Sourcing Low Power Consumption Displays

With the trend toward more connected devices and the drive to smart watches, small displays that consume little power are becoming critical for more and more applications. When it comes to electronic products, the display is among the 2 or 3 most power hungry components.

Our engineering team wrote this overview of available technologies, to help buyers compare the right types of display.

The first step to identify the most suitable technology is to understand the application requirements in terms of:

  • Display size
  • Resolution – number of dots or pixels
  • Power consumption when display is on
  • Contrast – difference between white and black colors
  • Luminosity – ability to see details under the sun for example
  • Visual angle – does it also look nice from the sides?
  • Graphic or segment: Segment is particularly suitable for simple applications (especially those using icons or pictograms), while Graphic is pixel based and offers unlimited display.

The technologies that can be found on the market can be classified in 4 families:

1. TN: Basic liquid crystal concept with many variants such as HTN, FTN, STN, FSTN… Each variant has an advantage on visual angle, power consumption, color, and resolution. While the visual aspect is poor compared to classic smartphones, they bring great value in term of cost and power consumption. It means they are the perfect choice for low cost applications.

2. TFT LCD (also called active LCD): This is the major technology for mobile phone displays. Its strengths are great colors and high resolution thanks to a transistor matrix (TFT) integrated with liquid crystal. Its major downside is the need for backlight, which increases power consumption.

3. OLED: This is a more recent technology. The advantage of OLED is that each dot can generate its own light, meaning that black dots don’t need power. Its power consumption is much better optimized than with TFT LCD. The unit cost being higher, it is more common on high-end phones. An OLED display can also be fitted on a flexible support, which allows a wider range of applications.

4. EPD (also called electronic paper): This is the most recent solution based on electronic ink. Since it consumes no power on a static page, it is perfect for e-book reading devices. it is based on ink, so the light cannot come from the display. It offers very high visual quality in luminous environments thanks to very high contrast. Like OLED, EPD can also be fitted on a flexible support, but color is still a challenge.

The table below summarizes the main differences between the families of technologies:

Comparison table of display technologies

On top of the criteria listed above, the selection of the right display should also take into account what already exists on the market. Customized versions are costly — they require a mold or tool that might represent up to a 1 Million USD investment.

Finally, most displays come with a driver to adapt its interface to your device. Drivers can be a burden in the selection process. They can have a short lifetime, limited features, or be very costly.

There are hundreds of Chinese suppliers, from the very low to the high end. The information available on the Internet is limited and can lead to a wrong strategic decision – switching to another display supplier after the first prototypes takes a long time and is costly.

Here is the typical information you need to ask potential suppliers:

  • What part of the display are you responsible for? (Many manufacturers only do final assembly.)
  • Is your business growing? If it is stable, what are the reasons?
  • Why are your costs lower than the competition? (Working with a supplier that makes a low margin is only good for the short term.)

3 Types of Factory Evaluations for Purchasing in China

More and more importers discover that they can appoint an auditing agency to evaluate factories before they issue an order. But not all these evaluation services are equally helpful.

I distinguish between 3 broad types of factory evaluations. Each type is suitable for different needs on the importer’s side.

1. Basic Factory Evaluation

The purpose is to collect basic information about the manufacturer, such as:

  • What is the address? What do the buildings look like? How big is it?
  • What type of products are they making? For what brands?
  • How many people work in production? What equipment do they have?
  • Do they check incoming materials/components? What type of in-process QC do they do? What type of final QC do they do?

More and more agencies offer this type of service for less than 300 USD. I think it makes sense for small factories, where the buyer does not expect to find a solid quality system or robust processes — a simple report with many photos conveys sufficient information.

2. More In-Depth Factory Audits

Most factory audits performed in China are based on an international standard. The large testing & inspection agencies encourage this because it looks very objective.

The most common standards for general consumer goods are ISO 9001 (quality management systems) and SA 8000 (social compliance). For example, an ISO 9001 type of audit will be based on a checklist as shown here.

In a perfect world, good manufacturers would get certified as compliant to those standards and would not need to get audited by their customers, thus preventing the “audit fatigue” that many of those organizations feel. However, since ISO 9001 certifications are so easy to get in China, and since SA 8000 certifications are so hard to achieve, most buyers decide to “check for themselves”.

Note that some auditing/engineering agencies decide they need their own checklist based on what they (and their clients) decide is most relevant. For example, ISO 9001 does not force manufacturers to have a set of perfect samples available in all production workshops and QC areas, but it is a good practice and I think it should be part of the criteria that impact the final audit grade.

3. Process Audits Conducted by Engineers

Most auditors have very little first-hand manufacturing experience. It means their conclusions about a factory’s reliability have limitations.

For example, an auditor who knows nothing about wood manufacturing will have trouble estimating whether a factory follows the right steps to dry the timber. There are similar critical steps in virtually all production processes, from the setup of an injection molding machine to the way a CNC machine is maintained.

