Quality Control vs Risk Management

As an importer, you spend much of your time managing risk in your business as well as worrying about quality issues. Staying in business depends on it.

Since these two areas of your business are so critical, it’s important to clarify in your mind the difference between risk management and quality control. Indeed, confusing these concepts can lead to many problems.

Let’s start with risk management in the context of your relationships with overseas suppliers. Here are a few common risk factors which may keep you awake at night:

  • Will my supplier ship on time?
  • Will my supplier offer stable prices?
  • Will my supplier ship goods to specification?

With a risk management approach, the importer looks at such questions and then devises a way to mitigate harm should things go awry.

For example, if you are worried about a supplier shipping on time, you might use a Letter of Credit as your payment method which stipulates a firm deadline or else the vendor does not get paid and the order is not shipped. That’s a risk management strategy designed to motivate your supplier to finish production on time.

Now let’s say you are worried about a supplier increasing prices suddenly, leaving you in a difficult position. To address this concern, you might decide to develop relationships with several competing suppliers. Having the option to shift production from one supplier to another helps to manage this risk factor.

And then there’s the question of whether goods are manufactured to specification. It’s all too common for manufacturers to produce defective or nonconforming goods which cannot be sold. You had better be prepared.

Taking a risk management approach to this problem, you might decide to always order the smallest quantity possible. Even if the entire shipment has to be written off as damaged goods, at least you have mitigated the harm done. You can swallow the loss if the order is relatively small. Sure, it hurts – but at least you stay in business and life goes on.

Now here’s the important point: you need to realize this kind of risk management approach only helps protect you from catastrophic supplier failure. It does nothing to ensure quality.

From the supplier’s perspective, there is no difference between an importer using this risk management strategy and another who is not. The manufacturer does not know or care about your risk management strategy, meaning there is no clear incentive for them to manufacture the goods properly.

That’s why, if you are truly concerned about quality control, you need to implement a quality control mechanism. Risk management is not enough; the supplier must understand in advance there is a “clear and present danger” to them if they manufacture nonconforming or defective goods.

At the very least, I would recommend hiring the services of a quality control inspector to screen shipments before they leave the manufacturer’s premises. Your supplier will have a powerful incentive to manufacture to specification if they understand getting paid depends on passing quality inspection.

If quality inspection is not something you have done in the past, I strongly recommend reading up on the topic at Renaud Anjoran’s highly-informative quality inspection blog. Renaud has published oodles of great content to help you start thinking about what kind of quality control mechanism is right for your business.

Quality control is an important part of your job as an importer. If you combine quality control with risk management, you’ll not only sleep better at night – you’ll have happier customers too.

3 thoughts on “Quality Control vs Risk Management”

  1. That’s a great point, Callum. The importer needs to keep risks small by working with several suppliers, placing small orders at first, simplifying the product itself, and so on. And QC inspections are a useful tool when these methods show their limits.
    Oh, and thanks for the link!

  2. Nice, but what is the relation ship between risk management and quality assurance?

    and

    what is diference between risk management and quality assurance?

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