While deciding to look to China and other Asian countries for cheaper manufacturing, numerous benefits exist (including reduced price and faster production time); however, weaknesses exist as well: loss of direct control, increase in risks associated with international trade and the neglect of other aspects. Considerations beyond financial ones should be included in the final decision–at large also referred to as the procurement that includes different kinds of sourcing.
For regular sourcing, ODM production and OEM production, these issues can be managed and many companies seek to send out their own personnel to China to oversee the operation full-time. However, this isn’t always an option for smaller companies. Fortunately, there are services available that address the needs of companies who wish to move production overseas to ensure the process runs smoothly.
Generally, there are two types of production services: those carried out before the manufacturing–pre-production services–and those that are completed after production–post-production services. Many companies fail to consider the need for post-production services until after the manufacturing has been done, but at that point it may be too late to arrange them.
There are many tasks that can be done by third-party companies to help you with the production process.
Pre-production services all relate to the tasks that need to be completed prior to commencement of manufacturing:
As the saying goes, failure to plan is planning to fail. While you may have a comprehensive understanding of the importance of planning, the reality is, when it comes to China or Asia in general, that there will be a lot of unfamiliar variables involved. The time frame for what you want to achieve may be vastly different when dealing abroad. It starts with different holidays and different legal systems, but also means that words and deeds maybe more distinct than you are used to. Therefore, project planning services seek to help you accurately create a plan defining a realistic schedule for your project. Many Western customers benefit from such as service due to their inexperience dealing in an unfamiliar market, and are pairing with a consulting company who can help to ensure that their project is efficiently implemented. For instance, also the transaction and payment terms have to be planed.
The main driving force compelling businesses to look to China for manufacturing is to reduce costs and to create a competitive advantage over their rivals. The process of cost minimization is effectively conducted through finding the cheapest price in a list of suppliers who meet your needs.
However, there are further ways to reduce costs than simply finding the cheapest factory, which might lead to a race to the bottom so that the quality of the desired product decreases with a “better” ranking. Cost minimization services generally also look at intangible factors influencing cost, and seek to create a solution to how to decrease costs further or find the overall cheapest option.
Just because a factory can offer the cheapest price, if you take into account other costs for example such as reliability and quality assurance, there real expected price might be much higher than it seems at the first glance. Requesting samples from different suppliers is usually part of this process.
Negotiations and Contracts
In China and Asia in general, you often have significantly different set of values and beliefs resulting from their culture. Conducting business in China is different to how you may go about it in Western countries, with heavy values being placed upon aspects such as respect and face. Companies that offer negotiation services will act on your behalf to ensure you get the best possible deal.
You will receive specialized help who understands the Chinese market, their culture as well as language, ensuring you will get what you want without any confusion between the two parties. This experienced assistance will have knowledge about which prices are competitive and how factory conditions should be like, ensuring that your company is not being taken advantage of.
In regard to contract services, this generally targets reducing the risk facing your company. Due to the different legal system, it is integral to ensure all contracts are able to be upheld and enforced, without any misunderstandings occurring due to a poorly constructed contract. The legal system in China and other Asian countries has been known to favour businesses native to that location, so this service can be essential to ensure any potential legal road bump is smoothed out.
Audits (Quality Assessment and Factory Inspections)
Audits are an essential part of manufacturing in China. Many suppliers advertise their services on sites such as Alibaba or DHgate showing pictures of their highly advanced factories. However, in select cases what they advertise they are capable of, and what their factory actually looks like is vastly different. At best these are highly staged pictures. To ensure everything is how it should be, many service companies based in China and surrounding areas offer factory inspection and quality assessment services.
For quality assessment services, this generally takes the form of analysing the quality management system in place at the factory. This should include reviewing all relevant certifications and documents, as well as ensuring the production process is carried out correctly. Due to many factories being known to fake certifications or in some cases, impersonate legitimate factories, it is critical to verify all information provided is above board.
