Not all outsourcing from American manufacturing to Asia is the result of short sighted management or Wall Street insanity. Some of it is the direct result of American customers reaching the end of their rope in dealing with lousy American suppliers. The case of JC Penney getting fed up with Bassett furniture is an excellent case in point.
In the course of doing research for a book project, I came across the testimony from a number of furniture companies before the International Trade Commission concerning allegations of dumping on the part of Chinese furniture makers. The case and the testimony of the various players opens up a whole barrel of worms, but the exchange between the big kahuna in charge of operations and the sourcing guy at Penney’s is particularly noteworthy.
JC Penney asserted that they switched their buying from Bassett to Chinese sources in order to get better quality. That seems incredible because everyone knows that Americans produce higher quality goods – right?
Bassett, of course, strongly denies this, alleging that JC Penney switched purely for lower prices. The barrage of ammunition Bassett launched at the Commission is nothing short of pathetic: "Quality charge backs and returns from all of our customers are less than two percent, yet from JC Penney charge backs were consistently over five." The head ops guy goes on to complain that JC Penney ignored the handling instructions Bassett had printed on the cartons, they call JC Penney’s warehouse operations "atrocious". They make the vile charge that JC Penney failed to follow the warehouse procedures that Basset gave them.
Apparently the boys at Bassett never got the memo saying that 20,000 PPM defect rates are not good. In fact, 20,000 PPM sucks, even when it is the measure of high tech quality – and these guys couldn’t do better than 20,000 PPM making bedroom furniture. Even if JC Penney was responsible for the additional 30,000 PPM defects it takes to get to 5%, the baseline of 2% returns is reason enough to find another supplier. Bassett, however, sent a guy to Washington to blame their embarrassing quality record on the customer. They somehow think that JC Penney has an obligation to follow their supplier’s rules for running warehouses.
But it gets worse. The JC Penney VP of Quality got a chance to testify and he brought up a few salient points Bassett failed to mention. In particular, when Penney began to experience a spike i quality problems reported by their customers, they ratcheted up their incoming inspection process – and Bassett responded by changing their shipping procedures to try to evade the inspectors. JC Penney then sent inspectors into the Bassett plant to perform 100% inspections and found defect rates ranging from 15-29%. Incredibly, Bassett refused to implement the statistical quality program Penney mandated.
Bassett’s response to all of this was to invest in more automation and to build a bigger warehouse to carry more inventory so they could replace defective stuff quicker. The obvious question that arises from all of this is why it took JC Penney three years to decide to dump Basset and find a Chinese guy who cared about quality.
All of this took place in the last five or six years, so we are not digging up ancient history here. It is nothing short of amazing that Bassett thinks they are somehow the victim of some nefarious Chinese plot. There is no one who reads this blog that would tolerate a supplier so totally ignorant of quality as Bassett.
Whether JC Penney could have replaced Bassett with a domestic supplier instead of going to Asia is a good question. Whether JC Penney is responsible for 350 Bassett employees losing their jobs due to lost Penney business is not an open question at all. They lost their jobs due to lousy manufacturing management – not because of JC Penney or some opportunistic Chinese guy who jumped in to fill the quality void.