International aftermarket automotive companies purchasing spare parts in China are usually satisfied with large aftermarket suppliers, as they are typically presented with beautiful plants, advanced equipment and modern assembly lines when inspecting the factories. However, a not-uncommon practice among many such factories when it comes to the actual order production is to have some (or even most) of the goods produced by their secondary suppliers while the main suppliers handle the final processing or just the packing.

These outsourcings enable the suppliers to rapidly grow the business and easily increase the revenues and profits without having to invest additional resources such as product development, facility expansions and additional human resources.

While some secondary suppliers are equally qualified, many are unfortunately small in production scale with incomplete quality management system. The product range of the individual supplier in this case is usually limited by design of the main supplier’s strategies and its independent capability of order handling is very weak. The common characteristics of such secondary suppliers are backward process, labor-intensive production, poor management systems, and of course lower costs.

This type of outsourced production, usually not fully disclosed to the international buyers, poses potentially serious quality issues if not well quality-controlled, and presents the following challenges:

How to watch for the telltale signs of such outsourcing practices?

○ Analyze the sales and actual production capacity data;

○ Evaluate the configuration status of the production and testing equipment, production process, and departmental staff allocations to estimate the actual and surplus production capacities;

○ Spot check warehouses of finished and semi-finished goods or turnover areas of raw materials and suppliers for signs of outsourced products;

○ Verify the status and identification cards of the products to be processed on the assembly lines against the arrangement of production process.

What measures could be taken to address the quality risks when the outsourcing is not completely avoidable?

○ Review and audit the “Supplier Selection Management Procedures” to determine their compliance with the quality management procedures.

○ Check whether outsourcing management procedure or the IQC inspection is applied to the outsourced products.

○ Undertake secondary supplier audits and help with correction and improvement of their quality management capability as well as upgrades of their production process.

This article was first published in May 2017