.

Through Pro QC, the client finally had continuous eyes and ears in the factory allowing them to have a finger on the pulse on all developments at the vendor’s location. By discussing corrective actions and inspection results on a monthly basis through conference calls, all stakeholders were starting to feel more confident about the vendor and as a result, the relationship between the two parties improved substantially.

4) Employ weekly inspections on-site.

By consistently performing inspections in India at the factory, the vendor’s staff started understanding the client’s requirements and quality standards. As a result, quality steadily improved. Important to note is that originally the vendor was hesitant on working with a 3rd party inspection company. They felt that they were capable of dealing with the situation themselves and had all knowledge in-house. This turned out to be incorrect – the vendor is now very pleased with our presence. Through improvement of their processes, the vendor has been able to tap new markets and clients as well.

5) Conduct meetings with subcontractors & weavers.

Critical to the success of the relationship between buyer and vendor was involvement of the various sub suppliers of the vendor. The vendor actually only provided finishing activities at their own site, and were outsourcing the majority of production processes to other sub suppliers. As one can imagine, at first the vendor was very hesitant about allowing the client and Pro QC access to their sub suppliers, but once assurances were given we managed to start building a relationship with these people as well. Through training and the occasional sweepstake, sub suppliers became more involved and motivated to work for the client, resulting in a reduced number of defects and a willingness to work on more complicated designs which were critical to the client’s business.

Outcomes – 

In this case and many others, Pro QC substantially improved the relationship between the buyer and the vendor. The following milestones were reached:

1) Zero customer complaints for quality.

Since Pro QC started performing inspections at site, product quality improved substantially. Important to note is that through identification of defects in India itself as opposed to the European warehouse, allowed more effective rework and shipment of rugs that were of higher quality.

2) Large cost savings.

Being able to ship the rugs directly from India to clients as opposed to sending them to Europe first for a quality check, allowed the client to enjoy substantial savings with regards to overheads and transportation.

3) Successful launch of new designs with enhanced complexity.

Getting all sub suppliers on-board was critical in the introduction of new and more complex rug designs. We helped address concerns and provided training that allowed staff to comply with more the client’s more demanding requirements.

4) Successful exhibitions and new business for the client.

Receiving samples in time and at the right quality is absolutely critical to the client as a big source for them of new business is trade shows. Prior to Pro QC’s involvement, it was not uncommon for the client to not have required samples with them doing such shows, or when they were there the quality could be problematic. By focusing our efforts on quality and lead-time of the various samples that were required prior to such shows, Pro QC helped the client secure new business and present themselves better.