DC Velocity - Digital 2018

These processes work effectively in the West, but they are almost certainly suboptimized for use in China.

In the West, buyers typically exercise “arm’s length” accountability for supply consistency and compliance across all requirements, and they expect suppliers to manage these requirements with a minimum of active intervention by the buyer. China will someday reach that same state, but its supply chain is currently far from being that developed; Western customers who adopt the same approach in China can be risking their franchises.

The following example highlights this point. A high-profile Western toy company damaged its reputation— perhaps irreparably—by mismanaging its Chinese suppliers. After over 20 years of seemingly problem-free imports of high-quality toys, this company relaxed or lost its supplier quality-assurance discipline, and suppliers began to use lead paint, which failed to meet Western consumer-safety standards. The toy company not only suffered financial losses and damaged its reputation with consumers; its chief executive officer (CEO) was forced to admit publicly that the problem was not with the Chinese suppliers, but came from failures in the company’s own documentation, designs, and management processes. Similar scenarios repeat with disappointing frequency, resulting too often in painful outcomes.

This incident also highlights the fact that it is the buyer’s responsibility—not the supplier’s—to be sure that product designs meet all regulatory requirements of the market in which they will be sold. A related consideration is that Chinese suppliers’ sophistication in regard to manufacturing processes, such as quality assurance, material management, and manufacturing engineering, lags that in the West. These processes have taken generations to develop in the West, and they are still “in progress” in China.

Because of the relatively unsophisticated state of many Chinese suppliers, it is wise for any Western company sourcing there to exercise routine mentoring and monitoring of supplier performance. This means routine visits and project meetings with suppliers, performing periodic requalification audits, and implementing on-site quality-assurance programs or inspections. It may also require working on specific product- and process-improvement projects. Any supplier can get the first order right when all eyes are focused on it. It takes systemic stability of a supplier’s production and management processes to turn start-up success into long-term supply performance. If it is not practical for your company to do this directly from your home country and you don’t want to invest in having your own team in China, consider engaging an experienced third party to assist.

4Continually test and adjust your supplier base. The fourth key to China supply chain success is to continuously test and adjust the supplier base. In the West, supply chain professionals are constantly scanning the general supply base, searching for new suppliers and options to optimize performance in a dynamic environment. It is surprising how many companies abandon this practice when sourcing from China. They often find a supplier and then stick with that supplier for years, with little or no investigation of alternatives.

Rising costs in and immediately around major cities in eastern China, such as Shanghai, Guangzhou, Shenzhen, and Beijing, present challenges for Western companies that found qualified suppliers years ago. The movement of the axis of industrial development into secondary cities further west and the rapid enhancement of both the technology base and the local workforce’s experience expands the options available in those secondary cities. Many of these cities are surprisingly advanced and inviting from industrial and commercial standpoints and in terms of their overall quality of life.

To sustain and improve supply chain performance in China requires an ongoing focus on monitoring the dynamic supply chain environment there, scanning for suppliers that can deliver improved total value. In other words, the same discipline that is exercised to continuously adjust and optimize supply chain performance in the West needs to be exercised in China as well. In fact, because China’s supply base is younger and more dynamic, with faster development and growth than that in the West, it is arguably more important.

NO SHORT CUTS TO SUCCESS

Back to our initial question: “Why are some companies so successful managing China supply chains, while others are not?” The simplest answer is that companies that succeed in China understand that practices that work in the West need to be refined when working in China.

Supply chain success in China is no more difficult than anywhere else in the world, if the Western company sourcing there understands and follows the four key steps and the recommendations discussed in this paper. There are no short cuts to success! c

W. MICHAEL CORKRAN IS MANAGING PARTNER OF CHINA CENTRIC ASSOCIATES, A SPECIALIST IN DEVELOPING AND EXECUTING BUSINESS STRATEGIES FOR WESTERN COMPANIES IN CHINA.