Outsourcing manufacturing to China in 2021
So what are the risks?
The risks fall into four areas – price, quality, delivery and IPR.
The Price risk when outsourcing machining, casting, fabrication and forging to China
The price risk can be split into supplier price increases, material prices and currency fluctuations. The risk of the supplier increasing prices can be mitigated by spending time with the supplier at the outset, so they fully understand your long-term objectives and you understand theirs. Personal relationships are critical in Chinese business culture so spending time with the supplier to gain their respect is imperative. During this initial period, the supplier will be judging you to see if you are an ‘honorable company’ with good long-term intentions and you need to do the same. You need to choose a supplier that is the right size for you. Most suppliers have a small number of key customers who provide the majority of their order cover – you want to be one of these customers. If your business is a tiny percentage of their turnover you will struggle to get great service. At China Outsourcing we aim to provide between 10% and 30% of the supplier’s turnover and we would recommend that you aim to do the same.
Material prices are global so any increases in China will be reflected everywhere. We recommend placing order cover for as long a period as is viable so the supplier can order materials at the outset for the duration of the contract, mitigating any material price rises for that period.
The other major price risk is currency fluctuations. The best way to mitigate this risk is to negotiate contracts in your home currency. Where this is not possible buying currency forward mitigates the risk of adverse currency movements. We are not gamblers - we tend to buy currency forward to cover the duration of the contract so that prices are fixed in our own currency from day one.
The risk in Quality when outsourcing machining, casting, fabrication and forging to China
Quality is a major concern for any company looking to outsource manufacturing to China. When manufacturing in China, rather than locally, it is more important that the parts are to drawing. The implications of rejected parts are far greater when the supplier is thousands of miles away.
The key to good quality is selecting the right supplier for you. Take the time to visit any potential supplier, carry out audits and develop strong relationships.
Make sure they fully understand your requirement – treat this is an engineering or new product development project. Make sure you provide a full data pack including all drawings, specifications and standards and check all your documents are up to date accurately reflecting your requirement. If you can provide the supplier with samples, this will give them a benchmark to be measured against. It is also critical that any samples manufactured by the supplier are made using the materials and processes that will be employed during production. It is also important to prove the inspection processes are fit for purpose and produce results that can be repeated on your own site.
Once your parts are in production, we would highly recommend having your own personnel on-site when your parts are being manufactured and that they have access to make checks at all stages of the production process. We have inspectors on-site at all our suppliers with access to our own inspection labs. Our inspectors carry out random inspections at all stages of the production process, including a final inspection after the supplier releases the parts for shipping. These checks will include independent material testing.
How to control the delivery time when outsourcing machining, casting, fabrication and forging to China
Controlling delivery timescales falls into two areas – production timescales and shipping times.
Manufacturing lead times in China are similar to anywhere else, but you will need to factor in increased shipping times which are usually 5-6 weeks door to door from China to Europe and the US. You may need to adjust your buffer stock to account for this and allow more time for material replenishment. Many Chinese suppliers are aware of this and if you have developed a good relationship with them they will often hold consignment stock on your behalf provided they have order cover. This way there is always a batch of parts in stock ready to be shipped thus mitigating the risk of spikes in demand.
Shipping times are very predictable so, in the main, receiving your deliveries on time will not be a problem. However, there will be occasions when shipments will arrive late due to circumstances completely beyond your control such as adverse weather or congestion at the ports. Establishing good relationships with your shipping agent and the port authorities in both China and your home port will be a big advantage when this occurs.
How can the UK manufacturer protect Intellectual Property (IPR) when outsourcing machining, casting, fabrication and forging to China
The best way to protect IPR is to keep the important clever parts in house.
If you do outsource these parts make sure you do not choose a supplier in a parallel industry to your own.
It is also worth considering using more than one supplier so that no one supplier has all your parts. It also helps if you are an important customer for your supplier, they will not want to do anything to risk losing your business.
China Outsourcing has never had any IPR issues with any of its customer's parts.
There are very good reasons to outsource your manufacturing to China. You could save 20 to 30 percent on the cost of your local supplier, the suppliers are as capable as anywhere else in the world and capacity is not an issue.
You must take the time to choose the right supplier and ensure they fully understand your requirements and develop a strong, long term relationship that works for you both. You need to negotiate contracts in your home currency or have enough currency options to cover the contract. As your relationship develops it is worth asking the supplier to keep stock to cover any spikes in demand.
Do all of this and the savings will more than repay the effort you put in.
With over 15 years’ experience in the industry and an excellent reputation for outstanding performance and customer service, China Outsourcing Ltd is your number 1 choice for all your outsourcing needs. To learn more about our services and how your business can benefit, contact a member of our expert team today on +44 (0) 1202 606141.