Product Global

The Next Sourcing HotSpot: From China to...Madagascar?!

Well, not really...

I'm currently on another sourcing trip in China.  I'm headed to Vietnam in a week.  My first week in China has been very busy and has provided a lot of food for thought on the manufacturing shake-up that is taking place in China right now.  Is it really a shake-up?  Yes and no.  It's not as if all hell's breaking loose over here.  But, almost every supplier I have met with has groaned about increasing material, energy, and labor costs, as well as the impact of the currency exchange rates.   Many of these things are not unique to China.  Nevertheless, it's never fun to report increases in costs to your customers--and they certainly don't enjoy it.   

One of the tough spots Chinese suppliers find themselves in, is it's not atypical for foreign businesses sourcing in China to consistently apply pressure to lower costs.  Hence the erosion of quality in materials and product--or the practice of quality fade by suppliers to preserve their margins.  In addition to constant cost pressure from many customers, there is often pressure to improve working conditions for laborers and decrease negative impacts on the environment. 

What foreign buyers often miss or conveniently ignore, is the fact that improving labor and environmental conditions costs money.  The burden of these improvements are typically placed on the supplier.  Finally, China has enacted labor laws that should improve the average factory worker's security.  Thus, as we are seeing now, costs are beginning to rise, and the most inefficient, energy intensive, high-labor, low value operations are either shutting down or moving elsewhere.  This is really neither good or bad.  It is good, because, like many have asked for, working conditions will begin to improve in China. 

But what will many businesses do?  Many will begin to look elsewhere for lower cost labor.  Currently, there is no "next-China" on the horizon.  Some are looking at inland China, but many are also eyeballing Vietnam, India, Eastern bloc Europe, and Africa.  Many of these destinations may make sense currently and will likely become more prominent in the future.  But China is far from being dislocated as the epicenter of manufacturing soon.  Remember, it's not just your factory that you will move, but all of the supporting supply chain that must be found anew in your next destination.  This will not be easy, as demonstrated by the extreme case of...Madagascar.

The most exotic destination I've heard of a company moving to, to date, is Madagascar.  That's right--the exclusive home of the Dwarf Lemur and the Aye-Aye.  One of my supplier's other customers has actually set up a source in Madagascar to assemble product.   Contrary to intuition regarding a supply chain like this, the company claims they are saving money.  While I find it hard to believe, I know very little about their situation.  I do know that supply chain flexibility and responsiveness must not be critical to the business model.  Keep in mind that Madagascar has little to none in the way of a manufacturing base.  This means that the company must continue to source an overwhelming number of items from China and ship them to Madagascar.  They cannot even get shipping cartons in Madagascar, so they must ship the shipping cartons from China. 

Wonders never cease...

China's First Steps Away From Low-Cost Manufacturing and What it Means For Your Company

In 2007, there was increasing chatter in manufacturing, sourcing, purchasing, and related circles regarding various forces in China causing price inflation.  The Chinese government's move to discontinue export rebate taxes last summer in certain categories and industries was one of the first signs of the Central government's desire to curb manufacturers' role in the over-heated economy.  A weakening dollar and U.S. recession would soon come into play, as well as increasing labor costs and changing labor laws impacting China's eastern manufacturing hubs.  There was even talk of many Chinese manufacturers closing up shop after this Chinese New Year holiday and the snow storms preventing mass numbers of workers from coming back to their jobs.  The chatter filtered over into blogs, and now I have friends and associates sending me newspaper articles that talk of companies looking to move more deeply into China's interior, or source product from other countries altogether.

Almost a year ago, I did a series of posts entitled Offshore Sourcing: An Ever-Shifting Landscape, in which I discussed U.S. apparel companies who had moved their supply chains into Vietnam from China and got into hot water when threatened by a potential rift in trade regulations between the U.S. and Vietnam.   In the world of low-cost chasing companies, there's no doubt that many execs will read stories like this in the SF Chronicle and ring up their purchasing manager immediately and ask what they're doing about getting into Vietnam, India, Bangledesh, etc. 

I'd like to offer a few points to consider when thinking about the future of manufacturing in China, building supply chains in emerging low-cost destinations, and moving production from one destination to another:

• Reactionary strategies will most likely get you into trouble.  Don't be like the guy who ran out and put his home on the real estate market when he 'heard' that the real estate market in the U.S. was in trouble.  Generally speaking, careful consideration of your own company's needs, your manufacturer's circumstances, and your competitive positioning in the marketplace will dictate far more in terms of where you should be sourcing, rather than what is being said to take place on a macroeconomic scale in your source country (unless massive civil unrest is taking place, a violent coup, or Starbucks is beginning to appear on every corner). 
• As the sourcing landscape can be "ever-shifting", nobody (at least, I haven't met anyone with the gift of sourcing-clairvoyance yet) is quite sure of what exactly this all means yet.  Some suggest that supply lines will simply extend deeper into China to take advantage of the huge pool of low-cost labor that still resides there.  Others, emphasize that China will inevitably move up the value chain and low-cost manufacturing will indeed flee to lower-cost sources.  There are arguments for and against both.  It's likely that a combination of both of these trends, along with some that no one is in a position to see, will emerge in the near future.  The only trend I would venture to say is imminent, is the ubiquity of Starbucks.
• This will impact industries, and companies of different sizes. very differently.  Apparel is much more likely to move from country to country.  Consumer electronics manufacturing is much less likely.  Corporations looking to stay on the good side of Wallstreet from quarter to quarter may be much more likely to see what lines of supply they can move in order to keep costs down.  Smaller companies may be better able to absorb increases in cost through a long-term strategy of seeking out ways to improve the value of their relationship with their current suppliers. 
• Don't fall into some false hope that the challenges associated with manufacturing in China will be less prevalent in other low-cost countries.  Experience has shown the opposite to be true.
• Following on the last point, if you do plan to expand your supply chain into a  new country, take the appropriate steps in developing new suppliers and give your company time to troubleshoot and refine the relationship and process before relying heavily on then new source.

The bottomline is careful consideration of the circumstances of your company,  your supply chain, and industry will be far more important in determining where to source from in the short-term.  Understanding these issues will present a far better perspective to make decisions from regarding when and if to expand your supply chain into other countries when the macroeconomic writing is indeed on the wall. 

US Companies Manufacturing in China: Staying Cool and Staying Put

A survey completed by SmartCube, a firm that specializes in business research, indicates that despite the press and outlash regarding the recent China-quality debacles, the vast majority of U.S. companies aren't considering changing their supply chains, and certainly aren't considering picking up from China and moving elsewhere.

