NPR Morning Edition

I am often asked to comment about the price differential between the cost of materials and products in the US vs China. The “china Price” is a hot topic of conversation. But when NPR called me, I was truly thrilled to give an interview. I have been member of NPR for years. I respect NPR’s approach to programming and enjoy the feature clips. What a great opportunity! The link to the audio story is here http://www.npr.org/player/v2/mediaPlayer.html?action=1&t=1&islist=false&id=130258250&m=130260491
NPR reporter, Adam Davidson called me early on Thursday morning and asked me several questions about the cost differential on Chinese-made products if the RMB was allowed to freely float against the dollar. One of the examples I used was of the industrial springs I helped a client source in Shenzhen. That was the anecdote he chose for the story.
Since my book, 42 Rules for Sourcing and Manufacturing in China, was published, it has done very well on www.amazon.com . My publisher also sent out a press release to TV and radio stations and over time, I have been interviewed on several radio stations. I was also interviewed for CCTV (China’s CNN). But NPR was the best of all. My 15 seconds of fame!

Quality Fade in China

Quality Fade, the process of quality degradation over time, is the single biggest issue in low cost manufacturing countries. It happens frequently in China where manufacturing processes are immature and competitive pricing drives the profits to extremely low levels. It also happens in Vietnam, Indonesia, Bangladesh and other low-cost countries.

You have probably noticed quality fade, but didn’t know what to call it, or understand how it happened. Maybe you noticed a plastic shampoo bottle that seemed too thin. Maybe that hand-held electronic game you put in your son’s Christmas stocking stopped working after a few days. Maybe the zipper in your pants broke after a few zips.

Quality fade is a particular problem for products coming from China, where nearly 40%of the world’s production now takes place. This startling fact about the tremendous volume of goods produced in China is evidenced at the drug store, department store, big box retailer and the grocery store. The ubiquitous “Made in China” label can be found everywhere. These products are initially equal or superior in quality to Western-made goods, but over time, quality begins to fade. Sometimes poor quality is just an inconvenience and sometimes it is downright dangerous.

Products manufactured or assembled in low cost countries, aren’t designed to break or poison anybody. In fact, typically when a new contract is signed and specs are given for initial production at a new supplier, importers of Chinese goods are thrilled. The vendor’s service levels are outstanding, the quality is above expectations and the future looks bright. Customers are pleased with the price of initial production, and they assume that it will last. New importers feel like they’ve hit a home run with low-cost country sourcing.

Don’t be fooled! The initial production runs are often not sustainable. Over time, degradation in quality is likely. For example, the label on your product becomes 10 percent smaller, your 100 ml product may actually be 99 ml, non-toxic paint you specify for toys may become fast-drying lead paint, the 5/8 inch seam may become 3/8 inch.

You may think you have negotiated a spectacular deal, but when negotiating in China, you may not have all the facts.

What is the next big thing in Procurement?

What is the next big thing in Procurement?

Over the past 25 years, I have seen many changes in the Procurement field. Here are a few…

1980’s
- Arms length business relationship (our-side vs your side)
- Initial software with purchasing systems that automate POs
- Use of learning-curve theory to drive down pricing year over year
- $1000 government toilet seats and $75 ashtrays because these things required “R&D”
- Vendor entertainment, gifts (bribes?), personal relationships off the books

1990’s
- Win-Win approach to negotiation
- Emergence of purchasing modules in ERP systems
- Title changes from Buyer and Purchasing Agent to Procurement Manager
- Use of consultants to help with spend analysis
- Increased acknowledgement of Procurement as a part of the broader Supply Chain

2000’s
- Adding value to negotiations through trades
- Non-production spend analysis and solutions
- Control over maverick buys through software
- China sourcing (low cost country sourcing and production
- Coordination across the Supply Chain

So over 20 years we’ve made progress on capturing and implementing best practices, automating and auditing. But we are all still learning how to develop and execute the best relationships with vendors. We still have much to learn about negotiations … and I am not talking about how to squeeze the last dime out of a vendor. We need to learn how to add value to the deals and how to build strong and strategic relationships over time.

If we take the high ground and focus on value, not price, we take the first step in the right direction. This is a significant change for Procurement professionals, but an important directional progression.

Cost Cutting with Vendors

Lately I have been reading a lot of stories in the press about how to squeeze every last drop of blood out of every supplier because, we are after all, in a recession. During these economic times, companies are asking suppliers to take price cuts with no concessions just because they need to cut costs.
This is an unproductive approach. I understand the need to cut costs, but this must be done in the spirit of a trade. To preserve the long-term relationship with your supplier, you must focus on keeping the economic balance between both parties. This can be done through trading for something of value.
If you want your current suppliers to cut costs, then offer a free-to-you concession such as endorsing them to your colleagues in other divisions or other companies. Or how about sponsoring them for a speaker’s slot at the next NAPM Round Table? These things are free to you, but can be quite valuable to your vendor.
Focus on trading for something that’s valuable to your vendor and that will ease the pain of a price concession. Let’s help each other through these tough times.