Article Abstract
Expect Opportunity, Risk in China’s Supply Chain
By James Carbone
Published by: Purchasing.com
May 20, 2004
For electronics purchasers, China has become a sourcing opportunity with low-wage labor that reduces the cost per unit. The electronic connecter market grew 11.2% worldwide in 2003. But China led all countries with a 30.6% growth rate, according to industry researcher Bishop & Associates. But as James Carbone reports, companies taking advantage of this opportunity face real challenges that can lead to increase cost and lower quality.
“While many low-cost components can be sourced in China, there are issues that often can be a thorn in the side to buyers,” noted Carbone. “Product quality from indigenous suppliers is often an issue. Price is often the main concern and component quality takes a back seat.” Indeed, quality is no longer a selling point in Western markets; it is an expectation. With inadequate testing procedures and the lack of sophisticated tools, the parts created by Chinese manufacturers damage the consumer image of the final product, hurting sales and branding. When parts do not meet performance requirements, the cost per unit and lead-times increase as parts are recreated.
Another challenge in sourcing to China is something that is rarely experienced when dealing with North American or European manufacturers: counterfeiting. Chinese suppliers also use their facilities to create cheap “knock-offs” of the parts they supply to North American companies, sometimes with the company’s name and logo.
Other challenges noted in Carbone’s article include lack of operation information from suppliers, increased cost and lead-times due to shipping, and higher administrative costs to manage the supply chain.
Save Your Factory believes that North American manufacturers need to be aware of these challenges before deciding to move operations overseas. While low-wage labor may dramatically reduce costs per unit, other factors actually increase these costs. We invite you to read Carbone’s article to explore specific strategies, as well as our other articles to the challenges to offshoring. You may find, similar to many manufacturers who did a complete and objective analysis to offshoring, that there are real alternatives to moving operations overseas. These factories found that they can compete against sourcing from China by lowering costs through robotic automation and implementing lean manufacturing practices.
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