After the bad news about Mattel, toothpaste, and pet food, many China detractors speculated that companies in the U.S. would begin rethinking their quality control and supply chains, and perhaps even consider other countries to avoid the issues that they believed to be unique to China.  The SmartCube blog reports that:

In fact, the majority of manufacturers surveyed are confident their supply chains are more than adequately secure to ensure the safety of their products. Indeed, nearly 80% of respondents (all of whom were manufacturers who currently manufactured their products in China) reported that they felt no need to review their supply chain activities in the wake of the well-publicized toy and toothpaste recalls. Further, these global manufacturers believe that the recent recall issues, while serious, are aberrations and not symptomatic of some more fundamental issue inherent within Chinese manufacturing. They appear to be on solid ground, as Mattel itself has apologized for initially putting the blame on its Chinese suppliers.

Some interesting takeaways from the survey include:

• "Among the 22% of respondents that did say they would review their supply chain activities, more than one-third said they would make changes to the supplier evaluation process during selection or they would assign a person to look over quality adherence at the supplier location."
• "About 30% would send quality inspectors overseas to the production plants."
• This is noteworthy because these are not quick-fix solutions; these respondents are considering deploying significant resources to achieve greater product quality.
• We were not surprised to see that none of the survey respondents indicated that they would stop outsourcing manufacturing altogether.

Whether companies have indicated that they will be making supply chain changes or not, I think most companies and individuals working with Chinese manufacturers will have quality closer to the forefront of their minds.  This might result in anything from small corrective actions and a greater meticulousness, to qualifying suppliers more thoroughly or "making a list and checking it twice" (sorry..listening to Christmas music). 

In terms of companies relocating their supply chains, that's nonsense.  It's not easy to pick up and move factories, let alone countries.  It eats up time, money, and in the end, China is not unique with respect to the quality issues that arise in manufacturing.  Those who are sure we can escape the quality issues of manufacturing in China by simply moving to another country may be using this map to base their opinions.

It would be nice to review the findings of the study in more detail, but like Dan Harris of ChinaLawBlog, who posted on the study, I can't seem to find them.  Assuming SmartCube does their job well, it will be business as usual in factories in China. 

    

Video of Chinese Factories: Injection Molding and Tooling

Want to see how millions of everyday products all around you, including the one your are typing on, are made in China?

I've been sitting on quite a bit of video footage of Chinese factories from recent trips over there and thought I'd put some up to give people a quick peek into some of the people, places, and processes that often take place.  This video focuses on the process of plastic injection molding and mold building.  Plastic injection molding is used to create millions of everyday products.

The video is shot at a few different locations in the Dongguan area of southern China.  The factories shown range from "good" to "excellent" in the way of organization, cleanliness, quality of product, technical abilities, etc. 

A quick overview of what's depicted in this video, in sequential order:

• Injection mold planning taking place in CAD designs
• Mold building shop, including very large and small injection molds as well as the polishing/texturing process
• A few processes used to create molds, including CNC machining and EDS machines
• Plastic injection molding machines, in which the tools are loaded and used to shoot off large volumes of parts
• Product painting, assembly, and packaging

There is no speaking in this video--but video seems to convey a great deal regardless.  I have included some lively music ("Roll it Up", by Crystal Method) to keep you entertained, so dance or move if needed. Forgive me if the handheld video quality makes you feel like you are watching Tom Hanks storm Normandy beach in Saving Private Ryan.  I need to invest in a tripod.  Or have one manufactured... 

Enjoy.

Raising Your Supplier's Prices in China: Not the Answer You're Looking For

So much to chew on lately in the blogosphere and media regarding China's quality, prices, liability, etc.  There is a lot of noise out there regarding "who" is to blame and "why".

Paul Midler, of TheChinaGame blog, recently wrote a post entitled The New Bugaboo: Low Prices. Midler presents some good counter-arguments to those out there that claim US businesses' chase for low prices is the true culprit in these quality fiascos. Midler's general points are:

A) US companies cannot fully control their suppliers.  Chinese suppliers, just like any person, are in control of their own actions and decisions.  Consider the analogy he uses:

Consider yourself in this situation: You ask someone to run to the store to buy you a candy bar, and you give him more cash than necessary. Keep the change, you tell him. The guy gets to the store and decides to shoplift the candy bar instead of paying for it. Are you responsible for this person’s unethical actions?

B) Putting the blame on the abstract cause of "price pressures" to excuse Chinese suppliers' failure to live up to certain standards in environment, labor, and quality criteria simply passes the buck in terms of responsibility.

C) Simply paying the suppliers more money to solve these problems is a ridiculous notion.  If actually implemented, many Chinese suppliers would be laughing all the way to the bank with no intention of actually improving conditions to the level that we'd like.  Unless we were of course to pay more next year, right?  Paul offers another good analogy:

First, if you give more money to a supplier who has behaved unethically, isn’t that sending him the wrong message? What would these people say about a CFO caught embezzling corporate funds? “Well, he must have taken the money because he needed it. Let’s give the guy a raise and see if the problem clears up on its own.”

I agree with Mr. Midler.  Price is the reason companies approach low-cost countries, like China, with manufacturing in the first place.  It isn't the Sichuan hotpot dinner (although I do find myself wandering out to restaurants specifically for this reason).  Simply paying more for a given product will probably do nothing to fix the issue.  Consider this little anecdote I wrote a while ago about surgeons masks being offered at a factory I toured in Shenzhen.  U.S. companies wanted surgeons masks available to factory workers.  The factory begrudgingly purchased them.  Half the workers didn't want to wear them. 

In another case, an associate of mine with a U.S. automotive tool sourcing company a few years back, got burned when he offered laptop computers to some employees.  Being new to China and a bit naive, he thought he would give laptop computers to three employees in their newly formed Changzhou office.  Supposedly, the workers would be delighted and their productivity would improve.  The employees were gone, laptops in tow, in a matter of a few weeks. 

These are only two, small anecdotes.  But they demonstrate a point. It goes far beyond simply offering a piece of equipment, clothing, or raising the price.

Raising Your Supplier's Prices in China: Not the Answer You're Looking For

So much to chew on lately in the blogosphere and media regarding China's quality, prices, liability, etc.  There is a lot of noise out there regarding "who" is to blame and "why".

