Dramatic Bottom Line Reduction

There is one reason and one reason only that decision makers elect to have products manufactured in China and that is cost savings.  Assuming that manufactured costs are lower in China due to labor savings, there are many other cost levers to consider when manufacturing offshore in China. Here are the top five:

1.  Freight Costs

Freight and logistics should not exceed 10-12% of your total cost of goods.  In other words, if you ship a 40 foot container to the U.S. this will cost on average $5,000 including import fees, duties, tax and drayage (overland transportation to/from a shipping port).  So if you can’t move approximately $50,000 of product, that should already be 20-30% below existing manufactured cost, you need to re-evaluate whether it makes sense.

2. Carrying Cost of Capital

Cash is king in any business.  It is critical to produce inventory that will move once it gets to the U.S. otherwise each month that inventory is tying up capital and not producing top line sales revenue, you are eating into your cashflow.

3. Warehouse Space

Every square foot of a warehouse used to store products has a fixed cost.  Unless you have excess space available, you need to be certain you are allotting this valuable real-estate to products that are generating revenue.  Otherwise the savings will be offset by the additional cost of warehouse space.

4. Due Diligence

For items #2 and #3 it is imperative that analysis be given to not only finished goods but also raw material and components.  Often overlooked is the advantage of using China to absorb the financial burden of not only managing but paying for commodity purchases, raw material, components and works in progress.  Every month of financial responsibility taken on by your China producer is a month of cashflow freed up for your business.

5. Start-up Costs

Your China factory will absorb many intangibles associated with start-up costs including learning curve, purchasing coordination, and in many cases tooling not to mention infrastructure such as plant, property and equipment.

Quality, consistency and timing should only be the “cost of admission” and no sacrifices should be made in these areas.

Interested in learning more? You can right here.

The Real Cost of (Not) Doing Business in China?

 

As the #1 manufacturer in the world China now produces nearly $2.5 trillion of goods.  While this is around 28% greater than the U.S., manufacturing makes up an astounding 30.5% of China’s GDP vs. 12.3% for the U.S.  One thing experts acknowledge is at $2 trillion in manufactured output the U.S. produces more with less labor.  It also indicates that low value added jobs with less profit margin have gone and remain overseas.  So what does that mean for us?  It means that China is still the factory to the world and if operations decision makers haven’t developed a competent model to outsource redundant, high labor and low value add processes, they are tempting fate.  There is a cost to and not to doing business in China. and the time has come for most organizations to analyze synergistic offshore-onshore manufacturing & distribution strategies.

Assume for a moment that you are the SVP of Operations for a U.S. firm in Des Moines that manufactures some sort of metal and plastic assembly.  Sales have been flat and finally in that Monday morning meeting the inevitable question arises.  “What are we doing about China?” your boss asks.  You have a solid team of purchasing professionals, none of which can point to Hong Kong on a map.  However, through the internet one of your go-getters, Bill, has begun to put a spreadsheet together of die cast and injection molding companies in the Guangdong Province, which he’s researched as being a hotbed for these industries.  Since Guangzhou is a FTZ (Free Trade Zone) Bill with his Operations Management degree, has identified this as the logical place to start.  He’s shared a couple of months of emails with “agents” posing as direct factory managers and is ready to take his associates to China.  Just say the word.

Assuming that Bill and the others now have passports and visas in hand, they begin booking flights, hotels, trains, and ferries to venture out into the Middle Kingdom.  In all they’ll be gone for just under three weeks.  Since this is the company’s first sojourn to Asia, you’ll undoubtedly accompany them on this exciting new foray into the land of the dragon along with your Ops VP.  Now you and your four valuable employees will be out of pocket the majority of a month leaving yours and their day to day responsibilities to others or to simply take a break from existing projects.  How much time and capital do you think this will require?  You may be surprised.

The following lists conservatively typical expenses by line item for a 2 ½ week trip to China.¹  Remember, you’ll require a full 24 hour day of travel to and from and a day of recovery once you’ve arrived.

