More tips on auditing suppliers; Force Majeure

Other than a factory’s management and production facilities there is one very important thing  to consider when evaluating a potential supplier: climate & weather.  China has a diverse climate and you should understand the climate where you are having your product made. For example over the last two weeks in Southern China, including Guangxi, Guizhou and Hunan icy weather has led to severe power outages. Some places have been without power for a full two weeks. Can you imagine if you had a product for an important customer with a cancellation date fast approaching and your vendor in rural Guangxi emailed to tell you that production was stopped because the bad weather had lead to a power blackout? Of course, there is nothing you can do about the weather but you owe it to yourself and your company to try to understand as best you can about the climate in the Province where you are going to be manufacturing and to ask your vendor how they are equipped to deal with inclement weather and/or resulting power outages. Power outages can be especially frequent in the summer when energy demand in China is at its peak and it is not uncommon for a factory to have just a few hours of power every day, their allotment from the local government. If they have a generator ask them to turn it on for you. Once again, just because there is a piece of equipment on hand, does not necessarily mean that it works ( please see Mulberry Fields archives) . If you have a product which needs significant dyeing and/or drying time, furniture being a ready example, you have to see if your vendor has facilities inside the factory to dry product when drying outside is not an option. Again, ask him to demonstrate these facilities for you. You also need to see how packaging is stored as wet weather can inflict serious damage on corrugated containers. It is too easy to forget about all of this especially when you come from an area, as I do, like Northern California where the weather year round is 60 degrees and sunny. But as it says in The Book of War 不知彼而知己,一勝一負 (bu zhibi er zhiji yi szxheng yi fu) If you know only yourself but not your enemy, you may win or you may lose. Why take the chance when all you have to do is spend a few hours reading about climates in China and follow up with your vendor.

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When in China, speak Chinese

Having worked over the years for several American companies that do business in China, I have had numerous occasions to visit China with colleagues or to host them when I was living and working in Shanghai. One thing I have noticed few American business people actually try to learn some Chinese before they visit China. I can recall any number of colleagues who could not even say 你好 (ni hao) or hello when they landed in China.

My personal opinion is that it is not wise policy to go to China without a handful of Chinese words and expressions and at least skeletal knowledge of Chinese history and culture. The Chinese are very proud of their culture and many of them resent the fact that Western Culture, in particular American culture, is the dominant global culture. By speaking only English one projects prevailing attitudes in the West about Western vis a vis Chinese culture. I would add here that nowadays when China’s economy is pulling the world behind it, American arrogance – for that is how it is perceived when you travel to China and speak in English – seems slightly anachronistic.

By speaking Chinese, however, you pay deference to your Chinese hosts and this is something they will not forget. When a vendor has to prioritize orders the fact that you attempted to speak Chinese to him/her or praised an aspect of Chinese culture – like calligraphy – while one of your competitors failed to do this may mean that you get a better position in the production queue or that more care is taken loading your product onto the container. Of course, in most cases trying out a few phrases from your Lonely Planet China guide may not make much of a difference at all. But the point is, you never know. It does not hurt to make the best possible impression you can on your vendor. I would add that speaking Chinese while you are in China will make your visit much more enjoyable. If, on the other hand, you travel to China and cannot speak any Chinese you will experience a lot of frustration.

For this reason, I always encourage people before they go to China to take a Mandarin class. I think speaking Chinese is an indispensible part of doing business in China. As the Chinese say 入乡随俗.(ru xiang sui su) When in Rome do as the Romans, or in this case, When in China, do as the Chinese.

Do ERPs work in China ?

I am thinking about ERPs today because I had dinner the other night here in Tokyo with a small business owner from the US who was passing through to visit his suppliers in Japan and worldwide ( although he as yet does nothing in China). His company has just implemented a state-of–the art ERP from Microsoft as a way to gather real-time data on sales and stock levels. These systems are especially useful in the fashion and apparel business – which happens to be his business – where companies have thousands of active SKUs at any given time and where the product life cycle is very short. But do ERPs work in China ? It all depends.

I once worked for the Chinese partner of an American company. In an increasingly competitive marketplace, the American Company wanted to cut its lead times and they went forward with an ERP system in the China office accordingly. The idea was to pre-order product based on forecasts and thereby to have ready stock when POs were placed ( otherwise it was a 30 days wait for parts to be made prior to assembly into finished goods ) However, management of the US company failed to realize some very important things which doomed the project from the beginning. These were as follows:

1.) Chinese companies are very conservative when it comes to expenditures. It turns out that the purchasing office of the Chinese company was not placing orders with the suppliers as directed by the American office because they did not want to order product for which they as of yet had no orders. Chinese purchasing did not communicate this to American management and the result was that the Product Managers in the US office thought there was much more on order than there was in reality. They were promising important customers delivery dates which they could not meet.

2.) Chinese company culture reflects Confucian values and there is deeply rooted resistance to change unless that change is clearly warranted. ERPs however, involve significant overhauls of existing systems, and they require extensive training of all parties, product managers, purchasing & accounting, designers et al. In other words, there is a lot of change and most small to medium-sized Chinese companies usually reagard change of this magnitude as nothing but 麻烦 ( pronounced “mafan”, one of the words you hear frequently in China. It means “hassle” )

3.) There is great Power Distance between individuals in a typical Chinese company meaning that communication between superiors and subordinates does not always occur with the frequency we would expect in the West. To run an ERP system efficiently, however, it is imperative that communication is free-flowing and unbiased.

Of course, there are companies that do implement ERPs successfully in China. But they are usually the large multi-national companies that have the infrastructure and personnel that are equal to the task.

And what a task it is.

Conducting a factory audit – some things to look for

When visiting a factory to see if a vendor will be the right match for you there are a few things it behooves you to do. These are as follows:

1.) Does the vendor have a dedicated QC area or check-in station for sub-contractors ? This is especially important because it prevents the bad product from getting mixed in with the good product. I am always surprised , however, to see how many factories do not have a QC area or check-in station set up. A good factory will always have this checkpoint as well as a procedural/quality checklist that the factory will review with subcontractors who are delivering product. Ask about this.

2.) Are machines/equipment in working order ? A vendor may take you around his factory and boast of his state-of-the-art equipment. But that doesn’t mean everything necessarily works. I once visited a factory to observe the dyeing of bamboo for a product I was working on. The dye had to be at the right temperature so as to bond to the bamboo and there was, as one would expect, a heater by the dying tanks. The heater however was broken and when I asked the workers how they knew when they had the right temperature, they just shrugged at me and grinned. I discussed this with the vendor who admitted this might be a problem and he promised me he would have the heater repaired. 6 months later when I returned the heater was still not working and this may be one reason we were not happy with the consistency of the finish on our product. Always ask the vendor to demonstrate some of the equipment and especially the machines that might conceivably be used in production of your product.

3.) A final trick. Let the vendor do all the talking and see how much he says about QC when he gives you a tour of his facility. If he doesn’t say much then chances are quality is not really important for him and you really need to look for another vendor.