How to control defects in physical products?

If you have large quantities of batch size, look into statistical process control.

If they're smaller batches, the answer seems pretty straightforward (to me, at least):

1. Map out the production process step by step. Operations, inspections, decision points etc.

2. Install a final inspection at the end of the process to accept/reject the product.

3. Look at returns and final inspections to determine the causes of failure. You should see the 80/20 Rule in effect: about 80% of the defects will be from 20% of the sources of problems.

4. Fix those 20% of the sources and clear up most of your issues. Adjust your process flowchart to match the new method. Ensure people are following the new method.

Eventually you should have an inspection done at the end of each step / beginning of the next to ensure the product does not move on unless it is correct.

I'm an operations management guy so feel free to book a call if you wish to dig into specifics.

I have been in the electronics industry for 12+ years and 8 years in China directly handling the supply chain. I gained great expertise for each step from A to Z during product design, testing and supply chain control Even the good factories may face quality issues if you don't treat well. You can start taking actions with below questions.
1- What are the return reasons? Design related, transportation or manufacturing related? Classifying the defects from the field will help you to analyze the problem faster. Assuming here the problem is related to your manufacturer so
2- If the outgoing inspection is done by the manufacturer only, you need to add a 3rd party inspection control before shipment. If you don't have your inspection team, you can find a professional 3rd party inspection service.
3- You need to increase the inspection standard and make it tighter. I believe BS6001 standard, sampling level 2, AQL Critical: 0, Major: 0.4, Minor: 1.5 can work for you. Applying these 3 parts will help you to minimize the defected products in the field. But this is not enough. You need to solve the problem from the beginning that it won't happen again
4- For each defected unit ask an 8D report from the factory. Push them to dive into the root cause of the problems in their facility.
5- Using a professional 3rd party service apply a process audit to the factory. You need to understand where are the risky parts not only in in their manufacturing line but also in their overall operation.
6- If you are seeing any material problems, dive into the their Incoming Quality Control department. Any defected material released from IQC to the production line is a bomb waiting for exploding. You need to make sure that IQC is doing their job properly. If needed you can ask them to increase their incoming quality inspection standards. Don't forget that the more problems you fix in the early stage and fix, you will have a more reliable product and you will be more relaxed afterwards.
7- If the factory is receiving any defected materials from their own suppliers, then you may need to apply even a sub-supplier audit. All these actions can be taken easily if your factory is cooperative. If not,
8- Change your supplier and work with a more responsible factory.
These 8 items would be my main and basic control check points. If you have any questions, I more than happy to help.

It all starts with the mold. If it has the right tolerances, product will come out OK, IF the manufacturing process is stabilized and controlled as well. Do a test run to validate data, and stick to the approved parameters. Measure parts once, per shift.
We use a CMM machine that has taken our headaches away!