Cost analysis of doing business in china

The good news is there are competent firms in place to assist in your project management initiatives.  In a poll on Linked In, 150 Supply Chain professionals weighed in with their response to the question, What is the best way to manufacture outsourcing in China?” (See diagram below). 57% of respondents chose “Establish a trusted partner in China.”  Perhaps a good portion of the voters had already been through the trial and error process.  Or it could be that those who have succeeded in tandem with a firm watching out for their best interests can easily quantify the decision to engage a reputable partner for monitoring manufacturing, quality control, packaging, labeling and logistics.

what is the best way to conduct manufacturing outsourcing to china

In his article  http://baysourceglobal.com/10-tips-to-better-china-sourcing/ William Atkinson of Purchasing Magazine explains that regardless of their China story, those who have enjoyed a successful relationship with China have done so through proper guidance and preparation.  In this critical juncture of global commerce, fluctuating currencies, and competitive pressure, it is imperative to select a reliable partner whom you can trust, knows the local governments and regulations, has engineers on staff who understand your products and who can help you gain a foothold in this valuable region of the world.

¹Airfares, four star accommodations and RMB exchange rates as of September, 2014

Baysource Global President, David Alexander can be reached at david.alexander@baysourceglobal.net

How working with BaySource adds value, reduces time and expense

Overseas-ManufacturingAnything is possible in China but nothing is easy” is a quotation found on the Baysource web site www.baysourceglobal.com . Many companies go it alone when embarking on an outsourcing project for the first time. Commonly, purchasing personnel will rely on web and email correspondence when initiating a sourcing project in China. Small and mid sized businesses do not necessarily have the resources or personnel required to successfully launch a manufacturing outsourcing project in China.

Commonly, people will seek out a “sourcing agent” or other type of representative in China to act on their behalf. Baysource is different in that our team has been working with a select group of factories for over a decade and with that comes the required credibility to negotiate price, terms, and ensure products are manufactured to our customers’ specifications and expectations. Baysource doesn’t “sell” anything. What we do is get our clients exponentially closer to their project goals accomplishing in one month what would usually take a company one year.

We have all heard about or seen the Tip of the Iceberg illustration, illustrating what makes up Cost of Goods. When one considers the costs of overseas sourcing, often enough he/she does not place enough value in what goes into overseas sourcing. The expenses of travel, shipping back and forth of samples, and of course employees’ time out of the office are huge components to take into account. But what is the cost of failure? Out of spec product? What is the true cost of not having your product available for months at a time?

This is where having an organization such as Baysource, acting on your behalf and with only your interests in mind pays off in spades. Few companies will work on a no-obligation basis such as Baysource, side by side with your key decision makers, to help you accomplish your goals. www.baysourceglobal.com

New Product Development and the Adaptation Curve Part II

In our 4 part series dedicated to new product developers, innovators and inventors, we explore the 8 top considerations when developing a new product.  Whether a seasoned marketing professional or first timer, these eight critical components include aspects related to product design, positioning, manufacturing, distribution and financing.

What You’ll Need to Start: Ample Capital  

Beyond personal savings, innovators look to family and friends, explore small business loans and even tap into retirement accounts to raise money for their startup products. The initial outlay of inventory capital—that which could be tied up for months is often the greatest obstacle to overcome. Minimum order requirements (MOQs) by factories usually cause a lump in the throat for the first time product developer.  Even if you have the greatest gadget in the world, how do you plan on financing that first big P.O.?  You’ve likely invested significantly to develop your innovation—a figure that has hopefully been taken into consideration for ROI and overall budget.  While established corporations have ample cash flow for typical starting inventories, this may be the greatest initial hurdle for those new to the process.

Inventory Financing / Purchase Order Funding / Factoring

There are a half dozen inventory financing groups (IFGs) in the U.S. who provide bridge capital, purchasing and taking title to inventory which goes to a third party distribution warehouse. You then pay the IFG as for the cost of goods plus any in and out fees required by the warehouse as you sell merchandise.  Purchase order financing is a new twist on Factoring, an older practice in which small businesses sell invoices at a discount for faster recovery of cash, providing the factoring company with a substantial fee.  The caveat is that the invoices must be to reputable clients, i.e. Walmart to be considered.

