More and more Western company leaders decide to start sourcing goods
from China and take advantage of its low production costs. But we see
many of these China sourcing initiatives without a strong Change
Management part: They usually underestimate the time and efforts needed
to explain, train, demonstrate and convince employees to shift to
Chinese suppliers.
The change is drastic indeed: Purchasing, Quality, Engineering, Logistics, Design departments organized their work around the relations with their "traditional" suppliers. The shift from "local sourcing" with this traditional supply base to "far sourcing" with new suppliers in China will dramatically affect the way they work:
Firstly, the Design Department must integrate new technical and economical constraints in the design of the next generation of products. The 3 major principles are:
-1 Parts with high added value and sub-assemblies are the ones bringing the best cost advantages when sourced in China.
-2 Production processes in China are different: Automatic production is replaced by a number of manual steps. It reduces capital investment and cost, increases production flexibility but tolerances are not as good as for an automated process.
-3 Parts with critical Intellectual Property shall be kept outside China.
Secondly, the Engineering Department used to rely on their traditional suppliers' superior engineering capabilities, expertise and capacity to innovate. Switching to a supplier which expertise is not as good means:
1- More work: New technical validations and support to the new Chinese suppliers
2- Due diligence: Thorough checks of all safety standards
Thirdly, in the Logistics Department, employees will have to start setting-up new flows coming from China and adapt to a new set of principles. Long transport time by containers may be a new constraint. Factory logistics teams deal with hundreds of issues a day, and new constraints are never welcome. For example, daily deliveries in returnable boxes are not an option when the producing factory is 10,000 kilometers away. The delivery cycle is obviously too long and the investment in boxes would be too large. But if this is the preferred delivery method, the Logistics Department will have to change its habits and adapt to new objectives.
Also, the Quality Department must re-examine its approach of supplier's quality:
The Quality of the purchased parts used to be sub-contracted to the suppliers: Quality objectives are included in the purchasing contracts and defective parts are sent back to where they come from. The buyers have nothing to do with the quality management of their suppliers. This approach does not work with far sourcing. Waiting for the parts to be delivered to check their quality would be too risky and costly. It takes time and resources, but buyers have no choice but to retake control of the quality management.
"You get what you inspect, not what you expect".
As an example, Shanghai General Motors has developed an army of Advanced Supplier Quality (ASQs) engineers, traveling 4 days a week to their suppliers' factories. Their role is to directly and constantly manage quality improvement plans.
However, for a Western company without a dedicated organization established locally, managing supplier's Quality on a regular basis can become problematic: Many of our customers come to us initially to solve Quality problems. Outsourced in-factory quality control and pre-delivery inspections is a common solution.
Finally, directly on the battle front, in the Purchasing Department, the buyers must also adapt their negotiation style and attitude. One cannot go aggressive on price reduction targets to Chinese suppliers without giving anything in return. It is not only because of the Chinese business culture (you have to become good friends before signing a deal). If the outcome of the negotiation is not a win-win deal, the Chinese supplier might start finding ways to cut his production costs and regain his margin: Swap raw material to cheaper ones or sub-contract to another company. An unprofitable deal for the supplier usually damages the quality of the parts.
If confrontation seldom works, a supportive attitude towards a Chinese supplier generally pays off. Give practical advices, deliver simple trainings, and show your support where it is needed: Suppliers will keep a positive attitude and this will bring mutual benefits.
This is the founding concept of Supplier Development: A Supplier Development project usually starts when the owner of a Chinese company accepts the active support of his potential client over a period of time and engages his company in the implementation of all the best practices brought to him and his staff. In return, the buyer creates a tailor-made production facility for its parts, and a loyal supplier. After 6 months of weekly visits and workshops with the different departments, the Chinese factory dramatically improves and the production starts. This is certainly a large time and effort investment, but it pays off in sustainable cost advantage. Success stories such as BOSCH's or VALEO's tend to prove this is a good way to do Industrial china sourcing company
The change is drastic indeed: Purchasing, Quality, Engineering, Logistics, Design departments organized their work around the relations with their "traditional" suppliers. The shift from "local sourcing" with this traditional supply base to "far sourcing" with new suppliers in China will dramatically affect the way they work:
Firstly, the Design Department must integrate new technical and economical constraints in the design of the next generation of products. The 3 major principles are:
-1 Parts with high added value and sub-assemblies are the ones bringing the best cost advantages when sourced in China.
-2 Production processes in China are different: Automatic production is replaced by a number of manual steps. It reduces capital investment and cost, increases production flexibility but tolerances are not as good as for an automated process.
-3 Parts with critical Intellectual Property shall be kept outside China.
Secondly, the Engineering Department used to rely on their traditional suppliers' superior engineering capabilities, expertise and capacity to innovate. Switching to a supplier which expertise is not as good means:
1- More work: New technical validations and support to the new Chinese suppliers
2- Due diligence: Thorough checks of all safety standards
Thirdly, in the Logistics Department, employees will have to start setting-up new flows coming from China and adapt to a new set of principles. Long transport time by containers may be a new constraint. Factory logistics teams deal with hundreds of issues a day, and new constraints are never welcome. For example, daily deliveries in returnable boxes are not an option when the producing factory is 10,000 kilometers away. The delivery cycle is obviously too long and the investment in boxes would be too large. But if this is the preferred delivery method, the Logistics Department will have to change its habits and adapt to new objectives.
Also, the Quality Department must re-examine its approach of supplier's quality:
The Quality of the purchased parts used to be sub-contracted to the suppliers: Quality objectives are included in the purchasing contracts and defective parts are sent back to where they come from. The buyers have nothing to do with the quality management of their suppliers. This approach does not work with far sourcing. Waiting for the parts to be delivered to check their quality would be too risky and costly. It takes time and resources, but buyers have no choice but to retake control of the quality management.
"You get what you inspect, not what you expect".
As an example, Shanghai General Motors has developed an army of Advanced Supplier Quality (ASQs) engineers, traveling 4 days a week to their suppliers' factories. Their role is to directly and constantly manage quality improvement plans.
However, for a Western company without a dedicated organization established locally, managing supplier's Quality on a regular basis can become problematic: Many of our customers come to us initially to solve Quality problems. Outsourced in-factory quality control and pre-delivery inspections is a common solution.
Finally, directly on the battle front, in the Purchasing Department, the buyers must also adapt their negotiation style and attitude. One cannot go aggressive on price reduction targets to Chinese suppliers without giving anything in return. It is not only because of the Chinese business culture (you have to become good friends before signing a deal). If the outcome of the negotiation is not a win-win deal, the Chinese supplier might start finding ways to cut his production costs and regain his margin: Swap raw material to cheaper ones or sub-contract to another company. An unprofitable deal for the supplier usually damages the quality of the parts.
If confrontation seldom works, a supportive attitude towards a Chinese supplier generally pays off. Give practical advices, deliver simple trainings, and show your support where it is needed: Suppliers will keep a positive attitude and this will bring mutual benefits.
This is the founding concept of Supplier Development: A Supplier Development project usually starts when the owner of a Chinese company accepts the active support of his potential client over a period of time and engages his company in the implementation of all the best practices brought to him and his staff. In return, the buyer creates a tailor-made production facility for its parts, and a loyal supplier. After 6 months of weekly visits and workshops with the different departments, the Chinese factory dramatically improves and the production starts. This is certainly a large time and effort investment, but it pays off in sustainable cost advantage. Success stories such as BOSCH's or VALEO's tend to prove this is a good way to do Industrial china sourcing company
