Selecting the right supplier is one of the most important decisions companies make when outsourcing manufacturing in China. So many companies have experienced serious problems with shipping delays, quality issues and cost increases, from suppliers sourced through the Internet or other unqualified networks.
Based on our decades of experience in China manufacturing industry, it’s imperative to assess a manufacturing supplier before investing certain amount of efforts and money, why?
1. Seeing is believing
Many suppliers come across as very polished on the Internet or while attending trade shows, with low prices to attract customers. These companies may represent themselves as factories, but very likely are only trading companies.
Visiting the factory to directly verify their current business status and review capabilities in person is the most effective way to avoid such risks. If you have local resources who understand how to professionally validate data and attend production runs, you project can be much safer, otherwise you may have to fly forth and back frequently to check or use external resources to fill the gap.
2. You may be happy with the price but not the quality
You may be happy when receiving a good price quoted from the supplier, and you may also receive perfect samples from them later. But before you commit to production and placing an order you should also firmly know, understand and verify if this supplier has a mature, proven quality system in place. A few good quality samples do not always guarantee same outcome in mass production. You need to have thorough understanding of the supplier’s quality management culture, processes and systems. But how? You can have your team work on it, consult with a fellow or send an experienced agency to identify the risks prior to placing orders with the new supplier.
3. The devil is in the price breakdown
You’ve received several RFQ feedback from suppliers, then you are wondering, how can there be so much difference in pricing, whose pricing is more reasonable? If you can’t get price breakdowns it will be very hard to benchmark (It’s not recommended to choose the suppliers who don’t have cost transparency).
Product purchasing price is a combination of materials, labor, overhead and profit. Suppliers may hide profit in materials and just quote you a Total Materials Cost, or hide profit in labor and manufacturing overhead cost. Plenty of ways for price calculating can be used, to your disadvantage.
In addition, supplier may increase price after initial engagement period, forcing you to either accept the cost up or be placed in a difficult negotiation situation before you find suitable replacement or 2nd source.
Visiting the factories, talking to different people including supply chain specialists, engineers, operators, quality inspectors, etc. is important and the key to a successful relationship with a new factory.
In addition, you need to understand the local Value-Added-Tax (VAT), their sub-suppliers, manufacturing process, average salary rate, quality failure rate, etc. These play a role in determining an accurate cost breakdown.
4. In-house capabilities & expertise
There is a very critical component which determines the level of quality, cost and on-time delivery of products. Supplier always tries to persuade you that they have a wide range of capabilities to produce or supply the product you need, in today’s world you can easily find fancy pictures about facility, equipment, resources online.
Is that true?
What if they are just a “screwdriver” factory who’s merely an assembly facility where almost everything else is outsourced? The worst case is your whole supply chain is in control of a company you don’t even know about.
Sound crazy? It just happened on some projects we worked. In the end, it becomes very difficult to find out the real relationship between outsourced sub-suppliers and this supplier, which are all resulted from insufficient on-site assessment.
5. Are they really interested in your business?
Prior to signing a manufacturing agreement, it is important to know and understand who your manufacturing partner is. Many times, we have seen broken promises when the “honeymoon period” is over. Supplier claims to be interested in your business only to find out that they are not.
That’s why it’s crucial to visit the supplier and sit down with all people who will be working on your project, including decision makers, cross-functional team members and others, to have a deep view about both parties’ critical needs and expectations. Ask questions and verify their customer engagement and retention policies, processes, financial credit lines, etc.; take a factory tour, understand more in details about resources allocation policy, processes and execution can add some level of security.
6. No measurement, no management
It’s highly recommended to have your team on the ground to validate every output from supplier, or the only option is to believe documentation, which obviously is not the best way to go. You are putting yourself in big risks if you are unclear about what and how supplier plans and executes, not mention the results. Once supplier doesn’t perform and have inconsistent quality, it could be too late and may result in missed shipment dates.
The best approach is to use a multi-disciplined verification of all new suppliers via a systematic quality assurance program that encompasses sound quality guidelines and processes, and on-site inspections to ensure consistency.
7. Protect your intellectual property (IP)
IP is a key asset and any infringement would be disastrous for your business. Signing a Non-Disclosure-Agreement (NDA) doesn’t mean you have safe-guarded your IP. Be cautious of sending samples, product specifications, and technical drawings since you may be putting confidential materials and data into the hands of a factory you know little about. It’s important to verify processes and systems to be employed to protect your IP and other confidential materials and information.
You and your team work hard and strive everyday to establish and grow business. It is vital to de-risk supply chains by verifying your supplier capabilities and ensure long-term success of supplier partnerships. Therefore, make sure you have done an overall supplier assessment before deciding on who your supplier or manufacturing partner will be.
