Sourcing: Patience, Persistence, and Politeness

When sourcing abroad, a few things are needed: patience, persistence, and politeness.  How great that they all start with a 'P' too, right?  The sourcing process is somewhat of a game.  You can't take everything at face value and you have to realize that in most cases, a project can work, you just have to find ways to get everyone on the same page and moving in the same direction.  But often times, you'll get resistance from factories for all sorts of reasons--cost, laziness, they don't understand the requirements, etc.  To get through this and get the results you want, you've got to be patient and play the game.  You've got to be persistent about getting what you want.  And, you have to be polite.  Whether you are American, Chinese, Mexican, or Russian, no one likes to work with a jerk!

Yesterday, we met with a garment factory in Dong Guan, an area around Shenzhen, China.  We've been talking with this company for several months now about a few projects.  On one project in particular, we've been working with the factory to get samples made of a specific material called out in the BOM (Bill of Materials) by the client.  On the first round of samples, an inferior material was sent by the factory.  In fact, they sent two samples--one of higher quality inferior material and one of lower quality inferior material!  Of course, that's just not going to fly with our client.  We went back to them in the last month or so to emphasize the importance of getting the exact material specified in the BOM, but they told us it couldn't be done.  Yesterday, we sat down with them and they told us the same thing.  Their fashion manager actually left the room to go and call a vendor to see if they could source the material and returned to tell us "no", and repeat that the material they have is almost the same (who knows whether he called someone or just went and had a cigarette).  Finally, we all leveled with each other and put it plainly that the project requires this material and they can take it or leave it.   Ahhh, progress.  They tell us they will contact someone about having samples made of the material with adequate thickness.  And this time, I think it will magically happen.  Of course, we'll be checking in on this.  But it's amazing what you can get done when face to face with a little persistence.

Another project we worked on this week involves metalworking.  We had a similar experience with the vendor (this happens all the time).  We had a requirement on a specific part--but there have been issues in going back and forth between metric and standard measurements.  The standard measurement system, inches, feet, etc., is of course being used by the client to design the product.  But, off-the-shelf parts and materials in China are being used to build the product, which are in metric measurements.  On this specific part, the tolerance for variation is very small--thus a conversion from standard to metric can throw that off if we don't get exactly what we need.  After much dialogue about the requirement of the part, why it must be exact, and "yes, we know it's a difference of a decimal place", etc., we have agreed that the vendor will complete a secondary process on the part to get it to the exact spec we need.  And believe me, we're going to check to make sure it's done. 

In both these cases, what started as "no" turned into "yes".  If we had taken the "no's" at face value when we started, we would have had to eat the time and costs we put in so far and began looking for other vendors.  Fortunately, we've found some guys that are willing to work with us as well.  The vendors continue forward on the project and we get what we need.  In the words of Sasha Baron Cohen's Borat character, "great success!"  Being patient and persistent with these guys has allowed us to make steady progress on the goals we need to hit.  And, everyone has been polite through the whole process and that's what will help us to sit down again and address the next issues that will inevitably come up. 

The Torrid China Travel Schedule

Been in China for six days now.  Been to 5 cities.  Started in Hong Kong.  A few days ago we flew to Ningbo, which I had never been to before.  It's on the southern side of Hangchow Bay, below Shanghai.  It's another nice city on the rise.  We visited a garment office and factory in the morning, a baby wipes factory in the early afternoon, a foam board factory in the late afternoon, and flew to Shanghai that night.  Drove to a gift and textile factory in Changzhou from Shanghai the next day--about a 3 hour drive each way.  Then drove straight back to Pudong Airport outside of Shanghai and flew back to Hong Kong that night.  The next morning, we went by ferry to a great model and toy factory in a smaller city a few hours from Hong Kong (the spelling of which has been eradicated from my brain by fatigue for the moment). 

