China Works blog: China manufacturing news, analysis and insights

In the next of our series on common sourcing mistakes we look at Western companies who choose to complete their product development in China.

For many inventors and manufacturers it can be tempting to ask factories to support their product development process through design suggestions, prototyping and engineering drawing support. This has the benefit of a) being cheap, and b) involving the factory in your new product from the start to help them shape the end outcome.

In short this should be avoided at all costs! Over the years we have seen many projects get stuck in ‘sampling limbo’, with some projects taking up to two years to move to production, owing to constant design tweaks and changes. Factories don’t make any money from the sampling process, so over time this will erode goodwill in your project and the factory will find other priorities.

Ensure you approach your factory with finished drawings, completed prototypes and are in situation where you’re ready to start full production. This will ensure the factory treats you seriously and gives your project precedence over the many other new product development projects they are approached with every day.

(A small plug for our business – China Works have a UK based design and prototyping team, which we set-up in response to the above issue. If we can help with your project please get in touch!)

We’re often asked by customers what the different shipping terms mean, so here is a quick guide to the main terms you might come across:

Bill of Lading: Bill of lading are contracts between the owner of goods and the carrier. The customer needs an original or a copy as proof of ownership to take possession of the goods

Cost and freight: Cost & Freight to a named overseas port of import. Under this term, the seller quotes a price for the goods that include the cost of transportation to the named point of debarkation. The cost of insurance is left to the buyers account.

Cost, insurance and freight: Cost, Insurance and freight to a named overseas port of import.. Under this term the seller quotes a price ofor the goods (including insurance)

Ex-works: A term of sale in which for the quoted price, the seller mearly makes the goods available to the buyer at the sellers “named place”of business. This places the greatest responsibility on the buyer abd minimum obligations on the seller. The Ex Works term is often used when making an initial quotation for the sale of goods without any costs included

Free on Board (FOB): Common price term used in international trade. The seller is responsible for the cost of goods is to the point of loading it onto the ship or aircraft. The risk of loss of or damage to the goods is transferred from the seller to the buyer when the goods have been so delivered

Freight forwarder: An independent business which handles export shipments for compensation. At the request of the shipper, the forwarder makes the actual arrangements and provides the necessary services for expediting the shipment to its overseas destination.

The forwarder takes care of all documentation needed to move the shipment from origin to destination, making up and assembling the necessary documentation for submission to the bank in the exporter’s name. The forwarder arranges for cargo insurance, makes the necessary overseas communications, and advises the shipper on overseas requirements of marking and labelling

Packing list: A shipping document issued by shipper to carrier, Customs and consignee serving the purposes of identifying detail information of package count, products count, measurement of each package, weight of each package, etc

The big question for many manufacturers and inventors is whether to make your new product home or abroad. The UK offers shorter lead times, smaller stockholding requirements and greater control, while China offers obvious benefits around lower tooling costs and unit prices.

In the short term you’ll need to choose between countries to get your project going, but in the long term the answer is to establish relationships with factories in both countries.

Our most experienced customers maintain a global sourcing strategy, where they move production back to the UK when conditions allow (e.g. a weak pound, and capacity in UK manufacturing sector), and back to the Far East when conditions in this country become unfavourable (such as when factories start offering lengthy lead times, or prices jump 25% overnight)

We are currently seeing a trend back to China which is being driven by many UK manufacturers have full order books due to their export led growth. In the last fortnight we’ve had a number of new customers contact us to complain how manufacturing in the UK has suddenly become a challenge for their business.  Last year however the opposite was true with many customers looking to source locally due to the collapse of the pound.

The picture is also blurred further as over 70% of our customers are manufacturers themselves – looking to bring down the cost of components to make themselves more attractive abroad. These factories rely on Chinese prices for tooling and resource intensive parts to bring down their own production costs.

In summary we don’t condone customers moving their production to China at the expense of UK industry. We believe customers should develop a balanced approach to sourcing, with different manufacturing options to support different economic conditions. If a customer moves their production to the China we expect at some stage they will move their production back to UK, and at some stage it will also come back to China.

In the next of our series on common sourcing mistakes we look at customers who look to complete their product development process in China. This can be defined as approaching a factory with incomplete (or even no) drawings, which are not signed off and expecting the factory to advise on product design and specification and complete prototypes.

Worse still we’ve seen a number of projects get stuck in the sample development process for years – with some projects stuck in an endless cycle of mould tweaks, materials changes, packaging changes, and so on.

The above is to be avoided at all times – you risk eroding any goodwill you’ve built up with your factory, who may move onto other higher priority projects. Get all your designs complete at home, and only approach the factory when you’re in a position to place an order. It is essential to ask the factory to complete pre-production samples for approval, but avoid getting them to develop ‘prototypes’, which may be subject to continuous change.

For a comprehensive guide on how to get things right, check out our ‘Ultimate checklist on China sourcing’

In the first of a short series we’ll look at the top five sourcing mistakes that we commonly encounter, and recommend approaches you can take to avoid these traps.

The first mistake is the biggest ‘no no’ of them all – asking the factory to condense your lead times.  In theory most customers want to avoid this, but in practice your project may be running behind schedule resulting in your own customers putting pressure on you.

In our experience shortening production times is the primary cause of project failure, potentially resulting in corners cut and worse still giving the factory a comeback if the goods aren’t up to scratch – “you asked us to get these done in 2 weeks, instead of the 4 weeks we originally asked for….”

To avoid getting into this situation make sure you complete your product development at home to avoid unnecessary delays, build contingency into your timelines (particularly for first orders with a new factory), and ensure your timelines are clearly communicated to the factory. Ultimately it’s important to be patient – it’s better to deal with a 2 week delay, than a three month delay when you have to return a container load of faulty product.

For a comprehensive guide on how to get things right, check out our  ‘Ultimate China Sourcing checklist’

Outsourcing production to China can offer real benefits to Western companies - improving the international competitiveness of manufacturers, and enabling new product development projects to get off the ground. Yet we estimate up to 50% of China outsourcing projects fail to get going, due to basic principles not being followed by the factory and customer.

To get your project right from the start a number of critical success factors should be considered, including:

• - Never select a factory because they are the cheapest – you get what you pay for and China is no different. Of course price is important, but don’t forget about service, capability and overall commitment to quality
• - Assume nothing and define your requirements in detail – provide detailed drawings and all your requirements at the earliest practical stage
• - Finish your product development at home – send over complete engineering drawings to your factory to prevent delays later in the process
• - Use a third party to inspect product quality before orders are sent over – prepare your own quality check lists and unless you can afford the time to go to China for every order be prepared to use a local QA agency
• - Never pressurise a factory to speed up production times – this always leads to problems. Instead find ways to build new lead times into your own delivery schedules
• - Agree terms and conditions that clearly specify the issue resolution process
• - Prepare for a learning curve – and take time to build up your confidence in the factory. Expect the unexpected, deal with it proactively and work closely with your factory to ensure it doesn’t happen again

In summary select the right factory to start with, build the relationship through regular visits or an agent, work with your factory as a partner, and most of all be prepared for a learning curve along the way