Welcome To Same World Networking

Sameworld.net is the networking blog for Supply Chain Specialists interested in creating channel partners around the globe.

A key essence for success in a new market is to identify the ‘Right Partner’. We appreciate the huge importance of this aspect and are willing to invest the necessary time and effort to get it right. There is NO substitute for "Grunt Work" and it is essential to meet the prospective partner, understand their technical capabilities, visit their manufacturing unit and assess the management team. With the partners who add to this blog we hope to achieve that. Mark Kennedy Same World Trading

Wednesday, 26 May 2010

.... 10 ways to avoid the Pitfalls of Sourcing from China . . Part 4 & 5

4. Avoid complex manufacturing processes

This is a huge pitfall to avoid, as you could waste a fortune trying to source a product that just doesn’t fit the Chinese model.

There are many manufacturers in china that produce complex products such as digital cameras and consumer electronics, to a very high standard. However these are usually produced directly for large global companies that have their own strong presence in China, exerting direct control of the manufacturing process, ensuring nothing goes wrong.

Follow this simple rule

The more complex the product, the more ways it can (and will!) go wrong when sourced from China.

Sometimes Chinese assets can become liabilities.

Let me explain.

In the UK we often have a high degree of automation involved in our production processes. This allows us to avoid costly labour when producing.

However, we should not forget that automation often brings repeatability and reproducibility. Microprocessor controlled machinery has not only reduced cost but also enabled precision and quality without the need for expensive rework and scrap.

In most cases, the low labour cost in China more than wipes out the cost benefits of automation.

Enthusiasm for the resultant low cost price can also blind us temporarily to the product problems caused by variation in the process.

This is often hidden during development because endless samples can always be cheaply produced, but the ones submitted for approval may have been selected from a large population of “off spec.” parts.

The Chinese solution to this is often to throw labour (a cheap resource) at the problem. Provided labour content is high and the product not too complex, this solution prevails.

If your product is too complex, or tolerances too tight, this solution will not work.

In general, the Chinese labour force is relatively unskilled, when compared microprocessor aided UK operators, so complexity is always going to be an issue when sourcing Western Standard Components from China.

Need help deciding whether your product is too complex to source from China?

5. Don’t take quality for granted

There is a huge variation in the quality level of products being sourced from China, and this should be an area you pay particular attention to.

It’s simply not sufficient to take a back seat, and let the manufacturer worry about this, as they probably won’t worry about it at all.

In my experience, an ISO certificate in China is no guarantee of quality. So when sourcing from China, managing the level of quality is a great way to remove risk.
Here are some general guidelines, direct from my own experience to help control quality

1. Provide your Chinese contacts with a very clear and understandable product specification. Remove all ambiguity and cover all the angles. Try to predict areas and scenarios that could go wrong, and specify the minimum level of quality in each case. Assume nothing.

2. Walk through the entire product development and production process with the manufacturer to ensure that you both fully understand, in detail what will happen at every single stage. Don’t forget to include how your product should be packaged.

3. Never delegate control of the manufacturing process. You must always own and dictate the process, in order to control the level of quality. This may initially mean frequent visits to China, but without this direct ownership, you are throwing the quality (and reputation!) of your product to chance.

4. Be aware that there a two unofficial quality levels in China with two separate price lists: European and Chinese, so if you’re supplying a European based market, you’ll need to specify this.

It is essential to get your supplier to explain all your requirements to you many times until you are absolutely certain that he or she understands perfectly.

If you don’t have access to a trusted local agent you may be working through an interpreter. These are often young people selected for their excellent language skills. It is very unusual to find a good interpreter that is also a competent engineer, or technician.

If you’re looking to source a product from China, and are concerned about the level of quality, contact me to see if I can help you minimise the risk.
Just contact me via my website www.sameworldtrading.com

Wednesday, 19 May 2010

.... 10 ways to avoid the Pitfalls of Sourcing from China . . ..Part 2/3 of 10

2. Have you considered China for the right reasons?

So once you’re satisfied that your intellectual property is safe, you should then consider exactly why you want to source from China.
Obviously sourcing from China should reduce your costs - but only on certain kinds of products!
The whole basis of sourcing from China relies on the simple but huge differential below

Typical Cost of Employment (£/hour) UK = £9.00 China = 1.70p

So it follows that the products and components that require a very high degree of labour intensity, or man hours to produce, will be the ones that offer the greatest opportunities to reduce costs.

So analyse your own product. .

How many man hours from start to finish does it take to produce it?

Does it require hand assembling, filling, or packing off?

Is lots of manual finishing involved?

I began sourcing cosmetic component assemblies from China to supply to UK fillers, when fully assembled products from China became available, landed in the UK, with selling prices lower than the cost price of local unassembled component parts.
For example, a Make Up Compact, with Mirror, of the kind carried in a lady’s hand bag, unless produced by automation in the millions, would be assembled by 6 UK workers at rates similar to those in the table above.

In other words a UK purchaser can purchase a local product that has a labour content based on £54/hour, or source from China at £10.20/hour.

However, it’s advisable to check that the manufacturer has the right type of labour force.

For example:

Are they experienced in the processes or products you require?

Are they ethically employed?

Are they well trained?

These may sound like strange questions to ask, but when you consider that the larger factories often have thousands of workers living in site dormitories, there is some variation in how they are treated, and an unethical set up will never be a sound long term business relationship.

