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Taran March @ Quality Digest

Operations

Manufacturing Without Borders

One person’s bribe is another’s quality headache

Published: Thursday, April 6, 2017 - 12:03

As manufacturing becomes increasingly oblivious of where one country stops and another begins, the responsibilities of quality managers have extended beyond the safely measurable and into the loosely regulated wilds of global competition. Quality control now requires a sense of how different cultures perceive the art of doing business. (Hint: It’s not always about teamwork and doing the right thing.)

Humans being humans, what prevents a supply broker, for instance, from taking a bribe and passing a defective shipment of goods out the door? Mostly his conscience and a few lofty regulations written in languages he doesn’t understand. Can quality and risk professionals thousands of miles away prevent bribery? Not really. But they can make a point of staying informed about the ever-morphing ways in which bribery flourishes, and about the successful responses to it on the part of corporations, regulators, and government bodies.

The good news, sort of, is that manufacturing is at the lower end of the world’s most corrupt industries, according to an Organization for Economic Cooperation and Development (OECD) report. After analyzing 427 cases of bribery in international business, the OECD concluded that 60 percent of the cases occurred in four industries: the “extractive sector,” also known as oil and mining; construction; transportation and storage; and information and communication. Of these, transportation and storage are the most likely to give quality control managers a headache. Manufacturing as a whole hosted a modest 10 percent of the problem. The OECD also found that senior executives were involved in more than half the bribery cases, and they actively participated (think hail-fellow backslaps and Rolex watches) in 12 percent of the cases.

With the Asia-Pacific region continuing to grow as a manufacturing sector, it’s a good idea to keep an eye on bribery and corruption there. According to a survey published last month by Transparency International, which surveyed 22,000 people in 16 countries, corruption still plagues much of Asia. Overall, 38 percent of the poorest people surveyed said they had paid a bribe to access public services. In China, 75 percent of those surveyed said corruption had increased during the last three years. Given that, it’s not surprising that a U.S. company coordinating manufacturing and shipping from that region would expect to run into some form of corruption.

Shell games

One common example involves casting the blame for a defective product on a contracted quality inspector. The supplier will say the inspector was unreasonably harsh, or created the defects himself—and took pictures of them to prove that he’s being diligent. The stateside QC manager must then investigate this claim. She decides to send a different inspector to the supplier, but this inspector reports the same defects. The supplier says this second negative report is in retaliation for blowing the whistle. “You should trust us and stop paying for these inspectors,” the supplier urges.

After-product inspection, to ensure the quality of goods before shipping, is usually necessary, and usually effective. But sometimes overseas factories will choose to focus on volume rather than quality, figuring that the quantity of sales will offset the costs in fines or litigation for unacceptable product. Although an inspector will have passed a shipment—often indicated by taping the cartons and stamping the taped seams—the boxes arrive with the tape haphazardly replaced and the stamps awry. Defects will have magically appeared, and the product has become a write-off.


Package inspected, ready to ship


Package arrives at destination

Another scenario focuses on the usually laudable trait of compassion. A quality inspector from corporate headquarters might be sent to inspect a factory in another country. To make the investment worthwhile, he’ll be staying at or near the factory for a week or more, long enough to spend hours with the factory manager or representative. There will be shared meals at a nearby restaurant and ice-breaking conversations where photos of the kids are duly admired. In short, a business friendship grows.

Following an inspection of unacceptable product, the manager will plead with the inspector to pass the shipment anyway because the manager will definitely lose his job if the shipment doesn’t go out. (The kids might be exhibited again for good measure.) What to do? The inspector decides that one defective shipment will cause less harm than what will befall this friendly man once he’s out of work.

InTouch Manufacturing Services, a quality inspection provider specializing in Asian suppliers, recommends these steps as part of managing overseas suppliers:
• Take the time to cultivate third-party inspectors. Effort spent up front during the hiring process will pay off later.
• Audit your inspectors regularly, even if it’s done in-house.
• Make sure inspectors don’t have to rely on the factory for any service, such as transportation.
• Maintain a documented code of ethics that is signed by the inspector and the factory representative.
• Hire female inspectors to reduce male camaraderie (most factories in Asia are run by men).

Regulations to the rescue?

Are global regulations making any headway against corruption? Yes, but very slowly. Although deemed worthwhile in the abstract, standards such as ISO 37001:2016—“Anti-bribery management systems” tend to be perceived as good-faith gestures to a company’s own customers rather than a heavy-handed enforcement tool. ISO itself says, “ISO 37001:2016 does not specifically address fraud, cartels, and other anti-trust/competition offences, money-laundering, or other activities related to corrupt practices.” Instead, it acts in a more subtle way, by adding its presence and support to a growing effort to curb corruption.

“For years it may have felt to some that anti-bribery and corruption was a U.S.-centric mission,” writes Mark Speck, chief compliance officer and head of auditing at CPA Global. “But over the past decade, international governments, international trade organizations, multilateral development banks, and nongovernmental international organizations are demonstrating their commitments, which have manifested in the UK Bribery Act, World Economic Forum Partnering Against Corruption Initiative, Organization for Cooperation and Development (OECD) Convention, and The World Bank.”

Even the U.S. Foreign Corrupt Practices Act of 1977 (FCPA), which prohibits U.S. companies from offering bribes to foreign entities and has long been considered a thorn in the side of American dealmakers, received a nod from the Christian Science Monitor in a January 2017 op-ed titled, “Why anti-bribery laws help global business”: “Not only has the FCPA helped spark a global campaign against corruption, it has steadily convinced more companies that honesty pays if they avoid payoffs to foreign officials.... beefed-up efforts worldwide against corruption have helped to level the playing field for many businesses. They also work against corrupt regimes, terrorists, human traffickers, and other criminals.”

But progress remains slow and a positive outcome uncertain. Companies that do business overseas can help by taking a stand against bribery rather than accepting it as a cost of doing business, for in the end they will be better off. As Clements Worldwide Risk Index notes, “Whether it manifests at the highest levels, affecting contract awards or investment decisions, or lurks in day-to-day operations with payments required to process loads through ports or checkpoints, corruption fundamentally reduces the capacity [to] operate efficient and profitable businesses.”

Discuss

About The Author

Taran March @ Quality Digest’s picture

Taran March @ Quality Digest

Taran March is Quality Digest’s executive editor. A 35-year veteran of publishing, March has written and edited for newspapers, magazines, book publishers, and universities. When not plotting the course of QD with the team, she usually can be found clicking around the internet in search of news and clues to the human condition.

Comments

Great article!

Global manufacturing is now the norm and countries need to cooperate to keep supply chains manageable and import/export procedures simple. Thank you for the great article!