4 key steps to develop a Chinese steel supplier

Saturday June 15th, 2019 | Francesco Grillo | Productivity

Many importers mainly deal with just a few product categories. Just a handful of manufacturers cover 80% of their needs.

But yet, most of them make the same mistake: they don’t make an effort to improve their existing suppliers. On the other hand, they spend time sourcing from NEW factories for little savings and briefly training them regarding their requirements, and eventually taking risks on the first orders from a new source. As with any new business relationship, be sure to perform adequate due diligence before entering any agreements or remitting payment.

Any better idea? Sure.

A supplier development program generally follows 4 basic steps.

When choosing a factory to partner with, you should always look for the following attributes:

  • Proven knowledge and experience. Also verify their reference list for the item you are sourcing.
  • Technical capabilities. The factory should already be producing goods or products that are very similar to your own. This ensures that they understand your market and minimizes the risks.
  • Reputation. Do you know anyone that has already worked with them? How was their experience? It’s mandatory to find a factory you can trust.
  1. Select the right suppliers for your need

Because so much can go wrong, the vetting process is crucial when you’re choosing a factory. Here are some important questions to ask:

  • What kind of experience do you have in this industry?
  • Who are the clients you’re currently working for?
  • What is the turnaround time to produce my product?
  • What are your minimum order requirements?
  • Can you provide recent proof of inspections or third-party audits?
  • Do you subcontract work to other factories, or is all the work done in-house?
  • What are my payment options? Is a deposit required?
  • Do you make materials in-house or outsource?
  • Can you handle the sourcing of materials, or do I need to provide my own?

This is all about finding suppliers willing to learn, however, if you work with companies that are NOT trying to improve, the upside will be quite limited.

Certainly larger customers can more easily push a factory to make improvements, but can be almost impossible if that factory’s boss is not focused on getting better. Most of Chinese bosses are mainly interested in simply getting bigger.

How to spot potential suppliers that are motivated to get better? Here are a few tips:

  • They re-invest profits in their facilities, their equipment, in training their staff, and so on;
  • They are willing to develop new products/technologies/markets, with all the due cost;
  • They hire professional managers rather than family members;
  • They have a management team with long experience in the company, instead of continuously changing the core team.
  1. Help during product development

This step is important especially when you purchase highly customized products.

The buyer needs to take the following actions:

  • Explain clearly the required specifications;
  • Translate what these requirements mean in terms of production process;
  • Give detailed feedback on prototypes;
  • Train their Quality Control team to check properly during production and on the finished goods, and help set the right test points.

For complex products, you need to consider spending time in the factory and communicating directly (better in Chinese) with the technical team.

  1. Ensure your quality standard is met

During mass production, your focus must be on quality. If production quality is not acceptable on your market, and if there is no improvement over time, there is no way to continue the relationship.

The question is; how do you get a supplier to improve its quality, without spending a fortune on inspection in order to catch all their mistakes?

You need to audit their quality system and their processes, and then evaluate what the priorities are. Here are a few examples:

  • The managers never get out of their offices, and seldom show up on the shop floor;
  • Incoming components & materials are not properly checked;
  • Procedures are missing, insufficient or unclear for both operators and inspections during the production process;
  • Missing data about the most frequent defects and their root causes.

The best policy for those buyers who purchase large quantities from one supplier, is to send an engineer to the factory on a regular basis, to discuss and show the supplier potential opportunities for improvement.

Once a manufacturer has a strong system in place and inspires enough confidence, they can be allowed to “self-inspect” and to report their findings to the buyer.

Some importers ask key suppliers for a roadmap to reduce their cost structure in the coming years (with details on how they intend to achieve these targets). This is an excellent exercise to push suppliers to think of how to work smarter, and to run some tests.

  1. 4. Re-organize production

Some other buyers know production processes better than most manufacturers they work with, and help them reduce their “costs of poor quality” (scrapped material, defects to rework, chargebacks from customers…).

When a supplier is willing to work on improving his operations, and doesn’t work for direct competitors, it makes sense to help him re-organize production for better results.

This step is comprized on several sub-steps that cannot be skipped:

  • The buyer should select a priority: quality, cost, faster production cycle and smaller batches, capacity…
  • Select a few KPIs, and track their improvement over the following sub-steps;
  • Pick a target, envision the future state that needs to be achieved to meet this target, and then make changes in processes and in the supporting organization to reach that future state;
  • Start over again with a new target, after the team got a sense of victory and has the energy to take on another challenge.

This fifth step is all about lean production. It offers impressive results when done the right way. But it is not the first step in a supplier development program.