Quality Control in China – Case Study

A Customer, operating a large petrochemical plant consumes Titanum-grade7 alloy tubes for his heat-exchangers. These tubes replace the used tubes that are out of order.Since these tubes are expensive (about USD 1,000,000 order) the Customer decided to order this for the first time from China.

When a short-list of possible suppliers was identified, each one of them underwent an Audit that examined their capabilities. An ad-hoc survey form was developed for this case, putting an emphasis on the unique requirements for a possible supply of these tubes from China. Since the preciseness of the material was of utmost importance each one was asked to explain : How will he ensure that the material he is going to supply will be of the right composition and properties. The selected Supplier declared in the Audit that each batch of produced tubes will be accompanied with an examination report of an independent third party authorized laboratory testifying what was found. It is customary to request that the raw material manufacturer, who supplies the materials to the tubes producer will submit a certificate to this effect [MILL Certificate or Quality Control company Third Party Inspection (TPI) Authority]. In the said Audit the selected Supplier committed himself to fulfill the requirement for an independent third party examination report, in case the order will be placed with him. The Customer was happy with the Supplier’s commitment. In addition, the Audit demonstrated that this Supplier has the capacity and the capability to supply what was sought. Following the above, the Customer was satisfied and placed the order with that specific Supplier. In addition the Customer hired a monitoring Firm that works in China to follow fulfillment of all requirements as well as the one relating to the correctness of the material.

A second check was conducted at the Supplier’s workshops, before production commenced (pre-commissioning inspection). The Supplier named an independent Chinese laboratory to which he sent samples for examination. In parallel, the Supplier issued a self made certificate “testifying” that his tests of the material are exactly the required ones. The Customer was happy with it and did not listen to the warning (in writing) from the monitoring Firm he hired, that he should wait for the results from the independent Chinese laboratory, before he gives the go-ahead. When production was complete the monitoring Firm hired by the Customer was called in to conduct a third examination, namely :Quality contronl, a pre-shipment inspection. The monitoring Firm warned again (in writing) that the documents the Supplier submitted are self made and not from an independent third party authorized laboratory. The Customer was happy with it and did not listen to the warning (in writing) from the monitoring Firm he hired, that he should wait for the results from the independent Chinese laboratory, before he gives the go-ahead. The Customer, who was under pressure to receive the tubes did not listen to the warning , but relied on Supplier’s promises and approved the shipment of the tubes overseas. When the shipment arrived, the Customer cut samples from the tubes and handed them over for an examination in his Country.

And then, a catastrophe : The material was incorrect and the tubes could not be used. The financial loss was enormous. The case is going to the court, in China with all its associated difficulties. But, what will the Customer do post factum ? He is forced now to repeat the procurement, in the West at a higher cost. Not to speak about his own production losses.
From this case study several lessons may be learnt (although they are trivial, and though often ignored) :
i. Requirements should be clearly, non ambiguously written in full
ii. All requirements should be written in the procurement specification, which will form part of the contract
iii. The Customer should insist on fulfilling all requirements completely (otherwise, they are not requirements).
iv. It is desired that a Quality Control namely  inspector’s firm, who is familiar with the culture at the country of the Supplier, will accompany the order

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