Pro-Q: Procurement

• What you can (and should) source from China
• Where to search for manufacturers in China
• Doing international procurement
• Changes required in the headquarters
• Alternative procurement scenarios for foreign companies

The Object of the Procurement

The first stage consists of deciding about the object of the procurement:

• Purchasing of raw materials (e.g. plastics, fabrics, wood);
• Purchasing of parts and components (e.g. plastic parts, fashion accessories, electronic cables);
• Development of semi-assembly (e.g. electronic circuits and microchips, furniture components);
• Development of finished products (e.g. toys, personal computers, furniture);

Oftentimes the alternative is not only to switch between local and China-based suppliers, but more interestingly (and often more rewardingly) is to reconsider your make or buy decisions and purchase something that is currently manufactured internally, or expand into new and different product lines.

China Competitive Advantage

The second stage entails what could, and should, be procured from China. These are some indications (also look at our product specialization):

• Parts with high added value and sub-assemblies are the ones bringing the best cost advantage when sourced in China.
• China offers different alternatives in terms of production processes. From capital-intensive operations to provide, for example, production with the highest tolerances, to labor intensive ones that reduce capital investment and therefore cost, increases production flexibility, but achieve tolerances not as good as for an automated process.
• Sometimes the lower cost of labor makes cost-effective options that should be otherwise suppressed (e.g. a labor intensive packaging solution.)
• The labor intensive production also means that one manufacturer can adapt to changes in specifications much faster than a capital intensive manufacturer. The capabilities of a skilled worker are often much more versatile than those of a machine.
• Chinese-based manufactures can afford more people in quality control at every step of the production process, resulting in even better quality for selected products (this is the case of many commodities typically manufactured by SMEs.)
• Selected materials (aluminum, steel, wood, plastics) could be available with different specifications and terms of supply, not to mention at different prices. This can also influence the procurement decisions.

Once a basket of goods has been marked for procurement in China, the foreign company should first familiarize itself with the suppliers’ availability and location, with the level of quality attainable, and with international procurement operations. Sometimes is hard to tell weather a lack of performance in China procurement is due to the specific supplier, the level of quality available in the area, or the level available in China as a whole. An otherwise successful project could be shut down because of insufficient sourcing experience.

This is also where procurement professionals make the difference, as they help to identify which one of the various solutions is best aligned with the clients’ expectations.

Learn where we can be of help or browse through our categories of product specialization.