Paul Midler, of TheChinaGame blog, recently wrote a post entitled The New Bugaboo: Low Prices.  Midler presents some good counter-arguments to those out there that claim US businesses' chase for low prices is the true culprit in these quality fiascos. Midler's general points are:

A) US companies cannot fully control their suppliers.  Chinese suppliers, just like any person, are in control of their own actions and decisions.  Consider the analogy he uses:

Consider yourself in this situation: You ask someone to run to the store to buy you a candy bar, and you give him more cash than necessary. Keep the change, you tell him. The guy gets to the store and decides to shoplift the candy bar instead of paying for it. Are you responsible for this person’s unethical actions?

B) Putting the blame on the abstract cause of "price pressures" to excuse Chinese suppliers' failure to live up to certain standards in environment, labor, and quality criteria simply passes the buck in terms of responsibility.

C) Simply paying the suppliers more money to solve these problems is a ridiculous notion.  If actually implemented, many Chinese suppliers would be laughing all the way to the bank with no intention of actually improving conditions to the level that we'd like.  Unless we were of course to pay more next year, right?  Paul offers another good analogy:

First, if you give more money to a supplier who has behaved unethically, isn’t that sending him the wrong message? What would these people say about a CFO caught embezzling corporate funds? “Well, he must have taken the money because he needed it. Let’s give the guy a raise and see if the problem clears up on its own.”

I agree with Mr. Midler.  Price is the reason companies approach low-cost countries, like China, with manufacturing in the first place.  It isn't the Sichuan hotpot dinner (although I do find myself wandering out to restaurants specifically for this reason).  Simply paying more for a given product will probably do nothing to fix the issue.  Consider this little anecdote I wrote a while ago about surgeons masks being offered at a factory I toured in Shenzhen.  U.S. companies wanted surgeons masks available to factory workers.  The factory begrudgingly purchased them.  Half the workers didn't want to wear them. 

In another case, an associate of mine with a U.S. automotive tool sourcing company a few years back, got burned when he offered laptop computers to some employees.  Being new to China and a bit naive, he thought he would give laptop computers to three employees in their newly formed Changzhou office.  Supposedly, the workers would be delighted and their productivity would improve.  The employees were gone, laptops in tow, in a matter of a few weeks. 

These are only two, small anecdotes.  But they demonstrate a point.  It goes far beyond simply offering a piece of equipment, clothing, or raising the price.

Mattel: a Model for Offshore Manufacturing and Quality (unless you jump out of a bathtub naked onto a toy horse named "Blaze")

Amidst the flurry of news stories going on right now about product quality and China, the NY Times recently ran an article (free registration maybe required) about the world's biggest toy maker, Mattel, as an exemplary model for offshore manufacturing and product quality.  Hats off to Dan Harris of Chinalawblog for writing up a post about the article.  I sent the blog post and article to Roger Rambeau, a partner at Global Sourcing Specialists, this morning and we chatted about the "old days" when he worked his way up from the production line with Mattel to become a Vice President of manufacturing.  Roger managed and worked with Mattel's manufacturing plants and offices both at home and in several countries, including Mexico, Taiwan, China, Hong Kong, Singapore, and others.  Throughout his career, he was responsible for Mattel's quality and manufacturing.  The NY Times article quoted M. Eric Johnson, a management professor at the Tuck School of Business at Dartmouth, who has visited numerous factories in China, including some of Mattel’s as saying

“Mattel was in China before China was cool, and they learned to do business there in a good way. They understood the importance of protecting their brand, and they invested.”

I chatted with Roger, who first went over to China with Mattel in 1971 (well before China was "cool"), about the article this morning, and he concurred:

Mattel was a leader--out there in front of everyone else.  Their practices stemmed from the core principles of the company and we acted accordingly whether at home or abroad.  We took the initiative to work quite a bit with the US Government's Consumer Product Safety Commission and had a lot to do with the development of ASTM (an international product standards organization).  Well before they brought in S. Prakash Sethi, (cited by the NY Times article as a critic of worker mistreatment and hired by Mattel to independently monitor Mattel's factories and vendors' plants), Mattel hired a guy by the name of Chuck Williams, who was instrumental in developing quality and safety standards in the company and industry.  You've got to remember that this was very early on and manufacturing processes overseas could be very rudimentary.  When we first went over to Taiwan, female workers would come into the plant on their bicycles and take home die cut material to sew at home, and then bring it back as a finished piece. 

Mattel would measure and pretest products against the ASTM standards and then send them to an outside laboratory for testing.  If the product involved flammability issues, we did flammability testing.  Small parts issues--we did drop testing and choke testing.  Mattel was behind putting a material in marbles so that if a kid swallowed a marble, it could be seen in an X-Ray, rather than invisible.

Now, consumers and the media have become wise that a lot of companies sourcing product in China and overseas in general aren't paying nearly enough attention to their operations there.  But, even for industry leaders like Mattel, problems arise.  The NY Times article and Mattel's own executives point out that Mattel hasn't been completely free of their own problems in this respect either.  It's not easy and it's never going to be a perfect process--at home or abroad.   Roger regaled me with a few stories this morning which illustrate that not everything can be accounted for:

Sometimes problems are the result of design oversights.  A few years ago, a child got their tongue stuck in a product in a way that the Mattel design team hadn't even considered possible when they designed the product.  In another instance, a plastic toy horse named "Blaze" that a child could sit on and play was being sold.  The horse was made of two parts--front and back--with a seam in the middle where the saddle was.  One little boy, exuberant about his horse, was taking a bath and jumped out of the bath naked and ran over to his horse and jumped into the saddle.  The force of the boy coming down on the horse caused the seam in the saddle to open, catch his member, and shut tight.

The boy lived, but was not ok, if you know what I mean.  After hearing that story, I wasn't ok for about 5 minutes.   Even an industry leader couldn't see that one coming...

Offshore Manufacturing is an Adventure: Interview with Gary Erickson

Gary Erickson, founder and principal of Garik Enterprises (a manufacturing and facilities consulting firm), has stories.  He's got great stories from countries all over the world--working with farmers in Ireland; sacred trees of the Druids; trying to get factories built in countries while rioters take to the streets and governments wrap him up in red tape.  They are wildly entertaining.   

On a more formal note, Gary's work includes 35 years in solid manufacturing, facilities, and retailing experience in industry, holding key executive positions of Vice President of Operations, Director of Industrial Engineering, Director of Facilities, Director of Materials, District Manager (5-Retail Stores) etc. with Fortune 500 corporations as well as fledgling start-up companies. These accomplishments have taken place both domestically and internationally for Atari, Xerox, Honeywell, Qume, and XO Industries to name a few. 

