Managing urgent shipments in China

Supplier ManagementFor some importers, everything (i.e. development, production, and shipments) is always done under intense timing pressure. Nothing can be done about it–it is imposed by their market. So, how can they ensure quick production in China?

How to speed up production

Some buyers have gone a long way to make their supply chain more responsive. Here are a few examples:

  • Buying raw materials in advance and storing them
  • Organizing the whole production in the same general area, to reduce transport time and uncertainty
  • Reserving adequate capacity with the suppliers and the sub-suppliers
  • Distributing the work in several factories, to gain in capacity and speed
  • Working in small batches that can be shipped early, rather than shipping large quantities

When time is very valuable, all the above steps tend to optimize the supply chain. But the whole system is useless if some unforeseen obstacle pops up at the last moment. As anyone with experience sourcing in China will confirm, last-minute issues are the norm rather than the exception.

One can distinguish two types of reasons for unforeseen delays.

-1- Delays caused by the supplier: what can be done?

Before issuing each order, the buyer should confirm important milestones such as: launch of production; time to get the first finished products; time to reach 50% of finished products; end of production; final inspection; shipment.

As David Dayton keeps reminding us, “On a good day you can have any two, but not three, of the following: quality product, low prices, quick production turnaround”. I hope quality levels–outside a certain tolerance–are not negotiable for most importers. That leaves price and timing. If you need a good timing, you have to accept to pay more. It can mean finding a reliable (read “expensive”) supplier. It also means you should have a team on the ground and/or pay for support services.

Here are the main steps to take:

  • An email confirmation of a planning is not enough. Get the supplier to sign and chop a document. If possible, make it a legally-binding document. For large orders, specialized lawyers should be called in to draft an OEM agreement. The advantage is that, as soon as a disagreement with your supplier appears, you can push them to find a solution quickly by sending a demand letter.
  • You should put in place some penalties for late shipping. Write it on your purchase orders, and on your L/Cs if applicable. The penalties should be lower that what you really lose in case of a delay, but high enough to impact the supplier’s decisions. And add an extra 8 or 10 days for safety, especially with new suppliers… Even if you think penalties are taken seriously.
  • Check the factory’s capacity in advance. This is not very complex, as Chinese factories are usually specialized in final assembly and only perform 2 or 3 operations. And it is critical! Chinese suppliers are famous for never refusing orders. They usually subcontract what they can’t produce in small workshops that have no idea about quality requirements, and such situations usually end up in disasters.
  • Ask the factory how they track production status. What is heartbreaking is that they often have the raw information (for calculating the number of pieces–and the pay–of each worker) but they don’t use it for planning purposes. Ask how they know if they are on time. You will know how reliable their forecasts are.
  • Chinese suppliers tend to be too optimistic in their planning. Even worse, they don’t break bad news immediately. Some buyers cancel orders as soon as they hear about a 2- or 3-weeks delay. So the suppliers only tell the truth gradually: you hear it is 3 days late today, then it is another 5 days late at the end of the week, etc. I have seem whole productions put aside for weeks, as the factory gives priority to a bigger customer or wait for available capacity.
  • The only way to know the reality of production status is to go in the factory yourself, or to send inspectors from QC firms. The number of finished products can be estimated, and the number of operators/machines dedicated to a given production can be counted. But the real benefit of performing in-process inspections is that quality issues are found early and can (hopefully) be corrected in time. Confirming quality before shipment is important, but finding about problems and solving them earlier is much more useful.

I know some importers will think “I can’t impose this on my suppliers.. They would refuse to work with me!”. My response is that these suppliers might not be reliable and/or cooperative enough for being given urgent projects. When timing is sensitive, being tough is necessary with 95% of Chinese vendors.

Here is why. The suppliers know there is a cancel date and they know the customer will not delay the shipment after that date. The only decisions, when push comes to shove, are (1) shipment or (2) order cancellation. Chinese suppliers know that importers only choose the second option in extreme situations. They know they can get by with, say, some quality issues or a last-minute price increase. Don’t give them the power to play with you…

-2- Delays caused by the customer’s requirements

I guess roughly half the delays originate from the customer’s side. I wrote a few examples below:

  • If it takes 3 days to approve a sample instead of 2 hours, and if this process takes place 3 times in the course of a new product’s development, that’s nearly 10 days of wasted time.
  • If new samples have to be prepared by the supplier because the customer did not communicate his expectations accurately (in a way that can be understood by Chinese technicians), that’s an extra delay of at least one week.
  • If the customer requires laboratory tests on the materials to be used in bulk production, that’s an additional delay. Note that it is strongly advised, and it can usually be performed while production is launched. But sometimes the testing results are necessary for printing the labels, and this can cause unexpected delays.
  • And my favorite… It usually drives everybody nuts, buyers and suppliers alike: the marketing department wants to get samples in exact color, shoot them for the catalogue, and use the resulting images to provide the packaging design. Everybody waits for the packaging elements and bad mouths the marketing folks.

These delays usually come from poor planning or poor coordination in the importer’s organization. Fixing them is a priority. Ensuring real cooperation from suppliers is possible only after one’s own shortcomings have been corrected.