By: Eric Tang
Translated by: Xiuguo Dong
Sourcing from abroad can have many advantages, e.g., you can achieve higher cost-efficiency and enlarge the product portfolio. However, due to the geographic and cultural distance, communication and processes can be non-transparent. When small and medium-sized enterprises (SME) in Europe source from China, with more than 8.000 km between them, especially when customer capacity is limited, the challenge can become highly complex. In the following, we will share five kinds of challenges we faced in the course of our long-time experience of international sourcing and our advice to overcome them.
Case 1: Analyze and prepare as comprehensive as possible, as soon as possible As we sourced for a valve component, the selected producer, with whose offer we were nominated by the customer, had insufficient experience with similar parts, despite his excellent technical skills. And although he eventually succeeded in developing this component, the process of approval during product development took a very long time. Since our producer also outsourced the molds and the subcontractor was not well introduced to our project, the accuracy of the molds could not meet the product requirements at first. At the product release stage, the molds were not accurate enough, resulting in several mold modifications that were time-consuming and costly. Through more intensive supplier management and communication with the customer, we were able to overcome these difficulties. Currently, we are delivering this component in series to the customer and have gained firm trust from the customer.
Our advice: The purchaser should think and proceed more comprehensively when selecting the right supplier. On the one hand, price, capacity, quality control, willingness to cooperate must be considered. On the other hand, it is also necessary to check whether the supplier has experience in manufacturing similar products and the process capability and competence for the subcontractor’s quality assurance. All these capabilities are essential.
Case 2: Balance between costs and quality requirements
We have sent an inquiry with a variety of products to a producer. Due to a large number of product types and the urgency of the offer, the producer insufficiently checked the drawings and technical requirements during the offer stage. Moreover, the producer was eager to get the order, so his offered price was very low. After the nomination, we were under great pressure to keep the low bid price together with the producer during the serial production process, which made it difficult to continue the project. It took several rounds of technical revision meetings as well as price negotiations with producers and customers to finally find a compromise solution that all parties could accept.
Our advice: When purchasing receives an offer from a supplier, costs must be analysed. Technical meetings must be organized between the technical team and the supplier’s technical team to clarify drawings and requirements and confirm with the supplier whether all requirements have been included in the offer. We must also assist the supplier in identifying drawing risks, including dimensional and tolerance control, casting defect risks, inspection difficulties, and machining risks. These risks must be identified as much as possible during the bidding phase and their impact on price must be determined. In addition, a detailed project kick-off meeting must be held at the beginning of the project to discuss the risks and difficulties and confirm them in a timely manner. Try to clarify risks as much as possible before starting project development.
Case 3: Considering size and weight to have a clear insight about transport costs One of the products we are currently delivering has the special characteristic of having a large volume but lightweight. In addition, particular force majeure factors, such as epidemics, natural disasters, etc., lead to a significant increase in freight costs, which caused cost pressure.
Our advice: The offer must indicate what is included and what is not included in the quote. Crossvalidation between purchasing and sales team is required. The weight and size of the parts also need to be considered in the offer. They can be defined as light good (significant volume but lightweight) or heavy good (size and weight are in proportion). This is relevant for the calculation of the transport costs. And this information also needs to be communicated with the sales team. In addition, the offer must contain a clause, which says that unforeseen force majeure factors will affect transport costs.
Case 4: Clarify “hard” topics such as penalty as clearly as possible, as soon as possible One of the existing products was involved in claims issues. However, these claims scenarios were not confirmed before the project was initiated. Suppliers in China rarely take the initiative to ask questions about claims handling beforehand.
Our advice: Penalty terms and quality terms such as QAA must be clearly defined and communicated as soon as possible before the project starts. Case 5: Constant follow-up to get up-to-date information Some projects are new to the producer. In such cases, the producer may give a too short estimated lead time. He wants to show their high production efficiency and sufficient capacity. But this unrealistic estimation can lead to a lack of time already in the early stage of project development because of insufficient experience and the instability of the initial production stage. Our advice: The lead time should be checked repeatedly and also reviewed together with the supplier. With more knowledge about a project, you can make a more realistic estimation. So, keeping close contact with the supplier and constantly monitoring the production process are key components in international sourcing.