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Engage Chinese suppliers to improve their productivity

by Neale O'Connor

Engage Chinese Suppliers Improve Productivity

How to engage Chinese suppliers to improve their productivity? Here are five questions to ask. 

What I am facing is that when I, in a labor-intensive industry, go to the supplier and talk to them about creating productivity, it’s a two-fold situation. They either say “Yes. No problem, let’s go to work in China, even though I am not sure though what that could do for productivity”, or the second answer is that “Yes we have done it, we have been improving our productivity, lean manufacturing, and a lot of these works”, but when you go to the facilities, it is not at all what we understand of lean manufacturing. So here, my question is, based on your experience with them, how can we engage them in improving their manufacturing productivity?

1. What is your collaboration strategy?

There were two types of collaborative strategies. Do you stay in one location, working with those suppliers, for the long-run or do you see that suppliers are to be managed, and you will cut as soon as you feel so when you don’t get any benefit from that supplier? So first of all, you must understand your supplier management strategy. A collaborative strategy is a must if you are to engage suppliers in meaningful productivity improvement.

 

2. Is the supplier in it for the long term?

I know of people who have gone in with buyers to the suppliers, to help them improve their factories, to help them improve their operations. I’m not an expert on all the industries, but I know in the electronics industry there are a lot of scope for improvements still, and for a lot of these suppliers, they find that many more things are naturalized in the electronics industry, because there’s much more naturally automated items, and you can bring them in actually to do it. That’s a big decision to make, to work with the supplier. So you have to be much more assured that the supplier is in for the long-term (to effectively help to improve their productivity).

 

3. What is your bargaining power?

I’ll talk about lean manufacturing. I think it comes down to, like so much in China, how much power you have. Are you a big buyer, or a small buyer? And it’s very hard to motivate a supplier to make a change, going lean or even getting ISO compliance unless they see the monetary value in listening to what you have to say. And I’ve had the opportunity to work on some projects with big buyers like IKEA, who goes to the supplier with huge volumes and takes over the management of the company, and pays them for the labor rate. It’s just one step away from owning the factory. Most of the time, I’m a small buyer going into the factory and convince them why they should make strategic changes to keep my supply chain. So from the small buyer’s perspective, you know, Bombardier is a huge company, but maybe I’m not sure the volume of this particular project, could be smaller or large. Great name, but if you are a small buyer and the factory is quite large, how do you motivate them?

Now, I’ll give the example I gave in the other room. I had a project buying $30 million of computer cases, and I thought the suppliers would be motivated to do whatever I want because I thought that was large. But simply buying in volume does not motivate the supplier. What I found after a few beers with the owner, one of them told me that his goal was not to be a manufacturer, to innovate, it was to make enough money, to get out of manufacturing, to get into real estate. His motivation isn’t about to implement lean or ISO; he just wants to do whatever he can to put more money in the pocket. Other suppliers, a smaller supplier that I’ve met was very open, younger ownership, he wanted to learn all he could about professional manufacturing, and very eager to absorb any information we could give about lean manufacturing and efficiencies.

 

4. Are you committed to a road map for improvement?

Regarding lean manufacturing, it seems that the word was the right one, is to get the suppliers’ promise. To be sure that the supplier believes in us, in terms of how to develop a program that can take from 6 months to 3 years, and it’s not only about the next PO matters, it is a big switch of the supplier behavior to be sure that it can be considered as the preferred supplier with developing the right protocol for what we call the client/company preferred supplier. The most important are to stick to the program or the roadmap we are drafting with suppliers.

To be sure, our top management believes that we are going to follow up the program and giving the advantage that we are looking for. It can be able to sell our products in the areas we are selling to; it can be the idea of sharing some knowledge with the customers we have, something like that. We have to be productive regarding what benefit a supplier would gain by working with us. And regarding implementing the investment, there are no secrets.

 

5. How much time are you willing to spend inside the factory?

We have to spend a lot of time with the suppliers, putting engineers sitting in the suppliers’ plant, and not try to resolve all the problems at once, but try to resolve one problem after another to see how quick we can have the results of the improvement. The more complicated is to convince the supplier that it is to his benefit to have a better workflow and to have a semi-product finishing inventory management. Highlight to work with the supplier the way his plant is working and want to make him identify what benefit he may have, and what improvement he can have. For example, a machine that is available and waiting for parts increases the lead-time. If we can work with the supplier to have the machine that is not under maintenance having always filled with parts, he will save a lot of time and lead time. In that case, he can increase his capacity. But it is not easy, especially in terms of categories, when we are working on should a shoe manufacturer hires labor intensive to have lean management of every step of doing hydro shoes take some time, but in the end, the supplier can see the benefit he can have for us, the client, but for all the clients he has as well.

 

In Summary:

  1. Understand your collaboration strategy. Are you the fashion industry type that moves between suppliers at the chance of 2 cents price reduction or is you are sports industry type buyer that seeks to collaborate with suppliers over the long term?
  2. Understand your supplier, what’s their motivation, what’s their five years, what’s their 10-year plan. So it all comes down to finding a supplier that’s right for you and motivated in the same direction, as you have to go. And it’s not always easy. Sometimes it takes a lot of dinners and trips to the middle of nowhere to figure out what they are thinking.
  3. Pick the right supplier and sometimes as a small buyer, it’s hard to interest them. So maybe by bringing your commitment to lean manufacturing to the table, that’s what could interest the big buyer, maybe you’ll be the case project that they’ll work with to take their factory to a higher level. So they see you not as a purchase order, but a partner.
  4. Stick to the improvement program that you have outlined for the suppliers
  5. Improvements come from spending time on the ground in the factory

 

To learn more about importing from China, sign up to the China Sourcing Academy as a Free Member, and get access to valuable articles, videos and the Full China Sourcing Crash Course.


Dr Neale G O’Connor FCPA (Aust) is a Cofounder of China Sourcing Academy, a complete training system for professional buyers seeking to source from China. He is the director of Ricebox (Hong Kong), a China risk management consulting company, and is the founder of the China Supplier 1000 Project that focuses on helping suppliers to develop their international business. He has two books on operational and risk management in China that are available on Amazon, and is an Associate Professor in Accounting at Hong Kong Baptist University.

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