Advantages

These can be good options that allow you to purchase greater quantities thus commanding volume discounts.  Another benefit is that you don’t have to give up equity to outside investors.  Many times the factories’ terms require money down at the time of placing the purchase order.  IFGs make it possible to abide by these terms.  These companies will want to know:

  1. Your sales and marketing strategy (refer to Part I of the series) and about your team
  2. The quality of the products produced
  3. Your margins
  4. Inventory turns
  5. Your credit worthiness and track record

Disadvantages

Personal guarantees and background checks are almost always standard protocol which usually means demonstrating some form of net worth whether savings, retirement funds, property, creditworthiness and no criminal records.  They may also not take a chance on a new client—one who has no real balance sheet to speak of.  Another downside is that these lenders charge interest rates that can be as high as 40% annually.  Lastly, there is always a time requirement (term) for making good on these loans which are usually around 60 days. If you are unsuccessful in meeting your sales plan, stiff penalties may be imposed.

 

Crowdfunding

In just the past few years companies like Kickstarter have created tech based forums which bring creative projects to life and are open to investment by the general public.  To date, over five million people have pledged over $800 million and funded more than 50,000 projects to date on Kickstarter in categories such as films, music and the arts, video games and inventions.

Advantages

Crowdfunding is catching on and becoming more accepted as a means of raising capital.  Investors do so at their own risk and there is little to no governance or regulation meaning no reporting or other administrative overhead.  Crowdfunding is really an eco-system for philanthropy and those playing in this space have an entrepreneurial spirit.  Mostly, investors do not generally require any form of equity or preferred stock so your ownership is not diluted.  On April 12, 2013 the JOBS (Jumpstart Our Business) Act, was signed into law and is designed to increase job creation and economic growth.  The good news is that it eases fundraising regulations imposed by the SEC enabling more entrepreneurs to raise capital.

Disadvantages

Because blocks of investments can be minimal—as low as $1,000 or less, investors may be less motivated to provide insight or contribute to the long term success of a project.

Seed Capital / Angel Investors

Advantages

The difference between Seed Capital and Venture Capital is that Seed money comes from individuals vs. institutional investors. Most angel (seed) investors have a wider appetite for risk and a savvy track record for assisting startups with building their businesses.  These professionals are also versed in providing feedback on pro-formas (financial targets for top line revenues and margins; cash flow models and debt.  Generally seed investors are less hands on in the day to day running of the business once they have a sound idea of your business plan.  Seed investments are less administratively complex with less formal corporate contracts and governance.

Disadvantages

Seed capital usually comes at a cost—Equity. There is risk on both sides.  The investor may never recover their investment or you may give away too much ownership.  Usually the latter results because it is just so tempting for the inventor to commence their dream.

Read Part III of New Product Development

New Product Development and The Adaptation Curve Part I

In our four part series New Product Development and the Adaptation Curve dedicated to new product developers, innovators and inventors, we explore the Top 8 considerations when developing a new product.  Whether a seasoned marketing professional or first timer, these 8 critical components include aspects related to product design, positioning, manufacturing, and distribution.

Product Development Costs 

Most inventors underestimate the cost for designing a manufacturing ready product.  Tools and molds can easily run into the five to six figure range and can dwarf first year profits.  Most any product requires both two dimensional (2D) and three dimensional (3D) engineering drawings that specify material requirements, accurate measurements and tolerances which are very minute, allowable thresholds or variances in gaps, thickness, or practical limits without significantly affecting function of a component.  These are the physical requirements of a product. There are also electromechanical tolerances which measure allowable ranges of energy output or resistance.

2D & 3D drawings are computer generated or Computer Aided Designs (CAD) are then used for creating the tooling for parts whether metal, plastic or other materials, even cut and sew projects.  The first commercial applications were in the automotive and aerospace industries.  Through the use of some of the most common software such as Solidworks and AutoCAD, two of the more widely used platforms, designers create the physical properties of a product.  Depending on the complexity of the part and the actual quantity of components this cost can range from the low to tens of thousands of dollars.

Distribution Channels

Some products are ideal for Big Box retail but unless you know how to navigate this space, most category managers are not going to take a chance with a single line item vendor.  Determining how to sell your product comes down to the “4-P’s” or Product, Promotion, Price and Placement.  Entire marketing strategies are built around this.  How you position your product will dictate your brand strategy.  From there it is necessary to determine price, sales tactics and a marketing campaign and budget.

Products are sold through single or multiple channels.  Often and most overlooked by new product developers is the benefit of working through wholesale/distributor channels.  These organizations have years of traction and relationships with retailers and can be the best avenues for introducing your product.  They have sales teams in place and assumedly the category expertise for not only implementing your programs but also helping positioning and building your brand.  Your distributor is your customer and investing the time to work with and support this resource will pay off tenfold.

