Finding the Right Suppliers – Part 2

Tuesday, July 10, 2007 1:18
Posted in category From the Factory Floor
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Part 3 really focuses on how buyers can ensure the quality of their products, and at this time there really is no greater topic of interest for many.

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The purchase order is the beginning of the vendor coordination
process, not the end

His strongest statement so far, and possibly in his entire presentation.

These 14 words are words that many companies have wished they paid attention to, including Iams. There is a lot of hand holding that needs to, primarily in the beginning, but also ongoing. Goods do not just show up 3 months later without help anymore than a 5 year old learns how to read without a teacher. this time is THE MOST CRITICAL in the entire process as it is where the bar is set.

Quality standards, material specifications, tolerances.. EVERYTHING.. should be discussed at this point, particularly if there are international and Chinese inputs that can be used. One should always understand the qualities of the various inputs that suppliers have access to, the costs, and the quality differences.

One recent example of this is that we have one product that requires a glue to be applied to a foam piece. After 6 months, we had gone through 50 different varieties of glues and come to the realization that the only glue that would be good enough was the U.S. glue. had we not gone through that process with our supplier (together), we may have had a lot of returns.

then he gives some helpful tips on how to ensure quality on a limited budget

1) Getting certifications in China rather than U.S.

Cost aside, getting the basic certifications done in China saves a lot of time, however one needs to do this on a product by product basis. for automotive goods we are required to submit PPAP documents and 500 samples for testing in the U.S… but for others, we don not. So, make sure to verify if China based certifications are enough.

2) Quality assurance companies are in country

With a number of options, there really is no excuse for not bringing in an external auditor to check on your goods. I often hear stories of how Chinese suppliers did not produce to spec, and 85% of the time the goods were not audited before the container left the dock. this is exactly what happened with Iams, FTS, and others lately. they had NO China based quality assurance team in place, they did not bring in a third party, and they obviously did on testing even in the U.S.

Again, I can only say that U.S. manufacturers, wholesalers, distributors, or retailers whom outsource to China need to ensure that the products they are bringing from China to the U.S. are safe.

Putting in the teams to check your goods is an INVESTMENT, not an expense

5) Get internal testing and quality data with shipping documents

If I were in electronic or engines, I would definitely look for these documents… but if your orders are large enough, and you have a China based QC team (internal or external), these documents are not really the most important thing. they are a test to see if the factory will jump through the hoop, but asking for these are by no means a preventative measure against product failures.. your goods are already afloat by the time you receive them.

4) Link to payments

One of our best tools, we have created payment terms with our suppliers whereby final payment only comes after shipment, and thus after we have inspected the goods. We have inspections on site, we pack the container ourselves, we wave the container farewell, we come back to Shanghai and then make the transfer. In other words, once we know our goods are safely on their way, we make the last payment.. and we make sure that last payment is a significant chunk (I suggest fighting for 20-30%).

Remember, this is only good if you have a team in place. If you are not packing the container, you don’t know what is in it.. and so your 30% payment 3 days after shipment really isn’t a detourant You need to to tie it to a larger process.

three of the four items above I consider to be critical to a quality assurance system, and make no mistake when I say SYSTEM. For it is only a system that will prevent product failures.

Part 3 end / Part 4 talks about how do you avoid suppliers becoming competitors by immediately addressing the belief that everyone in China is trying knock off your goods by bringing up a very valid point: It is more common that competitors back home will ask
factories in China to knock it off, rather than a Chinese group looking to knock it off and then make a sales channel out of it. Of course, that is not to say that doesn’t happen, and you can read my previous post Protect your patents for more, but more often than not it is foreign groups looking to make minor modifications and then take those products to market.

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Some of his suggestions are:

  • register brand, trademarks, etc during RFQ stage
  • spread risk around during RFQ phase
  • wash branding off packaging
  • use a third part to do assembling (creating a fire wall)

All excellent suggestions, and in addition I would offer

  • Never ship anything direct between factory and end user. Always be a collection point for all documents, samples, and payments
  • Spread your process geographically (Do not manufacture an entire product in one city).
  • Clear customs yourself so that documents to wholesaler, distributor, retailer, etc do not have your manufacturers name and address on the shipping documents

One interesting point he mentions is that when working with trading companies, understand that it may be possible for your competitors via a separate trading company to end up at the same manufacturer. This is something we have run into on a number of occasions ( See Cover Your Bases. Cover Your Patents), and what we find is that there are no secrets. Trading companies will help you identify which competitor it is, who they are buying from, what their production is, etc… essentially, they become your inside man…. so, now that you know that. try to get some exclusivity, sign a NDA, etc so that you can protect yourself from your competitors pushing you out by ramping up their production, or “borrow” some of your designs, etc.

following a case study, he then boils down his experiences and offers up the following words:

China is not for everyone... and I cannot agree more (especially now that the VAT Rebate has been reduced). If a firm is just stamping or injecting a common material and there is lot of automation, the savings are going to probably be wiped out the transportation. to improve your odds on these items, work on developing a mix of heavy and light products (Aluminum and foam) that will optimize containers fully and minimize your transport costs on a per product basis.

Stamping or injections see huge savings in tooling (lead time and cost) – this is very true, and I am shock when I hear that people are still making tools in the states for common items, even many progressive tools can be made here now. however, this savings is not a reason to move to China unless your tool is large and you are saving money on a per piece basis.

More hand holding in China, and that requires time. Not sure I need to add much here, but one of the hardest things for myself to manage is not setting up the China side, but getting the U.S. side to understand that it takes time to get set up. Very few things in China are easy, and it takes time. If one is not patient, and if the process is rush, things will get missed and go wrong .

Extended lead time – While he says that the fast boat to LBC can make it in 20 days, I think what he meant to say is that the entire shipping process should budget about 20 days – Maersk, Matson, and other offer 12 day boats to LBC from Shanghai, but getting into Shanghai port and getting out of LBC takes time. So, if you are on a short timeline, it is better to develop the process in parallel as a long term solution rather than rushing to get through the first run on time.

At this pont, the clip cuts off just as he mentions a topic heading that I think many firms need to consider and plan for:

Sabotage at home As it happens, I ran into this a year ago with a stamping firm in the U.S. their engineers sent samples, specs, volumes, and preferred pricing.. everything one could ask for, and 3 months later we had the first 500 samples and submitted them for PPAP testing.. and once the products failed it became clear that the project had been sabotaged as the specs for both the steel and e-coating given to us, and within a month the CEO and 2 engineers were taking sick leave. Right now, outsourcing to China is a sensitive topic, and firms need to prepare for the fact that not everyone will be happy with their CEO’s decision to pursue the China option.

We hope you have enjoyed these posts. Sourcing in China is no inherently going to lead to problems, and it is possible to source and manufacturer in China, but hopefully now it will be clear just how companies need to be prepared to INVEST in the process.

and at this time, I will open up the floor for comments and/ or stories

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