I started Inertia, my product development company 13 years ago because I believed that there was a huge opportunity to redefine (and drastically improve) how to involve customers in their product development journey. I truly believe that over sharing information with our clients and our internal teams has been THE difference maker for Inertia and I’m certain it’s why we continue to enjoy the growth that we do.
We try to share everything amongst our team and with our clients; our thought process, our knowledge, our wins, our frustrations, and even our mistakes. Total transparency is one of the five pillars that guide how we approach our work at Inertia.
Towards the end of 2016 as I was thinking about the year ahead, I asked myself: “Why am I limiting our rigorous and deliberate discipline of information sharing to only our internal teams and clients?”
Don’t get me wrong, sharing can be painful. Telling a client you’ve made a mistake, miscalculated your estimate or that you have to redo something can be difficult, but only for a short time. If you’re playing the long game and want to build a business based on lasting relationships, then there is no other way. So I’ve decided that 2017 is the year we spend a lot more energy on sharing very specific knowledge, based on our years of accumulated expertise, about the different pillars of our business…with everyone. This will include insight into our product development process, our team culture, our company and project management practices and more.
This is the first of 3 posts about our expertise manufacturing In China. In the next couple of weeks, I’ll also share the following insights into our manufacturing process:
- The power of “Guanxi” (relationships): In this post, I’ll demonstrate how Guanxi can act as a magic wand for getting things done in China under challenging circumstances. I’ll also share a specific example of how Guanxi helped us work miracles for a client who needed a small number of complicated electro-optical units made in a hurry.
- Our Quality Assurance Roadmap (Checklist Nirvana!!): When we create a manufacturing plan for our clients, we obsess over making sure we have the very best manufacturing partner, solution, processes and quality control. In this post, I’ll share the exact checklists we use to make this happen.
If you’d rather not wait, you can download the full guide right here (Manufacturing In China: Getting It Right) which covers what I’ll be sharing in this post and the content I’ve mentioned above.
Below are the exact roadmap we use with our customers to help determine if manufacturing in China is the right fit for them. In the early stages, asking the right questions is critical to setting yourself up for success. You wouldn’t believe our customers’ stories (nightmares actually) about their past experiences manufacturing in China – endless delays, major defects, unsellable products. The list goes on and on.
The truth is, with the right planning and preparation, manufacturing in China can give your business an incredible advantage. You can increase your speed to market, expand your design options, enhance your product quality and of course, cut your costs.
Making The Right Decision: Is Manufacturing In China Right For Your Business?
Your company, product, and situation are unique. Manufacturing in China has plenty of advantages, potential liabilities, and tons of questions that need answers. Here are some carefully considered answers to some of those questions.
Where do I get the best value for my manufacturing budget?
- Deloitte listed China as the most competitive manufacturing nation in the world ranking No.1 in cost competitiveness ahead of competitors, including US, Germany, Japan, and South Korea. Source: Deloittes Global Manufacturing Competitive Index
Where is the best supply chain for my product?
- Conduct research for regional specialization. China is a world leader in the manufacture of mobile phones, air-conditioners, LED’s, and Li-Ion batteries, and shoes. The Shenzhen (Guangdong Province) has a dense cluster of high-tech, commodities manufacturers such as PCBs, plastics, metal finishing (consumer electronic appliance, small mobile or wearable electronic device).
What are annual production volumes and scale-up forecasts?
- Know your realistic, production requirements for existing and future volumes. Is it 1,000 units/year or 100,000 units/year? Find a company that matches the size of your business. Even though Chinese companies are becoming more likely to accept smaller quantity runs, projected annual production volumes determine what kind of company to approach.
How much product to purchase at one time?
- The Minimum Order Quantity (MOQ) works like this: Each manufacturer provides a unit price based on the order quantity. A higher number of products per order usually results in a lower unit price. CAUTION: may require higher cash outlay plus additional risk in holding that inventory.
What are wait times (after pre-payment) for my product to ship?
- Pay and wait. A low price is great, but tying up cash for four to six weeks while product is shipped can cause a cash-flow crunch. Obtain a calendar of national and regional Chinese holidays (when the country literally shuts down) and plan around the festivities.
Are you ready to travel to the manufacturer (China?) multiple times during the project?
- To properly manage the sourcing, manufacturing, and supply chain yourself in China prepare to travel, a lot. Add travel and accommodation costs to your business plan or manufacturing evaluation.
Which location factors to consider for manufacture of my product?
- Factor product size and product weight plus shipping and logistics cost models before deciding whether to manufacture locally, regionally, or off-shore.
- There are significant differences to consider. Customer location and destination of shipping and sales can increase product costs, not to mention out-of-country tariffs.
- Contact your government industry liaison to determine possible tariffs on your imported product.
- To manufacture in China or anywhere, it is critical that design, engineering, and quality documentation is impeccably complete, detailed and thorough. Ensure it is translated by a technical professional for seamless comprehension and execution. Consider costs beyond product manufacturing, such as packaging design, shipping, duties, brokerage, fulfillment, wholesaler and retailer markups.
Here are some major milestones you’ll need to be present for along your manufacturing journey:
Sourcing Potential Manufacturers
- Interview and audit multiple vendors for each product or component.
