Subcontracting and buying high-tech components and finished products in China for the IT, consumer electronics and appliances markets are not without risks for the international client.
Of course, it is not without benefits either, cost wise. That's why most international companies have started, and continue to develop, sourcing in China.
Supply chain definition
Before jumping into switching your traditional sources to Chinese suppliers, you have to ask yourself the question at the strategic level of what you want to achieve. Spot buys for short term savings might not be the best solutions over the long run, taking into account the time and effort required to set up a trustful relationship.
All costs have to be taken into account, from the transfer of knowledge, supplier development, travel, non-quality, and logistics (regular and expedited) that will have to be supported during the products life cycles. Cultural, technical, and geographic parameters can impact lead times and costs.
As a rule of thumb, companies tend to move for Chinese sourcing when they forecast material cost savings of at least 20 percent, which would normally cover the transition and management costs and leave them with some money left over. Each case being specific, in particular with the low margin and competitive markets of IT and consumer electronics, it is recommended to perform a cost and benefit analysis based on different scenario to take into account currency, fuel, political and technical exposures and so forth. How many suppliers would you deal with, and where? How much integration would you go for? What about support and warranty organization? What transportation modes and logistics would you use for which lead times and customer service levels?
Supplier selection
Only with the right partners can you achieve the expected level of performance. Often, you determine most of the future success at the early stage of the relationship. The number of high tech and electronics suppliers in China is huge and so are the contrasts in terms of capabilities. Electronic manufacturers are concentrated mainly in the eastern coastal areas such as Shenzhen, Dongguan, Shanghai and Suzhou. There are a lot as well around Xiamen, Wenzhou, Ningbo, Qingdao and Tianjin as well. Concentrated areas give the benefit of a large choice of generally mature companies, with well developed (sometimes saturated) logistics routes, while more remote locations might be of interest from a pure cost perspective.
A thorough assessment of the supplier's capabilities is necessary to evaluate the financial situation, cost structure, technical expertise and quality systems, production capacity, along with their social and environmental senses of responsibility. Most importantly you have to assess their willingness to do business and to improve to meet your expectations.
Time should not be spared, and everything should be clarified up front to avoid any later disappointments. In particular, you should explain in detail what your standards are, in addition to other processes and specific requirements. If the supplier quoted below cost because they missed something and you realize it, raise your hand or you will regret it when your supplier suddenly stops delivering a few months later.
Supplier management
You have defined your supply chain network and selected the best suppliers, but you cannot just sit back and relax! From the on-time introduction of new products to the smooth delivery of mass production, regular attention must be paid to your supplier's operations. Don't forget that whatever automation, integrated processes and quality systems you have put in place or validated. At the end of the day, it's human beings who will deliver, and people have a natural, human tendency to forget you if you are far away from them.
You will ensure the highest quality and confidence levels through a quality management program that will cover regular on-site audits and inspections. Make clear all reporting and crisis management processes. Local presence is a plus and it can be achieved through an extensive travel plan, set up of a Chinese IPO, or through the services of a professional partner, whose scope of activities could cover basic product quality, outgoing inspections, audits and final product logistics.
Subcontracting to Chinese manufacturers can be a very good move, but to take the best out of it requires professional attention and support.