As I wrote before, process audits are useful in catching poorly organized factories (since it also includes checkpoints related to the quality system), but they also allow to catch:

  • Factories that don’t know what they are doing (e.g. jigs that allow operators to place a part in an incorrect position, a so-called engineer who doesn’t know the melting temperature of the most commonly-used polymers…)
  • Factories that have habits detrimental to quality (e.g. using recycled material for plastic injection molding, taking shortcuts during the setup…)
  • Factories that don’t pay attention to the long-term stability and reliability of their processes (e.g. in-adapted maintenance programs, machines that are running at too high a speed…)

The auditor’s findings naturally lead to recommendations that aim at working smarter: adopting best practices that improve both productivity and quality. For example, adding a control jig that catches problems more quickly and more reliably than the current method.

Do you use other types of audits to evaluate potential suppliers?

What QC Tools To Use for Problem Resolution?

Many buying offices in China struggle to have their QC inspectors (trained to assess conformity to a set of requirements) act as QA technicians (able to analyze problems and solve them). What type of training is appropriate?

I think the 7 basic quality tools are very appropriate. They are easy to teach and to use. According to Dr Ishikawa, these tools can help solve 95% of quality problems that are encountered in daily operations!

The question is, how to integrate these tools in a problem resolution method that follows the PDCA (Plan-Do-Check-Act) logic?

I found a simple explanation (see below graph) that puts it all together:

PLAN

  • Data collection to select an improvement project: use Pareto charts and/or scatter diagrams
  • Study of current procedures: flow chart
  • Thinking of potential causes: cause-and-effect diagram (or fishbone diagram)
  • Data collection on potential causes: check sheet
  • Data analysis: control charts, histograms, Pareto charts, and/or scatter diagrams

DO

(No need to use these tools)

CHECK

  • Data collection: check sheet, control charts
  • Data analysis to see if there is improvement: control charts, histograms, and/or scatter diagrams

ACT

(No need to use these tools)

Use of 7 QC tools Source: Primer for CQE exam, published by the Quality Council of Indiana.

Due Diligence for Buying a Chinese Factory

Supplier ManagementMost Chinese factories are so poorly managed, there are real opportunities for savvy buyers who plan to restructure the company and boost profitability. At the same time, there are real dangers to avoid, and serious due diligence is necessary.

Looking at a factory from the perspective of a potential acquirer involves an analysis at many levels. I made the assumption that the due diligence process focuses on a Chinese-owned company.

1. Legal risks

The factory might not have the right scope of business, for example. Or they might be conducting a business that is illegal based on China’s law. Without a thorough review of their fundamentals by a local lawyer, you might buy a business that can crumble and disappear any day.

Sometimes it is more difficult to spot. The factory might be in an industry that has shady practices — for example, no VAT is paid in the construction industry and this practice, though illegal, is tolerated of local companies. It effectively prevents foreign companies to be part of that game. As soon as the local authorities realize the owner is non-Chinese, they will make it clear the business is operating illegally.

You can read about other examples in this article.

2. Compliance risks (in addition to strictly legal risks)

Do the factory’s operations have an environmental impact? What is the local government planning to do to this industry? For example, buying a ceramic factory in Foshan is probably a very bad idea — you will probably be forced to relocate to an inner province pretty soon.

Do production processes involve safety risks? In case an accident happens in the same industry, your factory might get closed for investigation. That’s what happened to 214 metal processing factories after the explosion in Kunshan this summer!

This type of risk is very industry-dependent and location-dependent, and is not always easy for industry outsiders to estimate.

3. Financial statements

Because of immature accounting systems and massive tax evasion, one can’t trust the level of profit declared to Chinese authorities. However, I would look at three indicators:

  • Profit: if it is positive, the business is probably making more profit than declared.
  • Assets: I would check whether their estimated value makes any sense.
  • Debt: if millions are owed to suppliers, it will be very difficult to push them to do a better job.

Note that getting a Chinese business’ financials has gotten much harder recently. In some cities, specialized firms can still get their hands on this information without the target company being aware of it.

4. Manufacturing practices

How far away are they from best practices in their industry? Can capacity be doubled or tripled by elevating a few bottlenecks and without any investment?

A big red flag is high levels of inventory. It is a sure sign of a mismanaged factory. So the good thing is, it signals a lot of room for improvement. But the bad thing is, it increases the price of the acquisition because the owner has a rough idea of how many RMB he spent on that stock.

It takes one of our consultants a few minutes to have an idea about a manufacturer’s efficiency and about its systems’ maturity. But, to an untrained eye, all factories look practically the same.

5. Ability to satisfy customers

How good and consistent is product quality? Are there frequent shipment delays? As a consequence, are customers ready to switch to a competitor who is a few pennies cheaper?

