Clearing the mystery of Offshore Sourcing

Offshore Manufacturing & Sourcing: A concise analysis ©

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Offshore Manufacturing Case Study

The situation:                                          The problem:                                           The solution:

A medium size US Decorative Accessories Company with domestic manufacturing facilities, embarked on a national expansion program which included new product lines.

The plan called for a substantial investment in infrastructure, tooling and labor, an investment that would push any profits into a distant future.

Moved the production of the new lines and any inventory growth to an offshore manufacturer, while keeping the core production in their facilities, thus preserving existing jobs and adding design and marketing positions.

The primary reason a business is formed is to take a product to market and sell it at a profit.

A typical business creation journey may unfold as follows:

  • Creating products and preparing a marketing plan
  • Creating a manufacturing infrastructure and sales network
  • Manufacturing at a high quality and competitive cost
  • Bringing the products to market

With the process being successful and orders flowing in, a manufacturing plan is laid out to assure steady and growing supply of inventory. There are a number of ways to manufacture the product line:

  • In‐house production.
  • Subcontract
  • Split manufacturing – subcontract components and assemble in‐house

Any of these manufacturing methods expose you to potentially uncontrolled costs.

Costs may rise from –

Actions or inactions of suppliers and sub‐contractors

  • Labor and environmental rules
  • Actions of government

This restrictive atmosphere hinders natural growth curves and forces companies to spend valuable time and resources abiding by and working around these restrictions. And very critically, historically, the cost of domestic manufacturing is going up steadily.

Which brings us to the proven source of manufacturing Offshore.

The reasons are compelling:

Labor costs are significantly lower in some parts of the world

  • Open borders and trade agreements Allow the flow of merchandise
  • Competition for contracts is high.

In setting up a reliable offshore manufacturing structure, the following topics must be resolved:

Language barriers

 

  • Language can be a huge issue when dealing with the Orient. It is common for your counterparts to speak English with you, but deliberate with one another in their native tongue.
  • You may find the only bilingual person in a Mainland China factory to be the shipping manager, who now becomes your "trusted associate", doing your bidding with his employer.
  • Different thought processes may lead to misunderstandings, causing potential problems.

Cultural Barriers

  • Culture can be imposing and complicating. For example, you do not shake hands

vigorously with a Chinese person and do not show the soles of your shoes to a

Thai.

  • Social Etiquette calls for time spent on socializing prior to addressing business. But,

alas, many Westerners want to talk business and know all the ins and outs of their

Oriental prospective suppliers an hour after meeting them!

Quality Control

  • QC is a crucial part of manufacturing and needs to be done during and at the end of this process, as well as at the container loading dock.

Shipping

  • The choice of a reliable forwarder or consolidator is of high importance, assuring safe handling of the shipment and all documentation required.

Customs

  • Finding a reliable, cost effective broker / agent, who will assure fast clearance of incoming shipments and their timely delivery to a final destination, is critical.

Offshore manufacturing is a tested and credible solution for many companies in most fields of consumer products; done correctly by a sourcing agent with physical presence both in the US and China, the results are very rewarding. The key word is "Correctly".

The playing fields of our industry are littered with the remains of companies who went it alone and tragically lost their way.

Comments: eli@herosourcing.com

 

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