In today’s very competitive world market, companies are consistently being challenged to deliver equal or better products and achieve higher margins. With ever-increasing difficulty in raising prices, this means the only solution is to lower costs – without sacrificing quality.
Further, organizations are expected to lower their costs while using fewer internal resources.
Over the last 25 years, most of the larger companies in the United States have been able to satisfy this challenge by investing in Asian manufacturing facilities. Those larger manufacturers have the capital, volume and personnel to support such operations.
More recently, the middle and small market manufacturing companies have begun to feel the same increased pressure to reduce costs. However, without the same resources as the larger companies, these manufacturers have had difficulty in meeting the challenge.
If the middle and small market manufacturing companies want to follow in the footsteps of the larger companies, they have two options.
The first option is to travel to Asia, visit factories in their industry and start to build relationships. This approach is generally measured in years, as Asian relationships take a very long time to develop.
The second is to employ a sourcing company, a partner who specializes in Asia. The main role of a sourcing company is to facilitate sourcing transactions in such a way that the process becomes as easy as sourcing from a local supplier.
When working through a qualified sourcing company, the process is not complex. The sourcing company will assist the manufacturer in selecting which items are best suited for production in Asia. Then, with specifications, drawings, critical manufacturing issues and samples in hand, the sourcing company will go to work with their Asian team to find the right manufacturer to use.
A good sourcing company will obtain quotes from multiple qualified Asian manufacturers. The U.S. team will review the quotes with the local manufacturing company and assist in the decision process. Once the quote is approved, tooling, samples and production scheduling will be finalized.
The sourcing company will be responsible for on-site monitoring of production and quality control, administering the shipping logistics, and most important, maintaining communications with all parties involved.
Selecting a qualified sourcing company will be the most important step in the process. Criteria for selecting a sourcing partner should include:
— The sourcing company’s Asian team must be well-established and well-networked throughout Asia – not just in China.
— The Asian field team must have the appropriate technical expertise. They need to be able to fully understand product specifications and communicate the same to the factories. They will also facilitate the implementation of engineering changes and monitor ongoing production.
— The sourcing company should be one that fosters a cooperative working relationship between the U.S. manufacturer and the Asian factories, including facilitating on-site visits. This will provide comfort and input into the process.
— A local U.S. presence and a long, well-established, quality relationship between U.S. and Asian partners. The most important ingredient to Asian people in a business transaction is that of a strong relationship.
A well-networked sourcing company will work with a wide variety of high quality-low cost factories. Generally, there are three types of manufacturers in Asia: the large factories that service a large, international clientele; the local factories that primarily service the domestic market; and the factories that are in violation of U.S. standards and labor laws.
In recent years, many of the larger Asian manufacturers have become more selective as to the volume and type of products they will accept for contract manufacturing. In most cases, the local factories perform the same quality standards, but will take the lower volume work and at a lower price.
After selecting a sourcing company, some additional issues that middle and smaller market companies should consider include:
— Test the process. Put your "toe in the water" by starting with sourcing parts from Asia, then assemble the finished product in the United States. Don’t try to realize all potential savings at once.
— High-volume, high-labor content and low-weight, low-cubes will generate the largest cost savings.
— Drawings, material specifications and critical manufacturing issues need to be well documented and current.
— Carry additional safety stock to provide for shipping time (40 to 45 days from an Asia port to factory door).
— A good sourcing company provides for controls that help protect intellectual property.
— It is important to consider the sourcing relationship as a partnership, not just a buy-sell relationship.
In addition, don’t ignore the potential for selling your products into Asia. With 1.3 billion people in China and a growing middle class, consider a sourcing company that has the resources, relationships and capabilities to reverse the sourcing process. Many large U.S. companies have already been successful in exploring these opportunities.
In conclusion, most middle and small market manufacturing companies are at a crossroads. Since the industrial revolution, manufacturing has seen continued changes in the processes and in the products manufactured. Manufacturing companies have also found that if they don’t adapt to change, they lose their competitive edge. With the right help, the Asian sourcing process can be simple. Is it time for your company to explore this opportunity?
Patrick Stuckey of Brightview Ltd., Menomonee Falls, will speak at the Conference on Global Sourcing on Thursday, March 11, at the Italian Community Center. The conference is presented by Small Business Times, the Wisconsin World Trade Center and Whyte Hirschboeck Dudek S.C. For further information, call 414-274-3840.
March 5, 2004 Small Business Times, Milwaukee