I've had the good fortune of meeting with Gary a few times in the last couple months.  Recently, he kindly sat down with me for a quick interview regarding his  experiences and advice in manufacturing and facilities development. 

AU:  Gary, thanks so much for your time.  One of the topics I've been blogging on a little bit recently is the concept of Low Cost Country Sourcing--and you mentioned some of your experiences and the challenges of dealing with running business operations in places where these lower costs are found.  The challenges can run the gamut, and sometimes have nothing to do with manufacturing at all, such as your run in with  rioters in the streets of Ireland.

Gary: Yes.  There were a few instances when I was working in Ireland and we had to be careful of the areas where rioters were running amuck.   During our project, we had young men and women coming in from farms who were going to work in the factory.   They had no training.  How do you fill a factory with employees when no one in the area even has training to do what you need to be done? 

The government offered incentives for hiring local people, but the university didn't have courses that taught people to do what we needed them to do.  I had to go to the local university and get the U.S. company to bring over some engineers to establish and teach courses there to these folks so we could train them to become technicians and engineers.  The university specialized in agriculture and farming, because that was the predominant industry in the area.   High-tech courses?  No way.  Once they completed the classes we set up and became technicians, then they could sit down and we could train them to do specific tasks.  But we needed to give them the basics in the first place.  For instance, how to use a volt meter.  They didn't even have that basic of a skill set.  So you couldn't even make a technician out of them until you trained them how to use these basic testing tools.

AU:  They'd probably never seen a volt meter before.  These people were farmers for hundreds of years.  You were starting from scratch.   

Gary:  We had to go from scratch to building electronic games.  It probably took 1 to 1 1/2 years just to get that underway.  But that's why checking out the university was one of the first things I did when I got over there to do a site search.   In a site search, you need to find out whether the infrastructure is going to be there to support what you need to do.   This includes potential locations, the skill sets of your labor pool, utility infrastructure--for instance if you have a large, bulky product that requires very high voltages and you need a lot of power capacity to test it, as opposed to small electronics products, they each have different voltage requirements. 

AU:  The utility infrastructure needs to support your need to draw certain levels of power off of it.

Gary:  Absolutely.  When I was in Puerto Rico, I had to actually pay the local electrical company to run power from a local hospital, which was two miles away, to the site where I was building the factory.  I also had to put in a backup generator because the first week I was there, the power was going out every day.  They told me, "oh no, this isn't a problem".  So I went to the director of the facilities at the hospital, and he gave me a different answer.  He said "that's why we have a backup generator because we can't be in the middle of an operation and have all the power go off--and that happens everyday".  And they had riots as well, in which the rioters would take chains and throw them up into the power lines and short out the entire district's power supply.  This kind of stuff happened all the time down there.  I hadn't even put up the fence yet to secure all the building materials we were going to build the factory with, when someone ran off with the fence.  That told me real quick what kind of environment I was going to be working in.  At one point, the company had an entire 40' container of electronic video games stolen, which was probably worth $3 million. 

AU:  How's that for low cost, huh?  So how long did it take the company to finally get up and running?  Did they make it that far?

Gary:  They did.  But I had to overcome a lot of hurdles.  Government regulations was another issue for us.  They had it set up so that everyone on the island was allowed to bid on projects.  And the rule was, I had to choose the lowest bidder.  So for a contract job to paint the exterior of the 150,000 sq. ft.  building, guess who shows up?  One guy with a 3-inch brush who had every intention of painting this massive building.  It would have taken him 10 years to paint the building.  So I had to go work with the government again and get them to compromise on their regulations.  I told them I was never going to be able to actually go into production, so therefore, I can't train and hire the local people until we do that. 

AU: This happens in rural regions in China.  Local governments are trying to attract foreign capital and businesses, thus they offer tax incentives and other rewards, but a lot of stipulations come tied to those.

Gary:  You'll have to hire X number of employees.  You have to guarantee that they'll be employed for a certain amount of time--whatever you can negotiate with the government.  And each instance is different.  Each country and region have their own incentives, so to speak.  Occasionally, you can make some great arrangements.  For instance, in Ireland, I was able to get the government to give us money for every worker we trained, and our company used that money to fly over engineers to train them.  So it didn't come out of the company's wallet. 

AU:  In your experience, when companies come to you, do they typically ask you to go out and pick a country to locate their factory in?  Or, do they generally have the location worked out, and just want to make it happen?

Gary:  It happens both ways.  Either the CEO or someone high up in the company has some previous experience with a country or they golf with someone who does, and it becomes a "me too" thing.  They hear their buddy has a factory in country X and their buddy raves about how successful it's been.  But the truth is, you don't hear about all the challenges that guy had to deal with to get it to the point that it's at. And if you're looking at different areas or different countries--the issues can be wildly different.  You might deal with excessive rain, or sunken foundations, or even local superstitions.  In Ireland, there was an area of trees inhabited by druids hundreds of years ago and you cannot touch them.  They are sacred.  But someone unwittingly might buy the property without having any idea about that. 

AU:  When you go into a factory in China, Malaysia, or Puerto Rico, what are the things you look at?

Gary:  First, I look at the safety of the working conditions for the employees.  So I look at the electrical distribution system.  On a job in Taiwan, I saw a very powerful electrical component completely exposed.  Anyone who accidentally touched it--say "goodbye".  So I start with stuff like that.  Why?  One: the safety of people.  Two: is because liability in these cases can become a problem.  Not just for safety, but for product quality as well.  You don't want to be guessing in these areas.  It may look good on the surface, but a little use might breakdown your product.  You need to specify your requirements and control the quality of not just your product, but the materials and components as well. 

AU:  Companies are going over to China, for instance, but they're not prepared to deal with these things.

Gary:  It's the "me too" thing.  They go over and they get the nice tour of the facilities and get taken out to a nice dinner and think everything is great.  Then, a few months after the product launch, they start getting reports from customers of your product falling apart.  Once you degrade the quality of your brand, it's near next to impossible to get it back.

AU:  Although China is slowly starting to get better in terms of their quality, it's still in its infancy in this capacity, and the variance between factories and quality can be dramatic.

Gary:  Yes.  They are improving but you really need to look at what you're getting.
You need to get over there and really look at their capabilities and see if they can support the quality that you need. 

