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Sébastien Breteau

Management

Quality Risks Abound During the Great Supply-Chain Shakeup of Covid-19

Can we create a better new normal?

Published: Wednesday, September 23, 2020 - 12:03

In recent months, the widespread lockdowns of Covid-19 have exposed global supply chains to unprecedented shifts and volatility in consumer behavior, impacting innumerable organizations, industries, and consumer goods. While much of the supply-chain overhaul conversation has focused on drops in demand and disruptions in business across various consumer categories, delivering on sharply rising demands for medical equipment has been particularly challenging for companies in the healthcare manufacturing space.

Up against a supply chain landscape paralyzed by lockdowns and factory closures, personal protective equipment (PPE) necessary for combating the virus and protecting the lives and livelihoods of essential workers may be at critical risk for quality erosion as companies race to speed up production, according to inspection data from QIMA, a leading provider of supply chain compliance solutions. And with Covid-19 deepening supply-chain diversification activity—which was already happening prior to the pandemic thanks to the ongoing U.S.-China trade war—it is expected that global brands will face quality risks for some time to come across all consumer product categories.

The perfect storm

Gloves, face masks, N95 respirators, powered air-purifying respirators, eye protection, and gowns are central to transmission-prevention efforts. But from the early stages of the pandemic, healthcare systems have reported widespread shortages in PPE supply, compromising their ability to keep healthcare professionals safe and treat the growing numbers of patients.

Several factors were at play to create the perfect storm. First, the virus’s origins in China put the global supply of PPE at a distinct disadvantage from the outset, as China accounted for more than half of the world’s PPE production in 2019. So when companies around the world turned to China in February 2020 with record-breaking PPE orders, they were met with shuttered factories, and requests were put on back order. Furthermore, initial delays in Covid-19 testing around the globe also sharply increased PPE use in the beginning, intensifying demand and prompting even greater shortages.

Demand is likely to continue rising, as stay-at-home orders are gradually lifted and more people return to work. Notably, both the World Health Organization (WHO) and the U.S. Centers for Disease Control and Prevention (CDC) have changed their stance on the mask debate, recommending that all people wear face coverings to help stop the spread of the virus.

Quality risks abound

QIMA first saw demand for quality control services of PPE increase 80 percent between January and March 2020, with inspection scopes covering everything from workmanship quality to ensuring that factories have the required certificates and export licenses. And between January and May, the inspection volumes for PPE items increased 30-fold, including a total of more than 1.2 billion face masks being inspected during the second quarter.

Managing such a surge in PPE manufacturing is proving challenging for both buyers and manufacturers. When it comes to producing PPE, the speed of delivery cannot come at the expense of quality and conformity for such vital equipment. This unique need to protect PPE quality was emphasized in April by the Chinese government, with the passage of stricter controls over factories that produce PPE.

While PPE has proved a much-needed life raft for the struggling textile and apparel sector, which has been battered by store closings, manufacturing delays, and slumping demand, the industry still saw inspections and audits plummet by 21 percent during the first half of 2020. But by now, a number of countries, including China, Vietnam, Bangladesh, Cambodia, and Myanmar, have repurposed a share of their apparel manufacturing capacities for PPE production.

Even as the manufacturing sector gradually adjusts to the “new normal” of Covid-19 and better accommodates rising demand for PPE, global brands are facing formidable quality control challenges. For example, QIMA conducted inspections on behalf of one of world’s leading producers of PPE and found gaps in pairing efficiency with quality. The company’s inspection report showed a beyond acceptable quality limits (BAQL) rate of 58 percent for the period of January 2020 through end of August 2020. By comparison, the average BAQL across all industries serviced by QIMA during the same time period was just 21 percent. The results are particularly jarring, considering the company’s PPE is largely used by government leaders and authorities.

It’s important to note that QIMA does not inspect for medical effectiveness of PPE but rather other measures of quality, including strap placements, shape, and size. With such high BAQL rates and so much product being wasted, the PPE industry could remain at a significant disadvantage and struggle to efficiently and cost-effectively scale expected demand in the long term. If not addressed, this slouch could present potentially serious consequences in the marketplace in terms of supply and price.

What’s next?

With the United States still struggling to contain the virus’s spread and fears of a second wave in Asia shaping business sentiment, global supply chains remain firmly in the grip of the Covid-19 pandemic. But as global trade enters the second half of 2020, the pandemic is not completely redrawing the map for global sourcing. Rather, it is deepening the diversification of supplier portfolios, a trend that has been building momentum since the U.S.-China trade war began in 2018.

When global trade resumes, it is likely that diversification will soar to new heights across all industries. We are already seeing signals toward this. For example, inspection and audit volumes began picking up in June 2020 in the Philippines, Malaysia, and Myanmar. Vietnam, in particular, enjoyed renewed popularity among U.S. brands, with inspection demand shooting up 47 percent year-over-year in August.

To circumvent global supply-chain woes, some global brands are exploring sourcing options closer to home. According to a QIMA client survey conducted in July 2020, nearshoring remains on the rise for U.S. companies as they turn to neighboring countries for production. For example, respondents report increased sourcing from Latin and South America. Notably, South America almost doubled in popularity during the first half of 2020 when compared to same period in 2019.

Heed caution, prioritize quality

Brands that weather the storm are likely to end up with greatly overhauled supplier portfolios, comprised of factories that managed to survive the lockdowns. During this time, supplier audits are instrumental for ensuring quality and compliance, as such manufacturers will be tempted to operate in the stripped-down mode that had enabled their survival. It is therefore now more important than ever for brands and retailers to evolve their supply chain strategies for maximum flexibility and agility.

The supply chain landscape is likely to remain turbulent until the pandemic is contained, with any existing or reinstated lockdowns causing sharp fluctuations in both production and demand. To efficiently respond to fluctuations quickly and balance speed with quality, global businesses across all industries will need to take a cue from the PPE industry and practice diligence in prioritizing quality in their supply chains.

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About The Author

Sébastien Breteau’s picture

Sébastien Breteau

Sébastien Breteau is the founder and CEO of QIMA, a quality control and compliance service provider that partners with brands, retailers and importers to secure and manage their global supply chain. He has more than 20 years of experience in supply chain management, founding his first sourcing company in 1997.

Founded in 2005, QIMA has become a leading player in Asia and has expanded its operations globally to 20 offices, 2,300 employees and operating in 85 countries. QIMA received the received the Best SME award from behalf of the French Chamber of Commerce in 2006, and the ‘E-Business of the Year’ award from Alibaba in 2008.