With the advent of the internet, e-procurement, and
other sourcing innovations, why would a technology savvy,
internationally-focused company of any size depend upon
a Procurement specialist from China than directly
purchasing from China?
Picture this scenario:
Because of a need to control costs your company began
to explore procurement from China. Either directly or indirectly
you found a manufacturer in China and placed your first
orders. When the Chinese manufacturer failed to meet important deadlines
you were forced to rely on pricey airfreight to meet
customer commitments. Later quality issues began to
surface with the products you had shipped forcing you
to either discount the merchandise or assume custody
of the defects and undertake additional costs associated
with re-supply. Furthermore, your customers’ confidence
in your company has actually been shaken and you’ve
heard rumors that they are soliciting bids from other
suppliers. These risks and costs combined with the additional
time and effort expended during the China sourcing experiment
actually exceeded any savings that might have been gained
and you now are disenchanted with the whole prospect
of procurement from China.
There are many considerations when contemplating supplies
procurement from China. According to an article by Booz,
Allen Hamilton, these include:
- Manufacturing cost
- In-land Transportation
- Lead time and scheduling
- Product design
- Technical capabilities
 Manufacturing
cost
Some statistics indicate that Chinese wages are as
little as one-tenth (10%) that of US wages and one-half
(50%) that of Mexican wages. Regardless, many of the
most modern suppliers, located in the larger cities,
and with the best English-speaking service departments
tend to be the most expensive in China. These costs
are further exacerbated by increasing wage rates, increasing
standards of living, and increasing demand. This also
has the negative impact of making each subsequent order
less important to these suppliers.
To get the best prices, consumers need to travel to
more remote areas where suppliers are less international,
less modern and less spoiled. However, taking full advantage
of low-cost Chinese suppliers requires access and constant
monitoring. This cannot be achieved through the internet
and it cannot be achieved by procurement specialists
who are not near their suppliers no matter how experienced
they may be.
Transportation
Utilizing suppliers in more remote areas of China makes
shipment more difficult because of bad roads and poor
logistical support structures. Only procurement specialists
who can effectively account for this variable are in
a position to work with such suppliers.
Lead
time and scheduling
Perhaps more important than inland transportation,
China’s distance is a factor. Ocean freight from
China adds significantly to lead times and inventory
risks. To compensate effectively for these factors,
a procurement company must have its own logistics department
or at least employ personnel familiar with the dos and
don’ts of international shipment.
Before shipment however, the need to place large order
quantities makes the risk of receiving substandard merchandise
even higher. To combat this, quality control (QC) and
order processing staff must be available full-time to
work with Chinese suppliers. Only a dedicated, on-site
team can effectively ensure that quality standards and
scheduling are maintained.
Product
design
As it is most common to source components and sub-assemblies
from China rather than completed final products, attention
to quality is imperative. If components do not work
properly when received, they may throw off the rest
of a production or delivery schedule. Additionally,
design changes to components need to be incorporated
seamlessly or the results may be disastrous. China procurement
specialists should employ their own engineers along
with QC personnel to facilitate better design, manufacturing,
and production.
Technical
capabilities
By and large, China is not known for its manufacturing
or technological innovation. Some suppliers excel in
certain areas and many others are growing rapidly in
sophistication. China buying professionals need to be
aware of what can and cannot be done in China so as
to save customer time and money. Furthermore, they need
to maintain close ties to Chinese industry and conduct
regular research in order to keep abreast of pertinent
changes that may lead to windows of opportunity for
their clients.
Multi-sourcing
Beyond the aforementioned, it is increasingly becoming
difficult to achieve cost gains through sourcing efforts.
This is because many companies are in some part already
involved in international sourcing and thus further
growth may only be achieved incrementally. Where traditionally,
companies relied on one supplier to provide a final
product, multi-sourcing involves splitting up sourcing
among several material, component, process, or service
suppliers in order to obtain the best pricing options
from companies that have particular competitive advantages.
In order to achieve this in China though, the sourcing
specialists in question must not only have multiple
people in China to handle this effectively, it must
be able to supervise and control the entire process
seamlessly.
Without being able to:
- Locate and monitor low-cost China manufacturers
and suppliers
- Take China inland transportation and infrastructure
issues into consideration
- Handle shipment and import/export transactions
- Conduct on-site quality control with in-house specialists
- Engineer and monitor changes in production requirements
- Access and understand the Chinese market first-hand
- Multi-source the procurement of supplies from China…
…A trading company just doesn’t rank among
China procurement specialists.
Contact Streamline today at market@stream-max.com
for more information or a quote today.
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