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China Manufacturers: Factory Inspections 11/5/2010

Many people and companies choose to source products from Chinese manufacturers that they meet online, and at trade shows.  While sites like Alibaba.com offer quick introductions to thousands of Chinese suppliers, you must make sure that you are aligning yourself with the right Chinese Suppliers that will be able to support your business and meet your customer’s expectations.  Sites like Panjiva.com can be very helpful in conducting preliminary supplier due diligence, but nothing will compare to actually physically visiting and auditing your potential suppliers.  Understanding the inner workings of their operations as well as their strengths and weaknesses will give you the peace of mind you need to move forward with the relationship.

Whether you choose to audit your suppliers or have a 3rd party China auditing company do it on your behalf, the important thing is that its gets done.  Talk to anyone who has been sourcing from China for any length of time and they can tell you a good story about how they have had bad experiences with certain vendors.
To help you get started, I have posted a picture of an example factory audit.  I pulled this one from factoryaudits.com – you can check out their website for more info on how they help companies with China audit requirements.

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Where should you set up a factory in China? 9/30/2010

Good Question.  That’s something that most companies struggle with at first, and something many companies struggle with after they set up a factory.  I recommend avoiding the latter by doing your research.  China is slightly larger than the United States in total land area and has cities (some more desirable than others) scattered throughout the country.  I often use this example to help people begin this conversation:  If you were an automotive manufacturer, would you be better off setting up your factory in Detroit or South Beach?  Obviously in Detroit.  Detroit would provide a skilled labor force, companies in similar industries, a pro-manufacturing regulatory environment, local supply chains, etc.  As such, I recommend thinking about the location of your existing facilities first.  What works?  What hurts?  Then you can begin to look for similarities in China and begin to narrow down investment locations.

Most foreign companies end up in the greater Shanghai area or in the greater Guangzhou area.  This is largely because these are the major manufacturing regions that have invested heavily in infrastructure.  These regions may both be places you want to consider, but I recommend doing additional research as you may find that another region will be far more suited to your industry and may offer more attractive investment incentives as a result.

Start with your customers.

Locating a facility down the street from your customers is always a good idea.  I recommend using Google Maps or Google Earth to map out all of your customers on a map of China.  This will help you to identify regional groupings that exist.

Focus on your competition.

After you know where your customers are, take a look at your competitors.  If you find that your competitors are all located near your customers, there might be a reason for this…

What about your supply chain?

This may be one of the most critical factors to take into consideration as you evaluate different regions and go through your site selection process.  It is extremely important to make sure that your supply chain can support a facility in a certain geography.

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6 Steps to a Successful Strategic Sourcing Program 8/25/2010

Here is some help for those who are looking at expanding their sourcing into low cost regions.  While not a comprehensive guide by any means, this post is simply to help ease the process.

Step 1.

Start Slowly!  Try to limit the number of part numbers or SKU’s that you are focusing on in the beginning.  Don’t try to source every product or component you purchase at once.  This is a strategic decision for your company, not something that should be attempted overnight.

Step 2.

Do Your Due Diligence!  Visit the suppliers or have a 3rd party company assess their factories – if you don’t have a robust assessment process, seek help from someone who is an expert.  Check references – ask the potential suppliers to provide references for other customers in your local region.  In addition, conduct extensive testing – we have all heard about companies that have imported goods from overseas that are tainted with chemicals, do not perform as promised, and have caused significant product recalls.  You don’t want your company to be on the front page of every newspaper.

Step 3.

Provide Realistic Forecasting.  Don’t promise large order quantities to suppliers in an attempt to drive down pricing.  Negotiate realistic pricing based on realistic volumes and you will benefit from the mutually beneficial relationship and avoid costly delays and missed cost expectations.  The same thing goes for delivery expectations.  If your lead times are exceptionally tight – make sure to buffer inventory levels or schedule deliveries accordingly.  International Air Freight costs will quickly absorb any cost savings you gained by going overseas in the first place.

Step 4.

Always 2nd Source.  Establishing a second source from day one can help make sure you are keeping your suppliers honest, but more importantly helps your organization limit risks of a supplier keeping you line down.

Step 5.

Partner With Your Suppliers. Find suppliers that share your company’s vision and that can support you long term.  Building a sustainable relationship based on honest pricing, delivery and quality expectations will benefit your company for years to come.

Step 6.

Always Remain Focused on Continuous Improvement. Be sure to work with your supplier partners to continuously enhance process steps and quality procedures.  Partner with them on new product development projects and let them know how much you value your relationship with them.  Building these types of relationships will give you the upper hand on the competition and help you create the most value for your shareholders.

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