Quality Risks and Rewards from the Digitization and Migration of the Production Sector

What you can be doing now to prepare for disruptions

15 September 2015

The global production quality, cost, and capability landscape has changed several times over the past few decades and continues to be a highly dynamic space. So what can be expected in the future and how can you ensure that your sourcing decisions will yield a long term competitive advantage while protecting your brand?

This question can be broken down into two trends:

  1. The diminishing production labor wage gap between developed and developing economies; and,
  2. Improvements in efficiency and decision making through emerging technologies

THE LABOR WAGE GAP
For many product types, a holistic and longer term view is required to avoid the pitfalls experienced in the past with moving production to developing countries.

The advantage of low wage rates can be quickly eroded by one or more factors:  

  1. Political and economic factors (currency, energy costs etc.)
  2. Poor productivity
  3. High overhead costs
  4. Brand exposure due to high defect rates and/or social responsibility issues
  5. Inexperienced management

Additionally, the negative effects of these elements can be restricted to a single factory or apply generally across a geographic region.

Indeed, the advantage of low wage rates is becoming increasingly less secure and shorter term in the current climate. Just think, less than five years ago, Eastern Europe was viewed as an attractive sourcing prospect, but political issues, relatively higher energy prices, and increases in wages have changed the situation considerably. Most private organizations are spectators to the political and economic concerns of their host nations; however, the rest of these factors can be managed to some extent through entire value stream Quality Management Systems and processes that incorporate accurate factory assessments made with local knowledge, objectivity, and integrity.

IMPROVEMENTS IN EFFICIENCY AND DECISION MAKING
As the playing field for wage rates levels out, there will be a greater emphasis on achieving a broad array of improvements: self-optimizing automation in production; rapid and widespread customization of products; product connectivity for improved logistical, quality control and in-field performance reporting; and even fluidity of the production location through the so-called digitization of the product value stream. In this way, access to the cutting edge technology required to operate a "smart factory" with a smaller, highly skilled workforce may soon become the determining sourcing factor for many product types that are currently produced with larger, lower-skilled workforces.

As such, it would be prudent to closely watch the industrial policies of major exporting nations with respect to investment in advanced technologies. New compliance requirements will inevitably follow. You can stay ahead of the curve and ensure a smooth transition by aligning your Quality Management System with leading best practices through industry research including benchmark reporting against relevant, process-based metrics.

The above discussion introduces some of the issues relating to global supply chain opportunities and threats. Check back for updates that explore the relationship between these trends and quality management in greater detail.

How would you rate your business's readiness to capitalize on these trends?

Carlo Chiavaroli is a quality consultant with Intertek’s Product Intelligence group. He advises clients on tailored quality management solutions in order to meet their business needs. He has a background in Product Design, Quality Assurance, Quality Control, and Lean Six Sigma. Carlo has a Bachelor’s degree in Mechanical Engineering from the University of Sydney.