It's a torrid pace we keep.  But I love it.  The differences in factories, management, and cities you can see in a day are amazing.  Some factories are complete messes.  Others are outstanding.  And most fall somewhere in between.  You never really know what you're getting into until you go to the factory with a vendor, sit down and talk with them, and walk around the factory.  It's a hard job, but we love doin' it.  So cliche.  But I don't think there's any other way we could inflict such a torrid travel schedule on ourselves.  We'll be heading to the ferry again at 8am tomorrow morning to do it again.  And again on Saturday.  I fly back to San Francisco on Sunday.   I usually don't sleep on planes unfortunately.  But, I think I'll sleep all the way back to San Francisco this time.

Obtaining Cost Estimates for Product Manufacturing

I recently wrote an article for Barbara Carey's Newsletter for inventors and entrepreneurs about how to obtain accurate cost estimates for the manufacturing of your product.  What do you need to begin this process?  I get this question all the time from clients new to the game, so I thought I would post the article here.

At an early point in the product development process, inventors and product developers need to address the manufacturing issues surrounding their product.  Can I make my product for a cost that is feasible within my business plan?  This is one of the burning questions you will want to address early on, before you invest too heavily in taking your product to market. 

Your production estimates might be fuzzy in the beginning.  You will probably create some form of ‘back-of-the-napkin’ analysis, and look at similar products on the shelf to get an idea of where your product should come in.  A very generic rule of thumb is that a product is marked up four or five times from manufacturer to retail.  If you see a widget selling for $4 on the shelf, you can assume that the hard cost to produce it was about $1. 

As your product progresses through the development cycle, you’ll continue to refine the assumptions that you’ve madeAccurate numbers become much more important at the later stages of the development process.  When you believe you are close to finalizing your design specifications package, it’s a good idea to add some concrete cost information to this analysis by contacting manufacturers to get quotes on your project. 

To do this overseas, you need to realize that effective communication is critical to accuracy and success. Thus, anything that can help you overcome the barriers of language, culture, and distance will help.  Engineering drawings – such as professional, CAD (Computer Aided Design) drawings - are excellent for this.  They convey information in the international language of math, instead of variables such as “very long,” or “deep shade of red.”  If you don’t have access to the services of a professional industrial designer, hand drawings may suffice for initial quotation purposes, particularly if the product is simple and you include basic dimensions.

Another great method for conveying information about your product is sharing, under a confidentiality agreement, an actual prototype or sample with the manufacturer.  An incredible amount of information can be deduced from a physical representation in one’s hand.  Color, finish, materials, parts, mechanics, etc., can all be quickly ascertained via a sample of your product. 

Finally, if you don’t have these things in your quiver just yet, pictures and descriptions can be helpful.  A picture can convey numerous qualities in similar fashion to samples.  And descriptions of how the product functions, what conditions it will need to withstand, and such, can help an engineer understand what is going to be needed to manufacture your product correctly. 

Trust Between China Manufacturers and Foreign Companies: A Fuzzy, Yet Important Concept

So much of our business is involving China these days that I find myself reading ChinaLawBlog's posts on a daily basis, and they almost always touch upon experiences we are having as well.  One of the recent posts  touched on the terrible job Chinese companies do in collecting on their international debt.  Chinese companies have approximately $100 billion in accounts receivable with foreign companies--and the reasons behind this are often the same or similar fraudulent practices that many foreign companies complain about so often when they operate in China.  Foreign companies sometimes just don't pay up.  And what's a chinese vendor going to do? 

This brought up another issue that I've been wanting to write about for a few months now, regarding an Alibaba.com survey that I saw a few months back.  The survey  (which is still up, but might require signing in) was posted online on the Alibaba.com website and was only taken by 80 or so users, but offered up an interesting point regarding concerns about trade and manufacturing between other countries and China.  The results?

