Sourcing in Mainland China
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China provides a wide-range of sourcing alternatives and represents a strategic market for almost all industrial producers. In this article we provide a sourcing framework that is useful for corporations - large and small - that source, or want to source, in China.
Step 1: Define a Strategy - Take the early steps that will make you successful
The first step in an international sourcing strategy is to target certain commodity groups that fit well with the initiative. These commodities generally have characteristics such as high labor content and low shipping costs. But those might not be the only criteria. If you are sourcing internationally for a production facility that is located internationally, it may be that logistical costs are actually lowered by sourcing overseas.
The point is to consider the total cost of the product, not just the purchased cost. And don't let the desire to find "lower-cost" international sources drive you toward a more complicated and costly supply chain. Pick the commodities that provide high benefit and low risk, and use the learnings developed from that experience to increase your ability to source internationally.
Finally you will be faced with the problem of allocating resources to the project. Using your own quality and engineering personnel to fly over to potential suppliers in China can be difficult and potentially eliminate all the savings associated with the new effort. But the human interaction between two trading partners is also invaluable.
Alternatives to using your own resources include qualified third-party specialists and setting up some type of international purchasing office. Successful strategies will employ all the options. For example, you may use a local resource to find potential suppliers, your own personnel to fully qualify the supplier, and then a third-party to perform independent quality and product audits during production.
Step 2: Discovery - Finding potential suppliers in a rapidly developing region
The second step on your journey is to find suppliers. It may be that sales representatives have already called on you and represent Chinese suppliers. It may be that you have heard of potential suppliers, or have some experience with the supply base. But it is important to make certain that you are using a comprehensive approach to finding suppliers. Your goal is not just to find a supplier in China, your job is to find the best supplier in China.
Start with a comprehensive list of suppliers that could produce your commodity. This list can be developed from several databases, or from resources such as a list of suppliers that are ISO certified. An increasing number of Chinese manufacturers are becoming ISO certified. Last year, our facility review partner completed more ISO registrations within China than any other registrar.
Once the initial list is complete, you can request information from potential suppliers through a typical RFI process. Technology can help here. Email and the Internet can allow potential suppliers to complete RFI information for you and shorten your original list of potential suppliers.
Step 3: Evaluating and Monitoring - Insuring the Success of the Relationship
The process of evaluating and monitoring a supplier in China can seem daunting, but actually relies on the same processes you would use if the supplier were next door. An initial evaluation as part of a qualification process is normally warranted, and follow-up reviews as well as product inspections can be used to guarantee the success of the relationship.
SupplierInsight has developed a "one day facility review" which performs a quick "due diligence" step for a buyer to feel confident about their sourcing decision in China. We can also provide follow-up services such as product inspection and supplier development.
Although we use the same facility review methodology whether the supplier is located in Shanghai or Seattle, but there are differences between a "typical US" manufacturing facility and a Chinese facility:
- Language barriers. Communicating within China can be a difficult proposition. Although supplier representatives often can converse in English, critical communication with supplier management and factory workers requires the ability to converse in their native language. But the breadth of dialects can often make this difficult. The local dialect can change significantly within just a one hour drive.
- Operating hours. The operating hours in a Chinese facility can be unpredictable, including "90 minute lunch breaks" which cause a general shutdown of all operations. Additionally, critical management personnel can be difficult to schedule. Knowledge of the operational schedule of the supplier is critical to conducting a successful review of operations.
- Audit resources. Within China, we recommend using two auditors to complete the facility review. Often Chinese factories, with their large work force and factory footprint require using two auditors. Additionally, the use of two people can help with language barriers and indicate the importance of the relationship to the supplier.
- Factory workers. Factory workers often live next to the actual production facility. This arrangement is valuable to the supplier because it guarantees a skilled labor force, and can be a value to the worker by providing accommodations.
Although sourcing in China might not be as easy as sourcing products from around the corner, it has substantial benefits. If your company wants to be a leader in the 21st century, it is hard to imagine that it wouldn't involve having a sourcing strategy in China.
SupplierInsight evaluates suppliers worldwide in a brand new way. We offer buyers the SupplierSeal(TM), an online report that a buyer can use to evaluate a supplier. We create it quickly, deliver it online, and update it regularly. It is the best way for buyers to get the supplier information they need, when they need it and how they need it.
SupplierInsight also provides the Supplier Scoreboard(TM), a web-based system for managing supplier scorecards across a company's supply base.