Factory inspections carry out a similar role, and consist of an on-site inspection where all aspects of the company are reviewed; this ensures that how the factory represented itself to you is the reality that you expected. To an inexperienced person, all factories may look similar, but to an experienced consultant, they can quickly get an idea of how professional the overall manufacturing process is. This process also reviews the production process and will evaluate the professionalism and reliability of the service, aiming to mitigate the risk of your company receiving a subpar experience.
The objective of due diligence services is to address the risks concerning the supply chain. The rules and regulations concerning Southeast Asia and China in regard to the procurement of raw materials and intermediate products are relatively lax, and could result in unethical business practices, fraud or just mismanagement being conducted. Due diligence services seek to find out from the top to the bottom what potential risks are involved of you partnering with a certain supplier, and what can be done to minimize them.
Another crucial aspect of due diligence is to create a strategy in case you are let down by your initial supplier. A situation may arise where your original factory decides not to enter into the agreement with you, or that the anticipated quality of the products is below the required standards. In cases like these, if you do not have an action plan in place, you will waste significant time and resources to find an alternative spontaneously. Due diligence seeks to create an alternative solution in the circumstances of an unforeseen situation arising.
It is crucial to consider the whole supply chain for a successful project – not only actual production.
Post-production services all relate to the tasks that need to be completed after to commencement of manufacturing:
Quality control usually takes the form of ensuring that the whole batch of products manufactured meets the minimum quality requirements prior to delivery. There is a distinction to be made between quality control and quality assurance, which is the process of continually improving the products to try and prevent defects in the first place. The expense of hiring a company to conduct quality control services is usually recovered by identifying problems prior to delivery of products to customers. Saving costs in regards to dealing with returns or spotting any potential issues that would cause a recall.
Furthermore, quality control goes further than checking the quality of the products, but it also addresses problems arising after production but prior to shipment. Proper packaging is only aspect that is often overlooked. For example, it could also be that the customs information is incorrect and needs to be changed to reflect the true or complete information. Alternatively, the size and color of the ordered product may be incorrect, or there could be a mistake in the quantity delivered. Quality control seeks to address all these problems and discover them before your order leaves the country, rather than once it has arrived at your door.
Freight Forwarding and Logistics
One issue which arises from conducting business in China or other Asian countries is logistics. It is not as simple as placing an order and expecting it to be shipped straight to your door like with Amazon. There are many different methods of transportation, like air transport or sea transport, and each come with a variety of pros and cons. Each method has different costs, and most service companies who offer these post-production services will work with you to find the best way to get the products to your door which is in line with your budget and objectives–independent of different logistics companies who have to sell their own services regardless of your specific needs.
Furthermore, most logistical services will also iron out the fine details when it comes to customs and having the required documentation that is needed. If this is not in order, your goods may be subject to being seized, which can result in complications and delays until the issue is resolved. Fortunately, with logistical services these issues should not arise.
By using an intermediary service you are granting an external company permission to represent you throughout the entire process from the pre-production services to the post-production services. They will absorb all associated risks and ensure the process runs smoothly, and if any issues do occur, will work with you to resolve them.
There are two main functions that an intermediary service can provide for you.
Firstly, if your company is directly importing from China or another country, your customers may be able to see exactly where the products have come from and who they were sent by and even the original cost. One can look them up conveniently in online data bases specialising on this. It can create issues where your customer decides to cut out your company and source directly with your supplier. However, by going through an intermediary service, the actual source of your goods is concealed as well as the prices. Thus allowing your company to add on an appropriate premium and prevent the possibility of your customer bypassing you.
In addition to this, if the products are being imported directly by your buyer, then there is no need to physically receive the products to your own company. This saves one step within in buying process, and in certain cases, can result in not being required to pay VAT or sales tax, helping reduce your expenses.
Conclusion for Pre-Production Services and Post-Production Services
Setting up international relationships with suppliers can be a difficult task, and along the journey of creating this process are many different pitfalls. It can be hard to plan for every possible outcome if you do not have the experience in knowing what can go wrong. Fortunately, most of the risks that occur can be mitigated by using the services such as those described above.