Being involved in the manufacturing of consumer packaged goods can be a lucrative business. There are many steps involved in running a successful manufacturing enterprise. Not only do you need to make and sell a product that is in demand, you must also price it appropriately so that it is not cost-prohibitive for your target audience.
Businesses explore many avenues to keep costs low in order to run a viable and profitable business. As the production of goods has expanded to global markets, competition among manufacturers has increased. In addition to being competitive with local manufacturers, you also need a strategy that will allow you to compete on a global scale. One avenue that is particularly appealing to manufacturers in today’s global environment is outsourcing your production to less expensive markets.
This approach has significantly changed how and where goods are made. Many companies have chosen to explore production facilities in other countries where safety and worker standards may differ from those of their home country. One of the countries where production is frequently outsourced is China, where the checks and balances that ensure ethical practices in production are not as rigorous as they may be other places.
So, how does a company that chooses to use a production facility in China ensure that they are working with a vendor that maintains acceptable treatment standards for its workers? How can the company vet the production process to be certain that quality is not sacrificed for savings? Establishing a process for verifying your vendors can remove the uncertainties inherent to outsourcing production.
This can be accomplished through a China verification process for factories and vendors. Taking this step prior to engaging a supplier is critical as it will help make sure that you achieve your goal of saving, rather than losing money, by outsourcing this critical need. But, as a manufacturer who is engaged in the production of a specific good, do you possess the skill set and time needed to conduct this verification in a timely and responsible manner? Do you know the right questions to ask and the right steps to take to secure answers?
Because selecting a supplier is so important to an outsourcing strategy, consider outsourcing more than your production. Consider outsourcing the vetting process for suppliers as well. Similar to your expertise regarding your products, a company that focuses on verifying overseas vendors has developed an expertise in vendor verification.
Before selecting a vendor, be sure to ask yourself a few important questions to accurately define your needs.
1. Are you only looking for supplier screening?
2. Do you also need ongoing support managing the outsourced supply chain?
3. Do you need to learn about cultural norms and business process when interacting with Chinese companies?
Depending on your current understanding of the Chinese business norms and existing interactions with Chinese suppliers, you may require more support than simply verifying the suppliers. You may require a broader engagement that helps you define and articulate the business need clearly. In addition to understanding the environment, your verification experts can help you design the right strategic approach to ensure that your engagement with suppliers is successful.
Once you have selected a supplier and production has begun, you will also need to have quality control and inspection processes in place to ensure that the defined standards are applied throughout the process. Having a partner who is well-versed in conducting these assessments and has the capabilities to provide on-site support will eliminate susceptibility to the common pitfalls of outsourcing.
Outsourcing, when done properly, can greatly improve the profitability of your business. However, when done incorrectly, it can greatly diminish profitability. Consult a verification expert as part of your outsourcing process so that your business is not subject to the pitfalls of this approach.
If you would like to know more, you can download a free report “8 Problems Businesses face when sourcing from China here.
This blog was written by Carsten Primdal, an independent consultant who helps businesses that have manufacturing done overseas – especially in China – to minimise supply chain risk. Drawing on years of on-the-ground experience and a strong understanding of the cultural and commercial context, Carsten is passionate about helping his clients to gain greater control over the risks most companies face knowingly or unknowingly.
Questions? Concerns? If you are considering buying from Chinese factories and would like more information, please feel free to contact us see what Vantage Compliance can do for you. I can be reached at firstname.lastname@example.org or on (+61) 413 089 020