- Select and perform due diligence on 8-12 manufacturers: send each an RFQ and then visit 4-6 in person.
- Choose one manufacturer plus a spare (Plan ‘B’)
Tooling Kick-Off (Pre-manufacturing phase)
- Review designs and quality documents in detail and in person.
1st Off Samples:
- Conduct in-person confirmation of initial, manufacturing-run quality
- Supervise initial runs until all quality issues are addressed.
Here are some excellent reasons to give China serious consideration when planning your manufacturing:
- Automation in Chinese manufacturing and assembly plants further reduces labour costs and remains globally cost competitive.
Highly evolved supply chain
- It is because of strategic and operational excellence in supply chain management that the Apple iPhone is manufactured and assembled in China. The combined complexity of product components and the rate of production speed is world class.‘
Can do’ attitude and work at incredible speed.
- Chinese work time for plastic-injection mold tooling has reduced drastically nowadays (4-12 weeks) from decades ago (12-24 weeks). Companies run six days a week which automatically provides an increase in capacity and lead-time.
Access to domestic sales
- Reconsider China as a location to sell products, not just to source products. In 2016, China’s retail market eclipsed the USA to become the world’s largest retail market.
There are some key challenges to consider when considering China:
Distance and Time Zones
- If located in EST zone, your meetings with Chinese manufacturing engineers could start 8-9PM and end at midnight. You’ll sleep while your product is manufactured.
- Overcoming the English/Chinese language barrier is one of the biggest challenges you will face. Chinese words are not constructed with alphabets and character construction follows a completely different set of rules. Chinese and English grammar are very different. For example, directly translate the expression “I will go shopping tomorrow” from Chinese to English, and you get: “I tomorrow go shopping.” Beyond the grammatical challenges of translation are significant cultural and behavioural differences. Understanding the Chinese language doesn’t always mean you’ll understand what is actually meant. Source: Bobby Jan for Gaebler Ventures
Different Business Styles
- In a high-context culture, like Chinese, maintaining one’s own societal status or ‘giving face’ is a significant, motivating force. Chinese business people prefer to mull over a contract, to discuss its risks and benefits, and to consult with interested parties rather than deal with tough negotiations. Non-chinese business people (may often display toughness or dominance) should show awareness that a slower, less aggressive style is valued in China.
- Chinese may perceive an aggressive, North American style as highly unprofessional. To work together productively, it is extremely important to confront difficult situations respectfully and avoid language that could humiliate the other party. Source: Van Thompson
Protecting your Intellectual Property
- In China, like anywhere, sometimes the best defence is a good offence. To protect your IP in China, it is extremely important to perform rigorous due diligence and work with a legal professional experienced in Chinese law. Understand who you are speaking with. Is the person a sales agent or an employee or officer of the company? Perform due diligence on the company and company representatives. Do this remotely by engaging legal professionals experienced in Chinese law and business. The Chinese government captures a significant amount of information on companies in China, directors and owners names, address, legal disputes, I/P, market capitalization, etc. If the person you are speaking with provides information that does not match the registration information published by the government, beware.
Here are some common misconceptions that could get in the way of good decision making.
Chinese manufacturers have poor standards
- China actually ranks #1 in 2016 Deloitte report Global Manufacturing Competitive Index. “This year’s study examined various global forces shaping the manufacturing competitiveness of nations. From talent to health care systems, the study examines 12 such drivers. Among these 12 drivers, four came out on top as the major determinants of global manufacturing competitiveness (with China ranked as number 1): 1. Talent 2. Cost Competitiveness 3. Workforce Productivity 4. Supplier Network.” Source: https://www2.deloitte.com/us/en/pages/manufacturing/articles/global-manufacturing-competitiveness-index.html
Poor Working Conditions Persist Everywhere
- Increase your awareness of poor working conditions in China by getting to know who you are doing business with. Also, seek out ethical companies who treat employees fairly. Rely on assessments conducted by experienced manufacturing professionals during your manufacturing audit.
If the manufacturer is on Alibaba, they’re legit
- Alibaba is the world’s largest B2B marketplace. Buyer beware. Learn how to filter the good manufacturers from the rest using the tips in this great blog post on avoiding common pitfalls. Source: http://startbaba.com/alibaba-safe-legit
You Need an Agent
- An agent is typically a sales representative. Get to know these individuals and understand their role (manufacturer employee or sales agent). If the agent is not tech-savvy their lack of expertise can expose you to an extra layer of miscommunication between you and the manufacturer.
Understand whether a manufacturer can meet your quality requirements before you engage them.
- Ensure that product quality is built into both the product design itself and during each step of the manufacturing process.
- A good manufacturing quality system prevents and addresses defects at the time of occurrence, not after the fact (avoid defective, fully assembled products that get scrapped). Such a due-diligence cost equates to savings all around.
Work with a manufacturing solutions provider like Inertia to ensure your product design includes quality control. Inertia ensures that the manufacturer has a quality plan in place that it can stick to. We can also ensure a high quality product for your customers at a competitive product cost
In the guide we’ll show you:
All of the questions we ask to see if manufacturing in China is right for our client’s business
Why building the right relationships (Guanxi) in China matters more than anything else
The exact checklists we use to find the best manufacturers for our client’s products
What we do after we kick off manufacturing to consistently produce a high quality product