How to Build a Strong Outsourcing Platform in China

Wednesday, July 25, 2007 6:37

Following up from my post earlier yesterday on assessing risk, I was speaking to a friend of mine about the processes we are going through. What processes we have in place for our larger clients that are end to end, and how we ensure that when we send a container it meets the requirements of our customers, and more importantly theirs.

Admittedly, my recent posts are very over simplified and at times I make things sound much easier than they are. We have had a number our challenges getting our platform built no doubt, but in the end through planning and management we have less than a .03% failure rate using the process below.

The rest of this post will be shameless, but the goal is to show others who are sourcing and having problems, or those who are looking at sourcing, one way of getting the job done. There are of course other ways, and I hope that those who have also execute successfully in China will post their comments

As you can see from the above, putting out our staple product (a hand tool), requires a number of checks to be put in place to ensure that things go smoothly. We have found cases of where an Aluminum supplier did not provide the right thickness, a screw supplier the wrong length, moldy wood handles, and so on.

However, through conversations and war gaming with our client, we were able to understand what could happen beforehand, what the root cause it was, how to fix the problems, and how to prevent the problems.

  • Were we not on the ground, in the factories, with micrometers in hand… we would have surely seen a much higher failure rate.
  • Were we working with trading companies and not inspecting the goods prior to shipping, we would have surely seen a much higher failure rate.
  • Were we working with suppliers we had never met, had never visited, and were drop shipping without inspection… we would have surely had a much higher failure rate.

The key to all of this is investment.

Our client invested in us, and we have invested the time and resources necessary to make sure we have multiple check points built in.

Suppliers check each other, we check them, and in the end (before we get our final payment) our client checks us. If anything goes wrong, it gets sent back, and obviously the goal is for our suppliers to send it back before it reaches us… or for us to send it back before it reaches our client..

If a bad product were to make it into the hands of a 260 lb guy on the site and it goes bad.. our client’s future orders are at risk, and as such so are ours. so, it is in our LONG TERM interest to make sure that the product we put out has been made right.

We view the above process not as a current expense, but as an investment in our future.

Where I have seen others fail (including the recent cases of tires, pet food, and toothpaste) are:

1) Supplier identification/ qualification – The move away from personal introductions to internet platforms has raised the level of risk on a fundamental level. On their own, Alibaba and global Sources are excellent tools, but they are not all they seem to be. they are tools for identification, pure and simple. Global Sources a platform for suppliers to advertise on the website (for a fee), they will not ensure your goods, and they do not offer inspection services. See How the Internet Changed Sourcing for more

2) Quality/ Process management – Like anywhere else in the world, ongoing monitoring of goods and suppliers is critical in this phase, but for firms like Iiams and FTS recently, this is where things fundamentally collapsed. When a product is being produced outside of buyers control, then it is critical to not only understand the processes and quality management systems of the supplier, but also to address or adjust accordingly (not all changes are bad). In the case of Thomson train and FTS though, Neither group understood or monitored the supply chain at all. they failed to understand, monitor, test, and correct for when the processes or suppliers changed, and it was only until their buyers were hurt that the changes were confirmed (FTS actually suspected changes had been made for 2 years)

3) Inspections – I cannot stress the importance of inspections as they are critical in reducing risk by ensure failed products do not make it to the next step in the process. Ideally, inspections need to occur frequently, at different stages in the production/ assembly, and by different people. In house is best, but for some measurements suppliers can check play a role, while in other cases third parties should be brought in to test for failures of any kind on site. For all of the recent cases, this step was completely missed.

4) Accountability – Accountability is critical through the entire process as suppliers who are fully paid weeks before you see the product have little incentive to make sure that the product is 100%.. especially if the order is a one time. tying the final payment to the final inspection is also a critical step. It may be difficult to negotiate, but a supplier who is willing to go along with that has a lot more incentive to get things right.

5) Honesty – hen suppliers are under cost pressures, we need to know, and we make sure that we are monitoring that because it is when they feel the squeeze that they cut corners. In the end of the day, the relationship between supplier and buyer must be a strong one. I have had to make phone calls that were difficult, where I had to discuss a recent issue, or where I had to prepare my client for a delay.. but in the end, it is that honesty that shows how strong the partnership is. for many that fail, it is obvious that they lacked the honesty and trust in the relationship.

If you have something to add to the discussion, I encourage you to comment. there are a number of ways to get things right,and a number of ways that things can go wrong. Hopefully through some comments, everyone can learn about both.

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4 Responses to “How to Build a Strong Outsourcing Platform in China”

  1. How to Build a Strong Outsourcing Platform in China | Top China Suppliers says:

    July 25th, 2007 at 10:25 am

    […] The rest of this post will be shameless, but the goal is to show others who are sourcing and having problems, or those who are looking at sourcing, one way of getting the job done. There are of course other ways, and I hope that those who have also execute successfully in China will post their comments […]

  2. Outsourcing to China? Think Before You Leap » Third Party Logistics News - 3plwire says:

    July 25th, 2007 at 5:08 pm

    […] ARLTC has a new post out along the same lines titled How to Build a Strong Outsourcing Platform in China. It’s […]

  3. Etienne C. says:

    July 28th, 2007 at 7:50 am

    I cannot agree more. All the steps described in this post are required to ensure that the risks of sourcing in China are kept to a minimum and are manageable. If you bypass any of the steps, you dramatically increase the risks you run.
    At procurAsia, we specialize in the sourcing of industrial equipment. For these complex products, it is also a good practice to add a few steps: (1) check suppliers’ QC process robustness prior to the first large order; (2) review the standards to comply with for the product, or course, but also documentation and packaging; (3) initiate supplier development activities to gradually compensate for identified weaknesses of the suppliers.
    Of course, you only can justify all these when you plan to buy the parts and equipment on a regular basis, not for one shot purchases.

  4. Rich says:

    July 30th, 2007 at 6:31 am

    Etienne,

    Appreciate your comments, and I agree on all points. Understanding the QC process of the supplier, outside of your own, is critical. We have been involved on several programs that required us to push a supplier through certifications, and it is a difficult process and after going through it I believe that it is best to pay a premium for suppliers who are not only already certified.. but well tested.

    With regard to your final comment, I actually find that it is the one-off purchases that make up 95% of the horror stories I hear. the longer programs like the tire, train, and pet food failures were from long term arrangements, and the stories were much bigger… however, under typical circumstances, I am still hearing abot more problems when the purchase is only a 1 off. I am sure this has a lot to do with neither the supplier or the buyer seeing a future in their relationsihp, but it also has to do with the fact that 1 off purchases are almost exclusively done for cost.

    Have a good week