Think about all the valued functions that are fulfilled by a strong distributor partner.  They have the infrastructure in place that includes:

  • Sales: category expertise and feedback
  • Warehousing; the ability to handle large single shipments
  • Customer service and support— activity based interface with multiple customers
  • Inventory reporting; purchasing and replenishment
  • Shipping and logistics

Read Part II of New Product Development

 

4 Commonly Used Methods for Sourcing from China (Infographic)

Importing from China is a daunting task. There are hundreds of thousands of factories throughout China whose quality and capabilities cover a wide range. Finding the right supplier is crucial and most people underestimate the time and resources required to set up a successful operation. Quality and trust are the #1 concern for professionals working with low cost country sources.

Options for Establishing China Sourcing Partners

1. Trade Shows

Pros

  • Opportunity to talk to potential suppliers face to face about their companies, products, productions capacity, quality-control procedures, and other key business areas
  • Direct interaction helps in evaluating suppliers and verifying their abilities
  • See product samples first hand

Cons

  • Requires international travel
  • May be limited to a small pool of potential Chinese suppliers (many of them don’t attend these trade shows)
  • Not all representatives attending trade shows are actual manufactures (some are brokers or wholesalers)
  • Many Chinese exhibitors have limited spoken English skills

2. Online Resourcing (Alibaba, Global Sourcing)

Pros

  • Simplest, least expensive method to identify suppliers
  • Huge range of factories (more than a trade show)
  • Tolls and information provided; easy to use
  • Ability to contact multiple suppliers quickly at once
  • Good for small, low value items

Cons

  • High-risk sourcing method
  • Risk of fraud (some businesses may not be what they seem)
  • Hard to distinguish actual factory reps vs. brokers
  • Outdated information
  • Takes a lot of time and effort to communicate back and forth by email
  • Details lost in translation; lack of clarity
  • No personal relationship
  • Must conduct your own due diligence; no on-site factory audit

3. Agents

Pros

  • Help identify and verify suppliers and facilitate communications
  • Someone is on ground to conduct quality checks
  • Lots of agents can be found online
  • Fees range from 3 to 10 percent of purchase price
  • After working with sourcing agents a few times and becoming familiar with process, you can eventually manage deals without their help

Cons

  • Lack of ability to know true cost
  • Hard to regulate performance and commission – no incentive to keep costs down
  • Might be hard to find trustworthy agents – difficult to check references
  • Lack of familiarity with specific industries (but may not admit so up front)
  • Agents not staffed equipped or sophisticated enough to manage production and quality control or offer support
  • Won’t necessarily have clients’ best interests in mind (usually operate based on personal relationships)

4. Full-Service Project Management Firm

Pros

  • Most convenient and risk-free sourcing method
  • Scale – have leverage with factories with volume of other clients
  • Handles entire sourcing process from beginning to end
  • Provide wide range of services: supplier identification, price negotiation, supply management, quality control management, logistics and shipment management, and other sourcing matters.
  • Can respond quickly to urgent matters
  • Have only clients’ interests at stake (not beholden to specific factories)
  • Cost savings from avoiding international trips
  • Relieves hassle of identifying and verifying suppliers, productions inspection, product quality control, and logistics
  • Allows focus on existing U.S. sales and opperations

Cons

  • Front end fees for managing relationship
  • No opportunity to learn about Chinese Markets

Project Management Infographic-1

New Product Development and “The Adaptation Curve”

Nobody has an ugly baby.  The same goes for new product developers.  Whether an independent entrepreneur or seasoned marketing team, once a new product concept is developed and months, even years in some cases are invested, our babies become prettier every day.  The same unconditional love and support that builds as our children mature and develop transfers into the professional mindset of innovators.

Calling All Product Developers

Creating a viable and robust market for a new product takes enormous resource, planning and resolve.  The sheer capital to unveil and furthermore generate brand equity is often the most overlooked aspect of getting a product to market.  Take the Segway for instance.  This emission free, efficient mode of personal transportation has been around for over a decade.  With some quick, simple training even children can master riding this marvel.  Reaching top speeds of 12.5 mph it has a range of up to 24 miles on a single charge.  Still commercial acceptance has been scant.  Why wouldn’t every warehouse and airport have a fleet of them?