Timely advice!

Small Businesses Sourcing in China: What Wave Are You Riding?

A fairly recent article featured in Businessweek online, released by Boston Consulting Group's Jim Hemerling, pointed out the rapid evolution of US companies' sourcing operations in China.  Hemerling notes what he sees to be, three waves of sourcing in China, through which multinational companies are progressing.  I thought to myself, "as mid-size and small businesses follow suit in sourcing globally, what wave are they riding?  Paddling for?  Sitting on the beach watching? 

Wave 1.0, or the first wave, involved the beginning of sourcing in China by western companies' competitive search for low costs.  Hemerling writes:

Numerous U.S., Japanese, and European companies established corporate beachheads in China to implement their low-cost strategies. Stand-alone sourcing offices sprang up in Shenzhen, then Shanghai and other locations, and anyone with even a few years of sourcing experience became a hot commodity. During this initial phase, Western multinationals looking to source from China faced two significant hurdles: a dearth of qualified suppliers and a dearth of qualified sourcing people.

Wave 2.0, involved chinese suppliers' step up the value chain into R&D functions:

As sourcing matured, so did the suppliers. In a wide range of industries, from consumer electronics and IT equipment to automotive manufacturing, many Chinese suppliers moved far beyond being arm's length suppliers. They started to innovate and collaborate with their customers on component and product design, marking the transition to sourcing 2.0. Today, many of these same Chinese suppliers are designing new products for global markets as part of supply chains that are integrated into global procurement processes.

The report notes that, according to the OECD (Organization for Economic Cooperation and Development) China became the second highest investor in R&D in the world at US$ 136 billion (the US is about double this). 

In Wave 3.0, Hemerling cites what he believes to be China becoming a global center for procurement:

Today's China is the center of an economic maelstrom that grows larger and more powerful (and increasingly complex) every day. R&D centers originally set up to support product localization for the Chinese market are now going full force in developing new products for the global market.

These rapid changes, which will continue to accelerate, mean that many Western companies have to rethink their global procurement operations. The announcement that IBM is moving its global procurement headquarters to Shenzhen is the most visible sign that sourcing wave 3.0 is underway—with China becoming the global center for procurement.

Hemerling notes that, although other major multinational companies like GM are relocating procurement offices in China, this is not a move for everyone to follow.  In fact, many companies appear to be still struggling with Wave 2.0. 

Multinational behemoths aside, where do the rest of small to mid-size businesses fall along this range?  I would argue that those with the utmost experience in China are steeped in Wave 2.0. These small and mid-size businesses have discovered the benefits of close partnerships with key Chinese suppliers, through which they foster low level R&D on their projects by outsourcing the lower-end R&D functions to their suppliers.  Many of these companies might still be trying to optimize, or simply contain, their supply chain challenges.  But most are still in Wave 1.0.  Some have begun in China, but are now seeking even lower costs in other countries.  Some have developed a solid supplier base in China and are reaping the benefits of the cost-savings.  Some are still sitting on the fence in terms of whether to go, how to go, or how much to commit. 

Wave 1.0 is now filled with start-ups, entrepreneurs, inventors, and the smallest of businesses.  Global Sourcing Specialists is occasionally contacted by stay-at-home mothers looking to develop products, and these mom-entrepreneurs know that to make the numbers work and have their product compete with larger companies' products on the store shelves, they need to begin overseas.  Venture Capital firms now frequently require the start-ups they fund to have a global operations plan, global market mindset, or overseas sourcing strategy right out of the gate.  China, for good reason, is often the first place many of these companies look.   Does that mean that these small and new businesses will be eventually moving through Waves 2.0 and 3.0?  Yes and no.  It seems to me that the next stages of sourcing are primarily reserved for companies of a certain size, particularly Wave 3.0.  But, if we are working on a new product with a client and our supplier proposes a design change that they have developed to add value, is this not a hint of an innovation or R&D contribution on their part?  I would say so. 

However, for those small companies that stay relatively small, I see them slowly moving on to Wave 2.0, but perhaps not in as grand or focused a fashion.  What I do see happening, is R&D and design services in other Asian countries, other countries in general for that matter, not only becoming accessible to these businesses, but feasible.  I know great product designers in Singapore.  The rapid evolution and impact of technology on communication, and the emergence of increasingly competitive resources in other countries, is only going to flatten and open the playing field more.  I also see multinationals paving the way in other low-cost countries to mitigate their risks and continue to cut costs, and small businesses will eventually have a menu of country options in the next decade in terms of what countries to source from.  These changes will certainly take time, at least a decade or more to transpire.  But as one who has paddled for and ridden many waves in the ocean, I can tell you, if you're not looking out towards the horizon to see what's coming, chances are you'll miss the whole thing, or worse, have something crash down on top of you from behind.            

Best Cost Country Sourcing and the Concept of "Riskturn"

Low cost country sourcing; high cost country sourcing; near-shore sourcing; home-shoring; off-shoring...keep 'em coming.  The manufacturing and distribution industries are just starting to get interesting.  It can be tough to keep up.  But, you only need keep up with the best concepts out there.  And "best cost country sourcing" is one of them.  Merging the "best" of risk and return?

Michael Lamoureux, of Sourcing Innovation, recently wrote a post entitled Best Cost Country Sourcing.  His post was based on BrainNet's, recent white paper, "Best Cost Country Sourcing", which I have yet to find a working link to.  But fear not.  Michael has summarized some of the concepts and made noteworthy commentary:

Taken from the white paper:

...cheap labor is better suited to cheap products and cheap services and not necessarily an advantage for the premium products that industrial countries are known for.

It all started with the buzz words "Low Cost Country Sourcing". This wording, put politely, misses the point by a long shot. Criteria such as quality, logistic risks, intellectual property risks among others, have to be considered and evaluated thoroughly to assure that these measures are successful. Establishing innovations on the supplier side as a competitive advantage and managing your new suppliers actively are only two from many important success factors.

I agree.  Generally speaking, you get what you pay for.  But you have to take it on a case-by-case basis and think of it in terms of your overall competitive strategy.  If time to market is too important, or you need components that are very high quality and technologically sophisticated, or exposure of your IP could sink your whole company, countries further along the development path with higher costs might end up saving you money in the long run. 