26% - Trust between a supplier and buyer need to improve
19% - Delivery problem; high shipping cost or long delivery
19% - Problem with quality of products
14% - Communication problem and language barrier
10% - Security problem with internet trading
5%   - Service offered by Chinese suppliers is lacking
2%   - Response to customer is slow and poor
2%   - Price is too high

Certainly, many of the issues listed are intertwined.  But, the big, fuzzy concept "trust" was the winner.  I wonder how many of the survey respondents were Chinese.  Probably not the majority.  But if you listen to chinese factory owners' and managers' concerns, they can be just as worried about entering into a business relationship with a bad business partner as anyone else.   And as ChinaLawBlog's post points out, for good reason.  Everybody's got to get their's first.   It helps when you're building a relationship with a supplier, to put in the time and put yourself out there a little bit--share the risk.  Of course, you complete all your due diligence about who you're dealing with as well.  But it's important to remember where the other guy is coming from as well.  In this department, we're not that different after all.

Product Design for Manufacturing

Product design, a fun but never easy task.  There are so many things to miss the mark on.  Does my product stand out?  Does it offer too few or too many features?  Does it offer the right features?  Can I  manufacture this product at a profitable price point? 

The Michael on Product Management and Marketing blog has a good article on 5 Tips for Kick-Butt Design.  Although his blog is primarily focused on high tech and software products, many of the central tenets are the same for hard consumer products.  He recommends:

1. Start with User Interface
2. Work with user Interface Designers
3. Pay Attention to Details
4. Simpler is Better
5. Be Brave

To add to the difficulty in successfully accomplishing these five items (Michael notes the ease with which these are understood and the disturbing regularity of general neglect for them), it's a good idea to begin pondering how all of these things  will play out in a manufacturing sense, or design for manufacturing.  For whatever reason, the realities of manufacturing are often brought in late to the equation and can force a product development team to go back and start again, force undesirable tradeoff decisions, or in a worst case scenario, scrap their efforts.

A product development group recently came to us to get some preliminary costing for a large toy product they were working on.  Thankfully, I don't think they had gotten too far down the path when they began to explore the cost issues.  We didn't have much information to go on, but the pricing that came back from overseas vendors was way out of the ballpark in regards to their targets.  We've got some tricks up our sleeves to get the costs down.  Looking at alternative fabrication processes, alternative materials, feature tradeoffs, and good ol' negotiation tactics are all worth exploring.  It's going to be tough, but they're not out of the game yet.   

The point is, those 5 tips in product development are all great goals, just don't forget you have to be able to make the thing at a reasonable cost.  And if you can't, explore what changes you might be able to make to produce it at a reasonable cost.  And if can't do that, better to find out earlier rather than later.
 

Trade, economic interdependency, and Brad Pitt

Most have probably heard about the Dow's large loss on Tuesday, precipitated by the Shanghai Stock Market plunge.  A recent NY Times article recaps much of the events and, mirroring Fed Reserve Chairman Ben Bernanke's remarks about the economy to Congress a few days ago, believes the market correction will not stop moderate growth in the US economy.  “We’re seeing some blowing off of some froth in the equity markets and that’s probably a good thing,” said Peter Morgan, regional economist at HSBC in Hong Kong.  Well put.  But a lot more regular, everyday traders are going to pay attention now when they hear rumors or see signs of a potential cooling in China's economy. 

We're watching each other more and more closely.  In fact, an old friend who is a reporter for Xinhua, the Chinese national news agency, contacted me a month or so ago for a statement regarding the impacts a cooling in the US economy might have on US imports of Chinese goods.  It's easy to focus on our own situation and forget how much of what we do impacts hundreds of millions of people's livelihoods over there. When our housing market cools, we aren't the only ones who feel it. 

Just another reminder that we're all starring in our own "Babel" movie--but instead of a housekeeper, a Japanese girl, and some kids in a Middle Eastern country--Tuesday starred a Chinese business exec, a strung out New York stockbroker, and Brad Pitt still, whose headline about recently upsetting Angelina Jolie for sending a birthday card to Jennifer Aniston was bumped off the front pages because something more important happened.  Whether we're investing in the stock market, manufacturing a product overseas, pumping gas, love Walmart's Everyday Low Prices, just about anything these days, what happens in Shanghai might play a role.