If you are only going to place 2 or 3 orders with a supplier, the key sourcing criteria will probably be quality, price, past production of similar products, and understanding of compliance requirements.
However, if you are looking for a manufacturer you’ll work with for 5+ years, you need to look at how they can ensure that the operations in their factory improve. If they are stuck in old ways, they might not be able to support your evolving needs… and, more worrisome, they will probably go bankrupt (as costs keep going up and nimbler players take their business).
Based on past experience in China, I think there are two key success factors you need to look at. I call them two “improvement muscles” because, without them, any improvement is next to impossible.
I cover this in this video (on Youtube), and in the rest of this article.
Muscle 1: Management Systems
When top management wants to implement a new initiative, are there systems to ensure it gets done? Such systems would typically include:
- Identifying leader(s) and making the initiative part of their job responsibility
- Budgeting the right resources, including people who will spend time on the project
- Prioritization vs. other projects
- Aligning incentives (usually with an impact on bonus calculation) so that all employees ‘row in the same direction’
- Careful planning at the start, and then regularly scheduled meetings to study progress and readjust the direction as needed
- And, last but not least… top management’s attention all throughout the project
If the organization has been carrying out such projects for years, the leadership team is used to it, the “muscle” works well, and chances of success are high.
If, on the other hand, the boss simply says “this is important” to the managers and then goes onto something else, it is nearly guaranteed to fail. Here is the typical situation in maybe 95% of Chinese factories:
- The ‘boss’ doesn’t spend much time on operational issues; it’s all about making ‘deals’ and wooing new customers
- The managers don’t form a strong leadership team; they never got any exposure to a well-run company
- The managers are constantly busy fighting fires
- There is no training program
I’d include the maturity of the quality management system in this “muscle”, too. An ISO 9001 auditor, if he/she asks the right questions, will quickly see if people think in terms of systems or if their views are very narrow.
Muscle 2: Engineering Capability
Typical improvements that are needed for shortening lead times, keeping cost increases modest, and/or improving quality, generally require changes such as:
- Better process control (not just product inspection) all along the manufacturing steps
- Better equipment maintenance — usually by setting up a preventive plan and applying it
- New line layout
- Improvement of existing tooling
- Development of new dies, fixtures, tools
- Statistical design of experiments on an immature process with complex physical and/or chemical interactions
As a rule of thumb, if you feel you need to inspect their product quality, they are weak on most of these points.
As you can see, I am thinking mostly of process engineering here. Product redesign can also help. I wrote before about evaluating a manufacturer’s product development engineering capability.
The engineering muscle of factories is quite variable. People tend to think large Guangdong manufacturers score much better than their small counterparts in Zhejiang or Fujian, and on average that’s probably true. But, in every province, I see process engineering and maintenance skills as being among the weakest areas in the vast majority of companies here.
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What do you think? Do you look at other aspects such as the owner’s personality/focus, their past investments (or lack thereof), and so on? What has been a good predictor?
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