by Etienne Charlier
For most people, China industrial sourcing means purchasing parts or sub-assemblies from China for assembly into a final product or for distribution.
In this case, the buyer places repeated purchase orders to the Chinese supplier and is able to benefit from incremental improvement from one order to another one.
There is also a totally different type of industrial sourcing: Project Sourcing.
Typically, a system integrator is designing and implementing a custom turn key project and procures all or most of the sub-systems and material required for the project from third parties.
These types of projects occur often in infrastructure projects: building construction, factory lines and process equipment, warehouse equipment, water treatment, control room, transportation and many others.
In this business, the system integrator (SI) interacts with its suppliers at several critical times:
Each project is slightly and sometime radically different from the previous ones. The system integrator will make a general system design and often discuss this with key suppliers in order to look for advice, system optimization and possible new features.
When the project is awarded, the system integrator will plan the project and schedule the intervention of each of its sub-contractors. It is always a multiple-supplier environment and sometimes the integrator has to deal with tens of suppliers. In addition, each order is a first: new product or new configuration or new documentation or new destination. There is always more risk of getting it wrong as the routine between buyer and supplier is always somehow broken.
Integrators are specialist at system design and project management. But there are not the specialists in all the parts and sub-systems they procure. Unlike manufacturers or distributors of a specific range of products, they will need more support from each of their supplier to ensure proper installation. Even more importantly, the SI will usually require assistance for commissioning and acceptance of the equipment.
Turn-key project often entail long warranty period up to 5 years and product support up to 20 years at system level. This requires special measures with the suppliers to secure support by each of the subcontractor.
Obviously, project procurement is not made easier by working with Chinese suppliers. Good suppliers for a system integrator will display some specific attribute beyond making performant and reliable products:
These are not the soft skills that one attributes to the average Chinese supplier. But it is our experience that it is possible to work with good and emerging Chinese manufacturers. With the necessary supplier development investment, it is possible to develop good China project sourcing and build a strong system offer.
In spite of the poor perception of Chinese companies on soft skills, Chinese factories will have strong cost advantages when it comes to customization, new feature addition, design changes, factory simulation and acceptance and other technical labor intensive activities.
The necessary condition to make this work is to have strong project management capabilities in China to manage the suppliers on behave of the system integrators. Some large MNC have very successfully setup project sourcing teams in China with engineers and project managers able to follow-up and develop suppliers.
Smaller or less experienced buyers will be smart to look for assistance. In selecting their sourcing partner, they will have to keep in mind that most China sourcing professionals are focused on high volume recurrent sourcing. As such, they will not be completely familiar with the challenges and the best practices of project sourcing.
It is important to make the difference and to select the organization with specific experience in project sourcing.
It is a little harder, but the reward is up to the challenge.