Recently two Swedish designers have developed an entirely new concept for biking safety in the form of the Hovding, an airbag which deploys vies-a- vie algorithmic intelligence protecting riders from head trauma in the event of a fall or crash.  This revolutionary “bike helmet” is worn around riders’ necks and actually becomes a stylized accessory.  At $520 prospects for commercial distribution of any scale in the next five years may be slim.  However according to Forbes writer Jeremy Bogaisky this startup has already taken in $13 million in venture capital.  He cites bicycle industry analyst Gary Coffrin who gives a great summation stating “The adaptation curve for such a unique product at this price point is not likely to be rapid.”

Taking the tech factor down a notch, in my own gym sits a clever form of a door stop called “James the Doorman.”  I would imagine the designers, Black+Bum had their “Eureka” design moment and the wheels started spinning.  Honestly I have never seen such a cool variety of a door stop and  without knowing much about how they developed this unique version of an age old application, I can’t comment on what lengths they went to in commercializing their product.  I do know that the one in my club is the only that I have ever seen.

Every week we hear from inventors and product developers who have put great thought into products which offer unique solutions to every day needs.  Often though there are many missing pieces to their overall strategies.  Below are the Top 8 Hurdles to Successful New Product Launches.  In the coming months, I will be writing a series which individually expands on each of these, why they are often overlooked and how they are important for taking new products to market.

1. Product Development Costs 

Most inventors underestimate the cost for designing a manufacturing ready product.  Tools and molds can easily run into the five to six figure range and can dwarf first year profits.  Developing engineering drawings—those that translate into production and material specifications  require time and money.

2. Distribution Channels

Some products are ideal for Big Box retail but unless you know how to navigate this space, most category managers are not going to take a chance with a single line item vendor.  It creates additional administrative work for the system, and most inventors don’t have the capital to market their products.  Specialty and on-line retailers generally are better proving grounds for a products’ acceptance but you still have to generate interest and traffic.  Oh, and did you get a UPC code yet?

3. Inventory Capital 

Minimum order requirements (MOQs) by factories usually cause a lump in the throat.  Even if you have the greatest gadget in the world, how do you plan on financing that first big order?

4. Educating the Masses 

How will you announce the arrival of your new product to the world?  Magazines?  PR campaign?  Put an ad in the paper?  Direct Response Television (DRTV) is a great but often expensive form of advertising and one of the best ways to demonstrate a new application or use as well as building brand equity.  It’s great to have a video on your web site but again, how will you drive viewers and a following?

5. Price vs. Value 

In the initial phase of your product’s life-cycle there will likely not be the scale (volume) to drive down production cost.  Unless you can convince consumers they should pay a premium retail price, break-even may be longer off than you expect.  Plus, buyers will tell you whether your SRP (Suggested Retail Price) is in line with their category. 

6. Regulatory and Testing Requirements 

With your product in the public domain, most retailers will require some sort of regulatory or product safety testing and compliance with groups such as the Consumer Product Safety Commission (CPSC), Underwriters Laboratories (UL) and others.  Depending on what industry you are in, your item may require testing and certification by default.  To you this means additional time, red tape and money.

7. Patent and Intellectual Property Protection 

This is perhaps the most critical and misunderstood area of product development.  In many cases developers could have saved themselves months of work simply by doing some basic research and analysis.  The United States Patent and Trademark Office site has become more navigable and efficient thanks to improvements in their search functions.  There are three ways to begin your inquiry using key words, designs or a combination to see if someone else has registered a similar product.  Even if they have you may be able to make some functional changes to distinguish yours but again, many underestimate the time and capital required to protect the investment of your innovation.

8. Aftermarket Sales and Support

Now that you’ve got a patent pending, finalized your business plan, raised early stage capital, have product on the warehouse shelf and are starting to generate traction don’t forget the basic administrative requirements.  If you hit the lotto and are selling to Wal Mart, using retail link is a requirement.  This entails sending a staff member for training and ultimately using their on line tool daily or weekly.  Is someone manning the phones for product questions and concerns?  How robust is your web site?  Oh, we haven’t even discussed how much this will cost to build.

While these hurdles aren’t surmountable, it is critical to factor in all the critical and time consuming elements of bringing a product to life.  Even this list is not comprehensive enough to account for the unexpected turns in the pathway to new product development.  If it were easy, everyone would be doing it.

Read Part 1: New Product Development and the Adaptation Curve

David Alexander is president of Baysource Global and has a decade of experience with new product development and contract manufacturing.

