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17 Feb 2011
Best Way to Conduct Manufacturing Outsourcing in China
by David Alexander, President, Baysource Global
Let's be clear on one thing. This article is a completely self-promoting call to action. But if you were in charge of business development for your organization, for a product or service you absolutely knew would help other businesses reach their targets while delivering a heady ROI, would you not pound the war drums?
China. The #1 manufacturing country in the world. Yes or no?
On January 31, API reported the #1 manufacturing country in the world. Many would assume China leads the way by a commanding margin yet, in fact, it trails the $1.7 trillion output of the United States by a whopping 40%. That means we produce more with less labor. It also indicates that low value added jobs with less profit margin have gone overseas.
So what does that mean for us? It means that China is still the factory to the rest of the world and if operations decision makers haven't developed a competent strategy to outsource redundant, high labor and low value add processes, they are tempting fate.
Outsourcing doesn't always lead to job cuts
Isn't it finally time to embrace a synergistic offshore-onshore manufacturing & distribution model without all the never ending backlash about jobs?
Consider Sure Power of Portland who increased their employment by 53% after embarking on a manufacturing outsourcing strategy to free-up valuable plant space. They increased sales 188% by re-dedicating valuable assets to R&D. This translated into a 204% increase in tax contributions to the state of Oregon in one year.
Getting to China however can be a daunting and expensive undertaking for the inexperienced and timelines are usually doubled when going it alone. Does your company have any KPIs for lost opportunity cost?
Bob plans a trip to Guangzhou
Assume for a moment that you are the SVP of Operations for a U.S. firm in Des Moines that manufactures some sort of metal and plastic assembly. Sales have been flat and finally in that Monday morning meeting the inevitable question arises. "What are we doing about China?" your boss asks.
You have a solid team of purchasing professionals, none of which can point to Hong Kong on a map. However, through the internet one of your go-getters, Bill, has begun to put a spreadsheet together of die cast and injection molding companies in Guangdong Province, which he's researched as being a hotbed for these industries.
Since Guangzhou is a FTZ (Free Trade Zone) Bill with his Operations Management degree, has identified this as the logical place to start. He's shared a couple of months of emails with "agents" posing as direct factory managers and is ready to take his associates to China. Just say the word!
Assuming that Bill and the others now have passports and visas in hand, they begin booking flights, hotels, trains, and ferries to venture out into the Middle Kingdom. In all they'll be gone for just under three weeks. Since this is the company's first sojourn to Asia, you'll undoubtedly accompany them on this exciting new foray into the land of the dragon along with your Ops VP. Now you and your four valuable employees will be out of pocket the majority of a month leaving their day to day responsibilities to others or to simply take a break from existing projects.
How much time and capital do you think this will require? You may be surprised.
Going it alone costs more than you think
The following lists conservatively typical expenses by line item for a two-and-a-half week trip to China. Remember, you'll require a full 24 hour day of travel to and from and a day of recovery once you've arrived.
The good news is there are competent firms in place to assist in your project management initiatives.
What do supply chain professionals say?
In a recent poll on Linkedin, over 150 Supply Chain professionals weighed in with their response to the question, "What is the best way to conduct manufacturing outsourcing in China?"
58% of respondents chose "Establish a trusted partner in China." Here are the complete poll results.
Perhaps a portion of the voters had already been through the trial and error process. Or it could be that those who have succeeded in tandem with a firm watching out for their best interests can easily quantify the decision to engage a reputable firm for monitoring manufacturing, quality control, packaging, labelling and logistics.
Proper guidance leads to outsourcing success
In his article "10 Tips to Better Sourcing", William Atkinson of Purchasing Magazine explains that regardless of their China story, those who have enjoyed a successful relationship with China have done so through proper guidance and preparation.
In this critical juncture of global commerce, fluctuating currencies, and competitive pressure, it is imperative to select a reliable partner whom you can trust, knows the local governments and regulations, has engineers on staff who understand your products and who can help you gain a foothold in this valuable region of the world.
Baysource Global President, David Alexander, can be reached at firstname.lastname@example.org
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