Will your product fit the Chinese labour market?

3. Do you have sufficient economies of scale?

There’s no doubt that the larger manufacturers in China prefer larger manufacturing runs and to manufacture in bulk.
That’s not to say that you won’t find a manufacturer that will process smaller MOQs. After all, if you look hard enough, and for long enough, you can source anything in China.

Once your goods have been produced, you still have to have them shipped back to the UK (see Part 8. on shipping coming soon), and if you’re shipping your goods in half empty containers, you’ll be paying a huge premium, and wiping out your original cost savings.

Not only that you’ll find that manufacturers, hauliers, shipping agents will take you much more seriously and give you a much better level of service if you’re able to place bulk business with them.

So in summary bulk orders are a must when sourcing from China.
However, with every rule there are always exceptions, and there are sometimes ways around this.

When we first started sourcing products from China, we realised that savings were being seriously eroded by the fact we had little purchasing power with freight forwarders, and low container utilisation.

We got around this by partnering with a local Company that shipped unrelated goods to the UK.

This allowed us to gain economies of scope and suddenly, not only we shipping in full containers by sharing capacity with our local partner, but we were also taken more seriously by freight forward companies.
Our shipping costs tumbled, as did our partners, and our margins improved dramatically.

If you have a smaller requirements from China, and by that I mean 1 to 5 pallets of goods per shipment, you’ll probably need to trade off the back on someone else’s trade relationships to make it worth your while.

Struggling making your project work in China, due to insufficient order sizes etc.
Contact me at www.sameworldtrading.com - we might be able to find you a trade partner to help.

Monday, 17 May 2010

.... 10 ways to avoid the Pitfalls of Sourcing from China….Part 1of 10

The essential guide in taking the risk out of sourcing from China

Let me introduce myself, I’m Mark Kennedy, owner and Managing Director of Same World Trading a Supply Chain Specialist in Construction, Hotel FF&E and manufacturing companies that produce parts and components for a large variety of industries.
Over the last decade I’ve seen huge changes affecting my industry and customer base. None greater than the arrival and dominance of China in the Global manufacturing arena. Manufacturers such as myself were given a simple choice; Change or Die!
Fortunately for me we’ve adapted to those changes, and have re-sourced the most appropriate parts of our business out in China. When venturing into unknown territory, the risks were high and the learning curve often painful, but now we’re sourcing from China on a regular and successful basis. I’m even helping some of my old customers source their components and parts from China that they’d have traditionally sourced from me, as I know there’s absolutely no way I can compete on price – like I say Change or Die!
I’d like to pass on my experience of dealing with China so that other UK companies can also trade successfully with China, and more importantly, not expose their businesses to excessive risk when they take those early tentative first steps.
I’ve identified 10 major pitfalls that I believe to be of crucial importance when dealing with companies in China that should save you a fortune, and could even save your business!
I hope you find my experience useful, and it stops you making some of the costly errors I made when first sourcing from China. If you need further help, please don’t hesitate to contact me if I can help you in any way.

1. Protect your intellectual property

Before you even consider whether your products and components are suitable to be made in China, you must think about exactly what you’re risking by sourcing from China - and that’s your intellectual property.
So what can we class as your Intellectual Property?
1. Patents and copyrights on your product
2. High value proprietary design
3. Your Ideas
4. Your brand
5. Your channel to market
6. Your customer base
7. Key Business Relationships

Copyrights, Designs, Ideas and Brands.

You must assume that if you source from China all of these will be copied with ruthless efficiency and effectiveness. You may even find that if you try to source one of your new product designs from China, a copy of your design appears on the market before yours!
And what can you do if your product is copied?
Not a lot!
Have you ever tried to sue a company in China? In all of my years experience trading with China, I don’t have any personal experience of any cases of a Chinese company being sued successfully for copyright infringement. So please assume that if you have a product worth copying, there is a strong likelihood that it will indeed be copied.
Customers, relationships and Channels to market

You must also assume that if a company in China can trade directly with your customer, distributors or contacts, they may do so, as you’ll simply become an un-necessary link in the supply chain. So protecting your relationships and customer base is just as important as protecting your product.

How can Intellectual Property be protected?

1. Firstly ask yourself, will this product/ my business be damaged if it is copied? For example, it’s often wise to source sub-components of products rather than finished goods in China. Copying components has reduced commercial value, as the sub-components are only useful to you. However if you need to source an entire product, ready to be sold to the end user, then this can clearly be copied, to your detriment.
2. Is it possible to conceal your customer base? If you’re having unbranded goods produced, then it should be fairly simple to conceal your customer base, but say the product has ‘Marks & Spencer’ stamped onto it, then you’re clearly not going to keep this customer for yourself. So if dealing with well know brands or distributors, you should be extremely protective of this information.
3. Can your market be reached from China? If you have a fairly fragmented market i.e. lot’s of well dispersed customers buying your product, then you may well find this working in your favour, as this type of market can only really be effectively serviced from the same country as the customer base, or through established distribution. This makes it an unattractive proposition for a china based business to target. Conversely, if 60% of your business is with 1 key customer, then the alarm bells should be ringing!

So in summary, there are many forms of intellectual property it would be wise to assume it will be taken from you if you don’t protect it.
Need to discuss protecting your intellectual property in China? Contact me via my website at www.sameworldtrading.com , as I may be able to help.