Two basic concepts found throughout business, risk and return, are critical to the supply chain and sourcing.  The problem is, it's much more fun to speculate about substantial returns and savings, than try to quantify, measure, and assess risk.  Thus, risk, and potential sources of risk and their effect on return, often fall off the radar.  Perhaps someone should coin the term "riskturn".  Wait...I just did. It follows the whole celebrity gossip magazine promotion of co-identity: two things fused together which we dream will never be broken up again.  People Magazine reading 14 year old girls and desperate housewives have there Brad Pitt and Angelina, "Brangelina" (depicted above), or Ben Affleck and Jennifer Lopez, "Bennifer".  Now CEO's and sourcing managers will always remember  "riskturn" and know that risk and return are a couple made in heaven.

Back to sourcing,,,  Michael astutely notes:

In other words, LCCS alone is not the answer, not a quick fix, and not a saving grace to a flailing company. In order for a company to be assured of value in their global sourcing initiatives, they at least need to progress upward to a BCCS initiative, understand the advantages and disadvantages of each of their options, and understand that such initiatives will take considerable time and effort. It's not just the flick of a switch.

In my case, MIchael is preaching to the gospel.  It's right on and it's worth promoting this kind of information more.  ChinaLawBlog did a post eloquently entitled, China Defeats Vietnam in Sourcing Smackdown, which covered a post I did, Offshore Sourcing: An Ever-Shifting Landscape, Part II.  In my post, I talked about the fact that many fashion apparel manufacturers that moved production to Vietnam to avoid the risky/costly quota situation with China, then had to gather up their threads and needles again and head back to China and other countries when the US government announced that they would be monitoring Vietnam's fashion industry for possible anti-dumping actions.  In the comments section of ChinaLawBlog's post, he noted that huge multinational corporations which fall into $5 million mistakes in trying to source the lowest costs or be the first to enter developing markets is not a strategy for all to follow.  His point being, a smaller company making a $500,000 mistake might be up the Mekong Delta without a paddle, because they just don't have the deep pockets to absorb those kinds of mistakes from a financial perspective like MNCs do.

Chasing lower costs undoubtedly disrupted supply chains and perhaps order fulfillment for these companies when they had to deal with a more unpredictable trade relationship between Vietnam and the U.S.  For smaller companies, disruptors like this could be devastating.  Best Cost Country Sourcing for smaller companies would involve hedging risk by looking for lower overall costs (rather than lowest hard costs) in a country where things like economics, trade, supply, materials, and other things are more predictable.  I believe China retains this position over many other countries for smaller businesses looking to source consumer goods.  At the very least, it's certainly a good place to start for many.  In many cases, maybe the best...?

China and Your Intellectual Property: Why do They Copy?

This very morning in Shenzhen, China, a young design engineer will rise from his bed, have a quick breakfast and get dressed in clothes that might be the very ones he wore yesterday.  He'll jump on his bike or scooter, zip through the streets for 20 minutes, jump off and head into his company's manufacturing plant office to begin the day.  He'll put his things away, join another engineer in their "Reverse Engineering Department", and sit down around an existing product selling successfully on the market in Europe, Canada, and the United States.  He'll begin to pull piece after piece of it away and log notes on it's assembly, materials, dimensions, etc., with the intent of giving this information to his bosses, who will create 10,000 exact replicas at the factory to sell into the Chinese market with a new label on it.  Why?

This morning I read a post asking the question "Why Does China Copy Designs" at DesignSojourn blog, written by D.T., Design Translator, a product designer who works out of Sydney and Singapore.  His analysis largely focused on cultural and socioeconomic factors regarding the motivation of chinese companies to replicate, build-off-of, tweak, and steal existing product designs.  I usually get the question of "how does one prevent a product, invention, idea, or design from being stolen?"  Rarely do I get the question of "why do they steal?".  As D.T. points out, giving an explanation does not equal defense of the practice.  It's just a bloody interesting question.  It's a very complex issue.  But, to discuss it in a blog requires simplification.  I've consolidated D.T.'s points into two themes that struck me.

• Culture and Education:  "Fast forward to today, this is also similar to (i dare say) most design schools in China where students come from a rote learning high school background and are tought to follow instead of think. At school they look to famous designers and architects as examples, and their work naturally becomes very thematic or contain the safest forms of expression. Furthermore it is expected that Schools focus on technical skills instead of thinking skills, as learning about creativity is about following a set way of doing things."   

A few years ago, I was part of a program which brought professionals, educators, and politicians from 14 different countries around the PacRim for 6 months to discuss and interact on issues of culture, leadership, and more.  We discussed this phenomenon with our Chinese teammates and their responses were the same.  Today in Chinese culture, you are frowned upon heavily if you take a risk and are wrong.  New/different ideas and practices that deviate from the norm are shunned.  Conformity is praised.  Some might say the foundation for this cultural theme was laid by the teachings of Confucius.  Thus, the typical chinese person learns throughout their educational experience and upbringing that it's better to replicate something already proven than try and develop something new.

• Socioeconomic situation:  "When you grow up in a country where life is cheap, things do get brutal and money talks. There is no area for the softer aspects of the business, like branding, experience and emotive products etc." 
  

Competition amongst companies and factories over there can be very intense and many individuals will do whatever they can to beat out the next guy and build financial security for their family.  When I wrote my little story at the beginning of this post, I purposefully included the fact that my fairytale engineer might wear the same clothes day after day.  This is because he really might only have a few decent shirts, pants, and two pairs of shoes.  Many of these people have seen dramatic changes in their lifetimes, scarcity, and total government control.  Life can be very tough in China, and only recently since the early 90's, has there been a window opened for a new and better way of living.  When opportunity to flourish arises, many will take it.

A few points of note... 

• The situation is improving. 
• It is likely that they will begin protecting IP more when they have their own IP to protect (which they will someday). 
• This is why it's absolutely necessary to know who you're doing business with and visit their factory.

Finding Manufacturers in China: Building a Network the Wrong Way

On a trip to China last year, I was sitting in the airport and got into a conversation with a businessman who was heading to China for the first time.  He was the CEO of a small company here in the US that had a very unique product line and niche, and he proudly told me of his plans to show up in Shenzhen and find suppliers to make his product.  He had no trip schedule.  He had no real idea of how he was going to link up with the right supplier, let alone tour multiple suppliers to begin getting an idea of what the right supplier is.  He was just headed there.  It was as if I could hear his spurs quietly "clink" on the soft airport carpet as he swaggered by, John Wayne style.

