Oscar Wilde is credited with saying “The cynic knows the price of everything and the value of nothing.” For companies and individuals looking to manufacture products in China – and specifically those interested in China contract manufacturing – there is a lot of confusion when it comes to value. So often, people will confuse value with the overall cost of goods.
We come across many individuals interested in using our China contract manufacturing services who are convinced that for something to be perceived as having a high “value for money,” it needs to either be either:
– Cheaper than the competition’s offering;
– Offering “more” than the competition offers.
One of the clients that got Sertus off the ground, Target, beautifully captures this mantra in their corporate tag line: Expect More. Pay Less. But the reality is that value goes much deeper than just cost or price. It goes much deeper than added features, better spec, or improved packaging. Sourcing your products at 25% cheaper than the ones the guy down the street is buying doesn’t guarantee a comparative advantage. It doesn’t equate to value.
Of course, price and cost are key inputs to the value proposition. But there is a lot more that must be considered when defining the value a product offers to the customer. The fact is, nobody would buy any product or service – at whatever price it was sold at – if, in their minds, they didn’t see its ‘value.’ And we know this goes well beyond price – because if it didn’t then companies like Ferrari and Apple may not be in business.
Mitigate Risks to Create Superior Contract Manufacturing Value
For most products (unless you are talking about a commodity where there is no inherent communicable value that would merit a higher price; hence it must be cheaper or offer more for less), value is determined in the perceptions of the consumer. For contract manufacturing, these perceptions are initially formed in the minds of the inventor or company interested in turning its design or formula on paper into a finished product.
The value that is provided by a contract manufacturer is very often tied to the mitigation of risk. Specifically, it is the contract manufacturing solution that is perceived to remove most or all of the risks involved with outsourcing production to a third party that will generate the greatest value. The best China contract manufacturing partners will help manage and mitigate risks in the following key areas:
Control of the China Contract Manufacturing Process
Inventors and companies with new ideas usually have a very high emotional attachment to their products and as such are not comfortable giving up control. The idea of losing control is most often cited as one of the main reasons companies are hesitant to outsource production. Therefore, the ability of the China contract manufacturing supplier to allow the owner of the design to control as many of the variables as possible in a contract manufacturing engagement will generate a high perceived value quotient. Important competencies include: good communication channels (with bi-lingual or tri-lingual staff in place), good communication systems, good project management practices.
In China, most contract manufacturing assignments will involve multiple suppliers. This is incredible difficult to manage from abroad and maintaining a good relationship (or guanxi) with each is critical if the entire production system is to work in a coherent and efficient manner. This is why it is critical to have a trusted partner that will coordinate all of the sub-supplier relationships. Core competencies to look for here include: companies with a wide network of supplier relationships, international experience, and local expertise in relevant markets.
Part of the concerns people have with relinquishing control relate to quality standards. There must be assurances that the China contract manufacturing supplier will meet the required quality standards and that its sub-suppliers are also capable of meeting these standards. As such, a China contract manufacturing solution provider should have: clear and documented quality assurance protocols; detailed documentation of all critical specifications and tolerances (critical, major, minor); clearly defined quality control procedures, all of which should be based on generally accepted international or American National Standards, such as ASQ (American Society for Quality); clearly defined acceptable quality levels based on Mil-STD-105D.
Key to most China contract manufacturing engagements is the ability to protect intellectual property, especially when various sub-suppliers are involved. The more entities that are privy to confidential information, the greater the risk that patents or other intellectual property is compromised. Therefore, when selecting a China contract manufacturing solution provider, it is of paramount importance that there are enforceable legal documents that require the contract manufacturer to hold all information in strict confidentiality and to require that similar confidentiality agreements are signed with all sub-suppliers that will have access to proprietary information and designs. Core competencies to look for are: good legal documentation and counsel; clearly defined processes to protect confidential information; ability to assemble so that sub-suppliers will not be privy to final product designs, but only parts or components.
China Contract Manufacturing Lead Times:
Because of the nature of contract manufacturing engagements (given that they mostly involve new designs, which can require molds to be opened or other tooling requirements), the lead times are longer than a typical sourcing or procurement request. Lengthy leads times can translate into direct costs for the inventor or company, especially if they are under delivery deadlines with retailers or other sales channels. Finding a China contract manufacturer that has experience in executing against deadlines and that has experience in production management will help mitigate the risk of disruptions to the supply chain and extensions in lead times. Find contract manufacturers that have wide and deep relationships with their suppliers so that there are always good and viable alternatives should issues arise (which they always will). Contingency planning is critical if one wishes to manage lead times effectively.
Flexibility and Responsiveness:
Part of the concerns related to a lack of control over manufacturing is the loss of an ability to respond directly to disruptions in the supply chain or changes in demand. Here the faith is placed entirely with the China contract manufacturing entity. Using a partner that will be able to make adjustments quickly is important. Look for contract manufacturers that have in-house engineering expertise that can troubleshoot design flaws and improve production techniques to enhance quality. It is also important that you have a local contact in your home country (or at least time zone) that speaks your native tongue and can coordinate work schedules and requests for you in China as much time can be lost if the message is not accurately and efficiently managed. Many contract manufacturers may also be able to help you with sales through their already developed channels.
The list above represents only a few of the key benefits that a good China contract manufacturer will provide. The key is to step back and look at the entire process, not just the price or cost of the product alone, to fully understand the value that your supplier will provide. A low price is clearly important, but so are many other facets that, if ignored, can end up adding a lot of cost and consternation later on.
Looking to outsource your production to China? Our experts are available to help and glad to answer any of those complicated questions you may have. Contact us today!