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I'm catching up here on a good post entitled When Sourcing in China. Cash = Control on the All Roads blog. I wanted to write something about the relationship between payments and quality, but I don't think I can write it more clearly than this: For those who are sourcing in China, it really is important to understand that as long as you “owe” your supplier money, you are still in the position of power.  You can change an order size more easily, you can demand a 3rd party audit, and if the QC … [Read more...]

Very good post, over at Evolving Excellence, entitled How Do You Like Them Apples?. Bill Waddell, a consultant with strong experience in operations management, analyzes Apple’s procurement of iPods. He tries to demonstrate that Apple probably doesn’t save any money by sourcing from China. He starts with numbers from academic studies: […] The Chinese manufacturer (Foxconn I presume) takes 2.7 labor hours to make one at about $1.50 an hour for a total Chinese value add of $4 per iPod. He … [Read more...]

I finished reading Mr. China by Tim Clissold and I found it quite interesting. It is the story of an investment fund that lost hundreds of millions of dollars in China in the 1990s. The author describes in great details the traps his company fell into and what solutions they found. At that time, the only form of investment that was allowed was doing joint ventures with Chinese partners. But some comments are also useful for importers trying to resolve a conflict with a Chinese … [Read more...]

I just came across an interesting post ("6 conversations and a couple of cultural lessons") on the SRI blog. In the last paragraphs, David Dayton evokes the sub-contracting habits of Chinese manufacturers: Chinese factories ALWAYS sub work out to other factories. (And no, I’m not exaggerating. Always is the right word.) But they never do QC. I have not, in 7 years, ever had a factory do QC before they accepted product from a factory that they’ve sub’d work out to. They always act so surprised … [Read more...]

The general shareholders meeting at Carrefour (2nd largest retailer in the world) recently took place. Many newspapers wrote about the complaint from a small shareholder, speaking in public to the CEO (see this article from Le Monde, 10th paragraph). My translation: Last week I bought a pack of strawberries for 1 euro: I got diarrhea! I bought coffee from Costa Rica: I got diarrhea! I bought some socks in 46/48 size, but after washing they shrank down to size 38, which is my wife's size! You … [Read more...]

A few weeks ago, I was asked what a small importer can do to "keep his pipeline full". Many importers of general consumer goods need to renew their products regularly, for many reasons. But how to get new product ideas and develop them on the cheap? Here is what I wrote back: Plan long in advance, start development with your suppliers, and then place orders in function of your sales forecasts. Be careful, many small shipments are good for keeping some cash in your hands, but they … [Read more...]

In a recent post, I was wondering whether many importers calculated the fully-burdened cost of imports. Today, I came upon an interesting article on Knowledge@Wharton (Can China Meet the Quality Challenge?) where Mr. Pinney, from BCG Shanghai office, explains the roots of this situation: "They have a procurement mentality and focus purely on price negotiation, and it's an arm's-length transaction," he says. Because their expectations are based on their experiences with home-country suppliers, … [Read more...]

I am reading Poorly Made In China, and it is a real treat. Paul Midler, the author, does a great job at analyzing the psychology of oversea buyers. He gives examples where the importer got himself locked into a relationship with a given factory. The manufacturer could feel it, and took advantage of it to raise prices... and, at the same time, reduce its cost by degrading quality. Each time the buyer protested, the supplier just pushed back. Here are two extracts that detail the mechanism at … [Read more...]

In my last post I explained why inspecting quality earlier is better. The idea was: you should have your production checked before/during production if possible, and you should definitely not let your supplier ship some goods that were never inspected by a professional. Unfortunately, most small-and-medium-sized importers don't have QC inspections performed regularly on their shipments. They save a little time and a few hundred dollars. But, in case these goods go through their own warehouse, … [Read more...]