I also often have conversations with inventors taking products to market, who refuse the idea of working through anyone--be it a middleman, trade company, service provider, consultant, to find and partner with manufacturers in China.  Why?  They have found contacts via Alibaba or some other internet trading portal.  They are already connected.  Why would they want to pay someone to be in the middle to get connected when the internet circumvented all of that. 

My esteemed colleague Dan Harris at ChinaLawBlog has raised another relevant scenario through which people get connected with Chinese suppliers in How Not to do Business in China, Part I:  Traveling With the Government.  The inspiration for the post came from Andrew Hupert on the DiligenceChina blog in Matchmaker, Matchmaker, Make Me a Profit.  Hupert explains his exasperation that government led (US government) trade missions to China with the purpose of connecting small-to-medium sized businesses with partners in China through Chinese government contacts are still occurring. 

I have lived in China for 5 years, speak reasonable Chinese and have achieved a certain familiarity with the Chinese operating environment. There’s NO WAY I would advice a client to start his China business by entering into a JV with a local Zibo company that was arranged by the local government. This is a very advanced move, and I doubt that I could pull it off. From what I understand from extremely knowledgeable associates, management teams from those smaller NE towns make Shanghai Sharks look like harmless guppies.

Harris of ChinaLawBlog adds to this with a story of his own, in which a seasoned offshore manufacturing veteran spent months narrowing down possible locations to one city.

My client met with government officials in both cities to explain its plans.  Both cities strongly urged my client to partner with a particular company in their respective city that they touted as by far the best in the field.  My client met with both touted companies.  In conducting its due diligence on the various potential partners in both cities, it concluded these were by far the worst candidates.  Both of these companies were at least five years behind the other companies in terms of technology and the buyers know it.

Hupert, a seasoned China businessman, and Harris, a lawyer with considerable China experience, give it to us pretty straight: going through chinese government officials to find partners in China is going to be trouble.  There are going to be some times which working with the government is a good move, particularly if you are entering the market there.  But I found out that even this is dubious at a recent seminar on entrepreneurship and China  at Stanford University.  A panel of chinese entrepreneurs were asked to give one piece of advice to the audience in terms of conducting affairs in China.  Out of the five, two men were Chinese nationals and had been doing business there for at least a decade.  One said "go through the government".  The other said, "stay away from the government".  How's that for consistency?

My own two cents..?  One of the biggest factors in my own success in doing business in China has been getting connected through the right network of people.  As Hupert and Harris point out, local US government is not really equipped to provide this and going through the Chinese government, well... 

Trading portals on the internet are even more sketchy.  The bottomline is, you have no idea who you're talking to and they probably have no idea what you're really trying to say.  One of the first sourcing companies I worked with was another example of this--not the greatest network of suppliers and people.  If birds of a feather flock together, so do suppliers and people with similar business styles.  My own advice?  Find a China connection here, who does the kind of business you want to be dealing with in general.  Work on getting connected to the correct individual on this side--whoever they are and however you can find them.  If they are upstanding individuals and have been doing business successfully in China for years, chances are they are going to have found the right kind of network there.  You'll be starting out over there at a point where, if you used one of the aforementioned methods instead, it might take you 2 years of time, mistakes, bad partners, and searching to get to.  Even John Wayne could tip his hat to that.

 

 

Product Sales/Demand Forecast Risks and the Supply Chain

Risk.  I'm not referring to the world domination-themed board game.  Today, I'm referring to risk in the demand forecasting process and your supply chain.  I know..."yawwwnnnn".  Words like that at the beginning of any written material can make your eyelids heavy and elicit drool.  Now read these words "Money, Money, Dollars, Bling, Rich, Poor, Win, Lose, Money".  Now, I hope you are bright-eyed and chomping at the bit to know why the yawn words, demand forecasting and supply chain = the exciting words, money, dollars, and so forth. 

Risk in product sales forecasting, or demand forecasting, result from a mismatch of projections and demand.  If forecasts are too low, you leave money on the table by not having enough product to sell to hungry customers.  If forecasts are too high, you are left with excess inventory and price markdowns.  Scary concepts like "long lead times", "seasonal demand", "high product variety", and "short product life cycles" can make the savviest of forecasters lay wide-eyed and trembling in their beds at night.  Too dramatic?  Replace "trembling" with "definitely not sleeping and drinking excessive amounts of coffee the next day".

It can be difficult to accurately assess customer demand, let alone affect it.  So smart company execs often turn to the next best place to control their risk:  their supply chain.  There is a whole science and consulting industry behind this area.  But I'll give you some of the main points and keep it short and sweet.  Think about these issues in terms of your product, company, risk, and money saved or lost:

• Information Distortion:  In late 2003, product shortages in Western Europe led Nokia customers (distributors and retailers) to order more than was needed so they could meet demand if Nokia began rationing or allocations of product.  The exaggerated figures confused Nokia's own reading of the market, and caused the company to make inaccuracies in sales forecasts.  In general, the farther you get from the end consumer in the supply chain, the greater the chance for misinformation.  It's just like the childhood telephone game, except it is referred to as the "bullwhip effect" in the industry.  If you have a distributor and a retailer in between you and your end-customer, how accurate of demand information are you really getting?  If your inventory is building up, you could be losing substantial amounts of money.  How to control?  Approach your partners in your supply chain and work to collaborate with them for greater information sharing.  Increased communication between supply chain partners about inventory levels, demand, lead-times, problems, etc., help reduce the risk that your company will under or overestimate demand for your product.  It will help your partners as well.  Everyone wins.

Dollars, Money, Piles of Cash...

• Short Product Life Cycles: If your product is expensive to manufacture and/or the amount of time it will be valuable on the market is not that long, building up inventory can be a very expensive proposition.  To address this, companies will weigh the tradeoff of carrying higher inventories of expensive products with the possibility of responsive delivery.  Responsive delivery might mean air shipping certain quantities of your product to customers once they have placed an order.  Air shipping can be expensive, but you might be surprised to find out that it could be cheaper to warehouse your inventory overseas and airship it to meet demand at the last second, rather than warehouse it here.

Bling, Greenbacks...