If calling a few customers and asking them questions, or reading through a salesperson’s emails, is impossible, there are other solutions to evaluate this point. A good look at their processes, their quality system, and if possible their records, will result in a reasonably accurate estimate.

6. Exposure to local competition

Since one can’t trust a Chinese company’s accounting books, a good approximation of its margin is its ability to avoid local competition. As Jack Perkowski wrote in Managing The Dragon:

The China market is actually two distinct markets. For virtually every product, there is a ‘foreign/local’ market, characterized by higher technology and higher price, and a second purely ‘local’ market, which is characterized by lower technology and lower price.

So you definitely want to avoid being in the “local market”. But the ability to launch new products also plays a role in maintaining healthy margins, especially in electronics, mechanical products, and similar industries.

7. HR practices

I wouldn’t waste any time looking at HR records or asking for formal one-on-one interviews with random workers. These methods have severe limitations, as I wrote before.

The best is to ask shopkeepers and passersby in the neighborhood if the factory has a good reputation and why — for example bad food or horrendous working conditions. A factory with a bad reputation will have trouble attracting good elements for years to come.

Another method is to look at the working conditions and potential hazards to operators. If even the basics (e.g. the workers don’t have protective equipment and aren’t aware of the dangers to their health) aren’t done right, it means management doesn’t care about safety. And it translates into higher staff turnover.

8. “Face to face” due diligence

I would look at the key people and try to answer a few questions:

  • Why does the boss want to sell out? Does he have another solid source of income (another business, some real estate investments…)? Or has he just lost a key account?
  • Are department heads competent? How long have they been in place? Is there a certain harmony among them, or is communication difficult?
  • How many members of the owner’s family have a position in the factory? The fewer the better.
  • Who are the main suppliers? Are they part of the owner’s very close circle?
  • If the factory sells a lot inside China: are there a few large accounts that do business “with the boss” rather than “with the company”?

9. What place for the owner in the future picture?

A Chinese “laoban” won’t act a professional general manager. In most cases, it is better for the boss to get out at the time of the sale. I would be extremely suspicious of a “laoban” who stays in a factory (whether he owns 0% or 50% of the business). I would suspect him of diverting money into his own pocket.

The touchy question is, who will act as legal representative? This position is often distinct from the owner or the general manager. The legal rep is the one who relates to government officials (in other words, who entertains them at night).

It is a key position, often held by a local employee who appears to be trustworthy. I won’t give general advice on this point… I’ll simply write that the acquirer should have a plan about how to deal with this issue.

10. Managing the switch from a Chinese-owned entity to a foreign-owned entity

What might employees do when they are told there is a change in ownership, and they are now part of a foreign enterprise? This is also a big question mark.

All of a sudden, all might ask for a raise, and might bring in the local labor bureau that might ask for retroactive payments of social security fees (as they did in last July with the Yuyuan shoe factory that employs 60,000 workers in Dongguan).

In theory, the proper way is to rent a building, start a new WFOE (foreign company), invest the capital required by the local AIC administration, hire staff, and so on. But this is not practical when acquiring a new factory. All I can advise is, talk to a lawyer and ask about the risks!

Would you look at other aspects of the business?

Amazon Does not Tolerate Low Quality Chinese Products

Many small businesses plan to buy products in China and sell them on Amazon as a Third Party Seller. It can form the basis of a strong, profitable business. But there is very little tolerance for quality issues.

We did a simple simulation of the impact of a serious quality problem (50% of defective products) on the importer’s profitability.

Example of profitability calculations

This simulation is based on the assumption that you get the goods in your warehouse and that you check 100% of them.

However, most Amazon Third Party Sellers I have met told me they deliver the products directly to Amazon’s fulfilment centers. In this case, they can expect to receive this type of message from Amazon:

Hello from Amazon.

We are writing to let you know we have removed your selling privileges and placed a temporary hold on any funds in your seller account.

We took this action because your order defect rate (ODR) does not meet Amazon’s performance target of less than 1%. The ODR metric is based on A-to-z Guarantee claims, negative feedback, and chargebacks.

How to avoid such a situation?

Work with the right supplier

Depending on the size of your orders, you need to work with a certain type of factory:

  • If you place small orders, you will probably have to work with a small workshop through a trading company that controls what happens. Make sure the trading company has processes and systems in place, and make sure they are specialized in your product category.
  • If you place orders above 20,000 USD per SKU for non-customized products, you can certainly buy from a larger manufacturer that can communicate directly with you. In this case, make sure to audit the factory and then to inspect the goods. Many agencies, including ours, can help you with that.
  • As a general rule of thumb, larger factories are more expensive, less flexible, and more reliable in terms of product quality.
  • In China there are very few “level 4″ factories.

4 Levels of Manufacturers

How to find out what type of factory you are in contact with? By auditing them. I strongly recommend to read How Factory Audits, Inspections, and Lab Tests Fit Together.