Protecting Brand Integrity While Manufacturing Overseas

manufacturing in china

In the world of business, financial objectives have traditionally prevailed over the values of social responsibility and ethical behavior. As the global business landscape continues to flatten in an increasingly competitive economy, companies have to find ways to reduce costs and uncertainty more than ever. Supply chains are the low hanging fruit for finding new buckets of savings.

For much of the last 20 years U.S. firms have followed the trend  to low cost country sources for labor savings offered through outsourcing. Technology and globalization have made manufacturing parts in one nation, assembling them in another, and selling them in a third a reality. Although controversial at times, outsourcing has proven itself to be expedient and highly profitable.

Without proper due diligence there can be a dark side to outsourcing. Throughout the years a series of highly publicized public relation nightmares regarding child labor violations and reprehensible working conditions at Asian factories have impacted companies such as Nike and Apple. If not managed carefully, manufacturing overseas can cause serious damage to brand reputation. Consequently, this can have devastating effects on the bottom line for businesses who’ve either shrugged a cold shoulder at or simply overlooked the social welfare aspect of global manufacturing. In a world that’s outsourcing more than ever, the idea of social responsibility has become inextricably linked to a company’s identity.

Consumers and the businesses that ultimately serve them through the B2B framework can no longer simply assume that products are being safely manufactured by highly skilled, adult workers in favorable work conditions. Nor can we afford to assume that all foreign workers are recipients of the same high standard of worker’s rights, as seen here in the United States and Europe. With social media, and the general transparency that the internet brings, today’s highly informed consumers are holding businesses to a much higher standard when it comes to manufacturing responsibly.

Outsourcing affords small and medium sized businesses the opportunity to compete  in the same marketplace as their giant, corporate counterparts. Socially responsible outsourcing must be approached cautiously with a partner you can trust. Having a reliable overseas partner that can provide your business with a factory social-audit check allows your business to mitigate the risk of destroying the good-will and reputation that your product or brand has built up through the years.  Businesses considering moving their manufacturing operations abroad need to consider how to manufacture overseas without risking the reputation of their brand.

Ethical businesses have the power to transform their organizations and supply chains into sustainable practices that people can trust. Rather than viewing suppliers as a network that they simply manage they are valued as partners in a powerful brand  that generates shareholder value and an long term goodwill. Ethical businesses value transparency,  long-term relationships and human rights. A reputable business ensures that products are produced in factories with technically skilled and legal workers that meet both domestic and international safety and work condition standards.

With operations dispersed around the globe, the modern business is a fundamentally different animal from its predecessors. The days of achieving profitability by any means necessary are over. Even as more  companies jump onto the social responsibility band-wagon there still remains a perpetuating stigma that businesses who manufacture their products overseas choose profits over values. Globally-minded companies that take an interest in manufacturing abroad should exercise prudence in selecting an over-seas partner that preserves product integrity and social values, in addition to affording clients the ability to capture the cost-savings opportunity out global outsourcing.

 

Michelle Scheblein is China Business Analyst at BaySource Global. She has a B.A. in international business from the University of South Florida and has resided in China from 2013-2014. She can be reached at Michelle.Scheblein@baysource.net

A Community of Opportunity

Last fall I visited a state of the art precision die cast factory in Southern China. By my estimate they do a turnover of ~USD$400MM. This facility had two very sophisticated machines that were designed and manufactured by the Japanese and could essentially be used for highly technical military products although they were simply utilizing these for their advanced automation in making automotive (carburetor) parts. After a long lunch, the owner took us to their R&D building where they had something they wanted us to see. It was…a turkey fryer. That’s right. They had devised a turkey fryer that uses 80% less oil than deep frying. Already they had complete prototypes for cooking French fries.

You may be wondering where this story is headed. I had to admit I was a bit taken back by this “top secret” invention they whetted our curiosity over during our meal. But in their thorough marketing analysis, they had deduced there was no similar Western device yet on the market. It just so happened to be November and thus the American Thanksgiving holiday was just around the corner. This factory had a business plan in place, knew their total market universe in the U.S. of those who deep fried turkeys vs. oven, and even recognized this was a stronger activity in the South. In fact, they had determined that their distribution channel likely needed to begin with HSN or QVC and migrate into traditional retail.

