The country’s rapid rise as a low-cost manufacturing hub is what has drawn many businesses and entrepreneurs to do business in China. Although the opportunity is certainly enticing, it can be hard to get the many pieces of a procurement operation in China right.
We discuss three factors below that are important considerations.
Inertia at headquarters
One of the biggest barriers to a Chinese sourcing program is resistance from middle managers at home, who often have a limited perspective.
If their performance is measured on inventory turns, for example, they might worry that distant and uncertain supply lines will require them to hold larger inventories, thereby driving up costs and reducing turns.
Similarly, logistics managers, who are evaluated on their ability to economize, warn that using far-flung suppliers will push up costs.
Procurement managers wave the yellow flag about the quality of goods, while product designers, manufacturing chiefs, and plant managers all have objections of their own.
Executives must be able to see the bigger picture and work at reducing the concerns internally as opportunities will only continue to present themselves in China.
Building capabilities
To source goods directly from China, a company must learn a set of basic capabilities.
These include ensuring quality and control (evaluating a supplier’s ability to meet requirements, for example), testing preproduction prototypes or samples, and assessing packing procedures.
Logistics activities such as satisfying customs regulations and arranging shipments are important as well.
That is why we suggest using a dedicated sourcing company to help you navigate these challenges and build synergistic capabilities that benefit all.
Attention to detail
Sourcing is a complicated set of activities involving many detailed decisions, from selecting suppliers to managing production, quality, inventory, and logistics.
Executives know that companies can stumble in any of these activities as they expand their sourcing options around the world. What surprises executives about sourcing in China is the number of details that can go wrong and the effort required to hold a program together.
Companies find that they have to pay much more attention than expected to monitoring their suppliers’ flow processes—working back from expected delivery dates to check that suppliers receive raw materials on time and meet every subsequent milestone until the products ship.
In other words, you have to have someone on the ground. Without hands-on supervision and quick action when milestones are missed, companies face delays. Intensive monitoring is required in every industry and with most suppliers in China.
The right sourcing agent has all the information you need to help you get the most out of your Chinese suppliers.
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