DC Velocity - Digital 2018

Special Delivery

cess-control charts are often kept and filed with no closed-loop management discipline to control operations outputs. Commonly, many of these tools remain new to Chinese suppliers, and the process of infusing them into management discipline is still a work in progress.

Instead, effective supplier qualification requires assessing the stability of a supplier’s management and processes to maximize confidence that the selected supplier can consistently meet the full range of your requirements, including those related to product, total cost of product acquisition, quality, and logistics. If the buy is a strategic, ongoing need, then the goal should be to select a dependable and long-term supply chain partner and not just chase the lowest-price product. If you search and qualify suppliers effectively, then you will almost never have to sacrifice price for quality and support performance.

It’s critical that a supplier evaluation be adjusted in both format and content to reflect the core differences in relative sophistication between the Chinese and Western supply chain environments (a topic that will be discussed further in step 3).

A disciplined supplier-qualification process also identifies strengths and weaknesses in processes that are very often the determinants of actual long-term success. Understanding a supplier’s strengths and weaknesses allows you to predict that supplier’s ability to deliver sustained product, quality, delivery, and communications performance. It is recommended that buyers apply a detailed supplier-qualification process that baselines and assesses a supplier across a wide range of measures in six functional disciplines:

1. manufacturing facility and process equipment 2. manufacturing management processes

3. quality systems

4. technical support

5. logistics and export capabilities

6. general management and finance
Importantly, the buyer should take nothing for granted
in the supplier-qualification process, and instead verify
information when possible. For example, it is important to
seek out documented linkages between control charts and
formal feedback and process-improvement programming
in operations.

2Synchronize expectations through contracts. The second key to China supply chain success is synchro-
nizing the understanding of all customer-supplier “rules
of engagement” from the outset. Innocent mismatches of
expectations between Western customers and Chinese sup-
pliers about Western commercial principles are extremely
common. If you engage a Chinese supplier assuming its
management intuitively understands how suppliers and
customers interact in the West, you are taking a big risk.

For that reason, a formal supply contract that memorializes the full range of engagement rules with suppliers and minimizes the potential for innocent mismatches of expectation is a necessity. Indeed, the importance of contracts cannot be overstated. Keep in mind that from the Chinese perspective, “If it’s not in writing, it didn’t happen!” and “If it’s not in writing, it’s not important!”

Simply sending a purchase order to a Chinese supplier may work for commodity-like buys, but for any other types of products, using purchase orders alone is a risky path. The more strategic the buy, the more critical it is to assure that your Chinese supplier understands clearly all required dimensions of the supply relationship. It is recommended that for all purchases of strategically important buys, formal supply contracts that are more comprehensive than we would use in the West be established with suppliers. Contracts need to define all possible “rules of engagement,” including, but not limited to, product specifications, quality-assurance requirements, terms and conditions of sale, intellectual property considerations, custom safety-stock programs, and noncompete provisions. Investing the time to do this before any actual purchases have been made prevents problems later. In combination with disciplined supplier qualifications, a complete supply contract sets a sound foundation of transparent understanding and expectation between buyers and Chinese suppliers.

3Refine Western supply chain management processes. The third key to success is refining your company’s routine supplier management processes to suit in China.