What they didn’t have is a contact in the U.S. to assist with the launch nor did they know anyone who could introduce them into this market. They explained they were missing a key intermediary who could introduce this new product to a leading cookware company, someone familiar with infomercials, or a firm that could handle direct sales and distribution. If so, they believed annualized sales could reach USD$50-100MM. Have you seen this product on the market yet?

Sure there are low value added jobs that have gone offshore. And by the way, we haven’t stopped manufacturing in Central and South America and Eastern Europe. But there is an interdependency between China and the U.S. that can’t be ignored. There is also a huge market in China for our goods and services. Take the story of Dais Analytic whose desalination and wastewater technology will add up to 1,000 jobs in Tampa, FL over the next five years. Just this week, Warren Buffet’s Berkshire unit purchased Burlington Northern Santa Fe which is a huge bet on increased trade with China. And as a growing consumer market, the number of millionaires in China is 825,000 and growing, many under 40 years of age.

If you take this story out of the realm of turkey fryers, the Chinese are innovating every day but will rely on marketing expertise here to be successful. Likewise, there are Western companies who require cutting edge innovation and new product development to maintain and gain market share. Possibly this could lead to Eastern entities establishing beachheads in the U.S. The typical hurdle rates that private equity and investment banking firms require to do deals may be cast aside by Chinese courtiers who seek a foothold in the U.S. to incorporate their intellectual property, low cost labor structure and “can-do” spirit with U.S. brands.

It is truly a global landscape yet we seem to be protectionist by default. If we start embracing opportunities as a global “community” vs. simply a global business landscape, we have the chance to merge our creativity and assets to serve one another.

David Alexander is President of BaySource Global, specializing in project management, supply chain and cross border opportunities with China. www.baysourceglobal.com

PriorityPass.com!

Who Is Responsible For Monitoring Quality When Utilizing Low Cost Country Sources?

China is notoriously blamed for quality issues in products sold in the West. But who really is responsible for ensuring quality can be found in products shipped abroad from China? In a former July post to 10 LinkedIn Groups associated with manufacturing, engineering, supply chain and quality control this was the question posed. Readers eagerly provided a total 104 responses of which 49 gave specific answers.

The results could be summarized and compiled into 8 consistent categories. They were:

1. The Manufacturer – 11 respondents
2. Purchasing- the buyer- in house sourcing – 8 respondents
3. A reliable third party QC firm – 8 respondents
4. Cross functional teams (purchasing, engineering, & production) – 7 respondents
5. The company importing the goods – 7 respondents
6. In house QC – 4 respondents
7. The seller/customer – 3 respondents
8. Entire supply chain – 1 respondent

11 Sage Morsels of Advice:

• Do not start LCC sourcing if you are not able to build the appropriate team. Consider outsourcing it to insure the quality of your supply chain.

• Specifications must be clear as to the quality standards expected and the acceptance test regime and what happens to the rejects – you do not want them to appear in the local street market if it is a branded item!

• Be present at intervals throughout the production process. The factory you visit may not be the one producing the goods.

• Establish a personal rapport with your supplier. It is good business and makes communication a lot easier.

• Arrange for acceptance testing – either by your own staff or by an outside agency in the country of origin. Nothing is shipped without inspection.

• Develop a supplier approval process.

• Allot resources for site visits.

• Get references for third party teams.

• Determine their ability to complete the contract. Determine if supplier is financially stable. Assure that they have systems and certifications, such as ISO-9001, in place.

• Ensure that they are motivated to provide quality and on-time delivery.

• Be clear why you are using a low cost country and take all costs into account – it may not be so low cost in the end.

So in summary, everyone has a stake in quality even though it is easiest to point the finger at the manufacturer (China). If we capture all the great advice from industry experts, heed the wisdom and incorporate all these due processes, everyone will come out a winner.

LinkedIn Groups:

GVRT Council of Supply Chain Managers
Global Sourcing
Innovative New Product and Service Innovators
ISM Purchasing and Supply Chain Managers
Offshoring & Outsourcing Forum
Procurement and Supply Chain Leaders
Procurement Professionals
Retail Global Sourcing
SME Society of Manufacturing Engineers
Strategic Sourcing and Procurement

David Alexander is President of BaySource Global, a leading China consulting firm specializing in project management, sourcing, establishing China procurement, and selling into China. He can be reached at david.alexander@baysource.net

www.baysourceglobal.com