Updated: May 27, 2021
Not so fast !
While not a new trend, the desire to get closer to factories in Asia, buy directly and save money has certainly accelerated in recent years. In the current business climate of volatile pricing and lead-times, factory shutdowns and capacity issues, there are a few topics to consider first.
Putting aside the lost value by not having local product development support (and don't put this aside anyway!), here are a number of supply chain/purchasing strategies clients have that should be well vetted before committing to one engagement strategy over another.
1. Suppliers, Suppliers, Suppliers, they are everywhere just waiting for me to call!
Desired Objective: fast access to qualified, capable, stable and aligned manufacturers
Certainly a logical assumption :) and many online resources make identifying, ranking and communicating with suppliers in Asia easier then ever. However finding a partner that appears to be suitable for your objectives online isn't the best method but can be the easiest step in the process.
To truly understand if a supplier is the right partner should demand the very same scrutiny we'd place on a local supplier thru on-site audits and face to face meetings.
Assessing real information around manufacturing capability, your specific technology and market experience, material supply chain management, size of the business, their financial health, disaster planning, cultural alignment; some of the move important results from a supplier scrub down, cant effectively be done remotely.
Many "find a suppler" on-line services and freelancers are available. The best value can come from a local partner that is experienced with your market, your product segments and the technologies used in the manufacture of your product and has a model working as an extension of your buying and engineering teams at every level. Such a partner combines subject expertise with vetted and proven manufacturing relationships overseas.
2. We Can Manage our Suppliers Remotely.
Isn't that what Zoom is for!
Desired Results: Work directly, save money, get things done effectively
When your supplier is local to you, initial on-site audits, on-going visits, frequent on-demand communications to insure your supplier was meeting quality, output and business objectives would be common.
But how to accomplish this same viable de-risking practices when your supplier is on the opposite side of the globe? There is an idea that key suppliers can be managed remotely, in different time zones, thru a different language and often most challenging a different culture and that the cost savings out-weigh the resources and effort to do so.
That scenario rarely rolls out as envisioned. Having local, at the factory oversight thru resources tasked to drive and advocate for your objectives is vital to making this supply chain plan work effectively.
Often a client doesn't have the in house resources or the business model to place a team in Asia. Here again, the internet is flushed with freelance project mangers and service companies that offer such management services.
A better solution would be to partner with a supplier with local design and development value with a team that manages Asia manufacturing. Yes that was a DCLTEK plug!
For example, DCL puts our people in the factory to monitor orders, inspect product, assure correct paperwork to avoid export delays and work with the factories procurement team and sub-suppliers to have advanced visibility to trouble points that may lead to production delays.
Either way, vital supply chain partnerships should demand local management.
3. Quality and Consistency Will Remain Constant. I'm sure of it.
Desired Results: Supplier will consistently meet manufacturing and quality specifications
Never assume that product quality remains a constant from an overseas supplier and certainly one that is managed remotely has a greater amount of "wiggle room" if required.
However quality does not start and stop with a focus on products only. A manufacturer with auditable and documented company quality assurance and control procedures as an integral part of a production process is desirable and should demonstrate a culture committed to overall quality.
Here again working locally with a manufacturer is critical and is the most productive way of managing quality. A proper audit on this topic can only be done live and with constant follow-up.
4. Wait, you need how much money up front?
and the balance when you ship !?
Desired Results: Confidence, Fair pricing and favorable payment terms
This is where a true partnership with a factory is most important and the topic goes well beyond price negotiation but lets start here. A factory that doesn't make money on building your product is likely not to be a long term, strategically minded partner you value and they wont value you. For example, in 2021's environment, most profitable business is getting attention. Business that started "ok" and over time and price reduction pressures, evolved into revenue without profit are often the production builds most affected.
Consider cash flow impacts if you need to make an undesirable adjustment to your schedule. In a true partnership, you may find options thru collaboration and an understanding of each others model, needs and objectives. In a relationship managed remotely, without a local advocate, without a win-win culture, you may have a few awkward conversations and sleepless nights attempting to seek a solution.
But fine, youre' paying a fair price; no schedule changes required; what what they heck is CIA?! Its common in Asia for new and early engagement payment terms with customers to require full payment of a hefty deposit in advance of manufacturing and final payments before shipment. Sure payment terms are possible and there are standard practices that can get you there like making a number of timely deposits and payments.
This entire section, touches on pricing certainly but also the financial health of your supplier, their interest in supporting your business model and their culture of partnership when storm clouds appear
Having a local partner at the factory on your behalf, goes a long way towards effective price negotiation, financial terms and real business partnership.
4. I can Always Count on My Goods to Ship on Time
Desired Results: Shipments are ready on time, every time
So at this point you've found a solid supplier, figured out how youre going to manage them 1000's of miles remotely, they are engaged and you feel comfortable wiring buckets of cash to them.
Now its a matter of putting the feet up and waiting for your requested ship date to arrive.
Manufacturing will always have issues and in the 2021 business climate the topic is even more volatile. Unexpected component shortages, sudden factory allocation changes, worker shortages to name a few topics that can and are derailing shipment schedules.
Time zone differences, language challenges, cultural understandings make having reliable production and output planning difficult at best.
At this stage, diligent, hands on project management at the factory by your own resources or resources that rep[resent your interests.... not even a question; its a must.
Don't underestimate the current challenges and impact on deliveries around moving freight by air or sea. There does not seem to be hard evidence as to when the current price spikes, space allocation and overall extended delays in getting your product AFTER the factory takes it off their dock will normalize. The message repeats! Having an advocate in country, at the factory, working with local logistical partners is the best approach to ensuing your shipments leave Asia and arrive on time.
There are always going to be risks and challenges when working with overseas suppliers. Some of these topics are easier to deal with remotely then others. As purchasing and operational professionals, its tempting to go at it directly. However to ensure all objectives are met from supplier vetting, negotiations on pricing, setting quality expectations, to meeting production and logistical expectations, its best to consider a partner with specific technology experience, feet on the street where you need them and one that's aligned with your goals.