• Too Many of the Wrong Product:  If you are developing a new product line, this can help.  An unsavory situation can occur when your company has too many of a product that doesn't sell what was forecast, and too little of a product that sells more than you have to meet demand.  This can often happen with SKUs that have just minor differences from each other.  A solution to this can start with basic product design and architecture and involves designing a product line to use standard parts across the line and for product assembly to be uniform with all of the products as close to the finished stage as possible.  The finishing touches, whereby the products are differentiated from each other, are postponed to the latest possible stage.  Thus, your risk of having the wrong product is minimized as much as possible.  HP did wonders with this strategy with their Laserjet printers in the 1990's.  Imagine a line of 15 different printers designed to all be the same until late in the assembly process.  They are then shipped to domestic warehouses and assembly is completed, and the product is differentiated into 15 different versions, when HP knows how many of each product they need.  They have saved hundreds of millions of dollars using this method and it has become a model strategy for companies across the world.

Sales and demand forecasting, and supply chain risk are not the sexiest of subjects when a company is selling products on the market.  Small companies often don't even have the time or resources to explore these parts of their business.  But, alas, they are crucial issues and could cost or save you big $$$.

Global Sourcing Specialists on Inventors Alliance Radio Show

We just did a radio show ("Radio Show #2") with Andrew Krauss, President of the Inventors Alliance.  The Inventors Alliance is a fantastic non-profit organization which offers tremendous value in education and resources to inventors.  I've seen a lot of inventor organizations out there, and this one is the most helpful and professionally run that I've come across thus far. If you are an aspiring inventor, they offer educational articles, links, videos, and other resources to help move forward.  You can also check out Andrew's other platform to help inventors, InventRight.  If you are a veteran inventor, you might want to consider contacting them to share your story, experience, or connect with others in the business. 

Andrew asked some great questions pertaining to some of the issues inventors and businesses are curious about in manufacturing in China and offshore manufacturing in general.  I talked a little bit about our recent trip to China, factories, good sourcing strategy, quality control, and the like.   Check out the radio show here, by clicking on the play button next to "Radio Show #2". 

Offshore Sourcing: An Ever-Shifting Landscape, Part II

While small businesses enjoy a number of advantages over big business, this is not always the case.  Sourcing and supply chains, two parts of small businesses which routinely fall to the corners of the radar screen, are two areas that can't be ignored.  Your business will depend on them.

New clients often ask us which countries we operate in.  I usually tell them that we have experience in many throughout Asia and a few other parts of the world.  But, most of the business we are doing these days is taking place in China.  Why?  Many people have read or heard that lower prices can be found in other countries, such as the Philippines, Vietnam, Indonesia, etc.  We judge where to source for a given project based on not only what that project needs, but also what a country's manufacturing base has to offer.  China, as we all know, has quite a bit to offer these days.  For the small business beginning offshore sourcing, China offers a lot more than just low prices. 

I wrote a post entitled Sourcing: An Ever-Shifting Landscape, Part I back in December, which discussed Vietnam's entry into the WTO and the recent boom in apparel manufacturing the country has enjoyed because of the quotas placed by the US government on certain apparel items coming in from China.  Vietnam will no doubt become more important on the international trade scene in the coming decade.  But that doesn't mean there won't be bumps in the road.

A recent article by the National Retail Federation gives a nice follow up to this in an article Monitoring Has Chilling Effect on Vietnam Trade, and discusses the results of the US government's decision to "monitor" and possibly take issue with Vietnam's apparel exports because of anti-dumping (trade policy used by importing governments to counteract dumping or the export of goods below cost, for example by imposing duties or negotiating price increases).  Several large US retailers that were sourcing apparel products from Vietnam have practically ceased their orders and are placing them with factories in other countries because of this possibility.  Anti-dumping measures can have brutal and unpredictable consequences on a company's supply chain. 

In this situation, a small business with a much simpler supply chain, involving one or a few factories in Vietnam, would be at great risk.  Although large corporations with extensive supply chains in multiple countries will still lose some time in moving production elsewhere, they can react to these trade policy developments more quickly because they have vendors in other countries, more money, and more manpower to throw at the issue.  The small company that is beginning offshore sourcing usually only sources from one country.  Someone moving to Vietnam right away because they offered the lowest hard costs would now be facing a situation which could potentially threaten the entire supply chain and business.  Even if they rushed to find sources in other countries to mitigate the risk, it would take months of lead time to find the right source, create and review samples, set up production, etc.

Although trade relations between China and the US are certainly still experiencing bumps in the road, it is likely that these bumps will be far less dramatic than those for countries newly emerging onto the international trade landscape.  Cost is important.  But so is risk.  For pure risk purposes and the small business starting offshore operations, more stable trade relations is highly advantageous.   It is certainly a reason why much of what we do today is in China.  When our clients grow to a critical point and have stabilized their operations, then we can begin looking at other countries for new opportunities.  

Quality Control: A Visual Explanation

This post marks the first in a few categories for me.  First, it is my first attempt to take the bull (web 2.0) by the horns and communicate visually, not just in words.  This will mark the first of many posts in which I intend to bombard you with more stimulating content--audio, video, images, etc.  Fox News...watch out. 

This is also the first time I am using Comic Life from Apple, the program which has allowed me to create "Adventures in Quality Control", which you see below.  I can't take credit for the idea for this masterpiece.  I got the idea from Guy Kawasaki's How to Change the World: A Practical Blog for Impractical People. 

These photos show only a small fraction of the kinds of quality assurance tests that are performed on various products.  Here you'll see a drop test, bake test, freeze test, pull test, and pass the manager test (this last one is not a formal test).  The client has laid out with the manufacturer how these products will be tested, what constitutes major defects and minor defects, the AQL (Acceptable Quality Level), and other details depending on the specific product. 

This particular factory, Guidelink, is a manufacturer of toys, models, and a few other lines, and is an outstanding operation in regard to all the facets one might go and inspect an overseas partner for.  Jackie, the head manager, has decades of experience and ran the show at this factory and several others.  He was kind enough to show us around and explain his operations. 

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. 

Happy Chinese New Year!

I am a few days late.  The New Year was on February 18th.  I celebrated with a Starbucks coffee, but most of my Chinese friends and associates spent New Year's Eve stuffing themselves with delicious food with their families.  According to this Wikipedia article, people traveling during the Spring Festival period (which accompanies the New Year) account for the largest single migration on the planet every year.  According to the article (which does not make it fact), 2 billion train passengers were recorded during this time in 2006.  That's more than the population of China.  Veracity aside, China's trains can be a fun, cultural experience, but I wouldn't want anything to do with them during this period.

The festivities in China last about a week or so, and it's a major holiday during which most businesses, factories, etc., shut down.  February is always a hectic month for getting projects done there.  The weeks leading up to the New Year celebrations involve factories going crazy trying to push through as much as they can before the respite.&nbs