Pro-Q: Procurement

The following are some of the questions that need answer in order to set up the procurement operations:

Foundation of the supply chain and suppliers research

Where to look for suppliers?
How to find relevant information about suppliers?
How to practically execute the research and with what resources on-site?
How to audit the suppliers?

At this stage a procurement strategy must also be identified: will it be a single supplier or multiple concurring suppliers? Are we looking for a long term development or a single-time transaction? Shall we pursue full product development with a supplier familiar with the technologies involved or seek customization of already existing similar products? Different strategies affect lead times of the supply, control on the final product design and quality, necessary involvement of resources and, not the least, issues of intellectual property.

Supply chain development

How to carry out negotiation of contracts?
How to engineer / develop the product with a remote supplier and carry on samples inspection?
Are there any standards (technologies, materials etc.) we need to adapt / replace with equivalent ones as locally available?
How to intercept manufacturing / quality problems during production so that they can be contained?

This stage involves both engineering of the products (product development) and the continuous development of the suppliers’ manufacturing capabilities and quality standards (supplier development). The level of involvement required can be very different. One alternative is to opt for a mature supplier, perhaps compromising on the entity of the cost savings. At other times, some of the quality parameters can be considered non critical and medium level suppliers can be identified to satisfy such requirements allowing for greater cost savings. In both cases, the foreign buyer must make sure to be getting what he asked for.

Quality assurance

Is direct involvement in quality control on the production line necessary?
Is quality control necessary for the incoming parts and components that are considered mission-critical for the finished product?
How to conduct pre-shipment quality inspection?
What are the responsibilities in case of product faults and which responsibilities are transferred after the quality control inspections?

One of the most mission-critical issues in China is to make sure that every step is being carried on according to plans. Oftentimes lack of specifications is not notified to the client and compensated discretionarily by the suppliers; faults in communication are another reason for mismatch with expectations; accidental manufacturing exceptions than can always take place. Effective and direct supervision at your suppliers’ plants is mission-critical to intercept what may cause great damages further down the line.

Global logistic

Follow up on the timely delivery of every batch of goods.
Familiarity with the locations and the freight forwarding/logistic operators.
Timing of the shipments and lead time for production and delivery of the goods.
Alternative packaging solutions.

Once these issues have been addressed, the foreign company will also have to be aware of the necessary changes in the company culture and internal departments, necessary to switch from “local sourcing” to “far sourcing”. Read more about the necessary change in the head quarter here.

Finally, answers to such questions will influence the very company structure. Different procurement scenarios will require different investments and resources, not to mention pay back periods, and different degrees of flexibility for location and volumes. Compare the different set ups for running procurement operations here.