Creating sustainable Chinese supply-chains

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Agenda

►Importing as an Identity

►Utilizing Chinese Supply-Chains

►Developing a Sourcing Strategy

►Current Supplier Assessment

►Active Management and Beyond

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Who We Aim to Reach

“In 2011 SME’s imported $597.4 billion worth of goods and services”

International Trade Administration

• Wisconsin business owners• C-Suite executives• Trade associations• Financial, Legal, and Private Equity professionals• State and local policy makers• Educators

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What it Means to Import

Successful importers possess: Strong, forward looking leadershipAn entire organization that understands the importance of the global economyThe ability to view Chinese supply-chains as more than just a source of cheap labor

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Value Created

The real value of using foreign supply-chains extends far beyond reduced labor costs. Additional benefits include:

• Reduced risk with the addition of secondary suppliers• Increased production capacity with minimal or no capital expenditures• Expanded product offerings and the ability to offer customers blended costs

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Game Theory

Potential Ramifications:Increased pricing pressure at home and abroadPricing interdependency between product offeringsHeightened demand for product development

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From Theory to Action

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China Business Plan

•Why are you now deciding to explore using Chinese suppliers?-Are your competitors active in the region?-Are you facing increased pricing pressure from customers?-Are you looking to expand your business by using foreign supply-chains?

•Why haven’t you explored using Chinese suppliers previously?-Protectionism or “Made in the USA” branding-Lack of available resources to successfully operate in Asia

•Short-Intermediate-Long Term Objectives (S-I-L)-Based on your motivations for exploring Chinese suppliers where do you want

to be:-Short Term (3-9 months)-Intermediate Term (1-2 years)-Long Term (2 years +)

•Available resources and desired level of investment-Have you identified your capital and manpower constraints?-Can you sustain unexpected delays or increased expenses in the short run?

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Internal Evaluation

•Does anyone in our organization have experience vetting or managing suppliers in Asia? (China is a unique market that differs significantly from Europe and Latin America)

•Do we have personnel that are capable of traversing significant language and cultural barriers?

•Do those individuals have the necessary time available to become fully invested in our company’s China initiative?

“Do we possess the ability and resources internally to be successful in China?”

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Strategic Oversight

•With the necessary personnel in place, how does our organization effectively manage new Chinese suppliers?

-Designated responsibilities

-Information flows

•How will we measure our success and effectiveness operating within China over time?

-Quantitative metrics-Qualitative metrics

Senior management should retain control over a company’s China Business Plan

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Blind Value Assessment

•What value does your company place on your Chinese supplier?

-Critical supplier-High Value supplier-Tactical supplier

•What value does your Chinese supplier place on your buying relationship

-Essential customer-Preferred customer-Low value customer

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Stress Test

•Cost vs. Price-What is your effective

cost?-Travel expenses-Re-work costs-Shipping costs-Claims

- Comparing “apples” to “apples”

• “What if…” scenarios-Major fluctuations in

demand-Personnel changes-Changes in payment terms

Effective Cost = Price + Rework Costs + Freight

Costs + Production Delay

Penalties +…

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Supplier Improvement Program

•Tracking quantitative values-On-time delivery rate-Reject rate-Claim resolution time-Product development cycle

• Tracking qualitative criteria-Ease of communication and

responsiveness-Ability to solve complex issues

• Technical improvements-Personnel training-Technical certifications

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Creating Realistic Expectations

•Successful US/China business relationships are based on collaboration

-US companies too frequently view Chinese suppliers as inferior to their company or those in other markets

• Attempting to be a “tough” negotiator over telephone and email only increases friction and reduces efficiency especially during times of conflict

• Everyone views their business as bigger, better, and more influential than they are-this can lead to a misalignment in expectations

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Supplier Expectations

• Payment terms-If a Chinese company wanted to purchase your goods, would you offer them open

terms?-30% deposit should be expected though financing options are available

• Quality Standards-Suggest using those in place at other

suppliers-How are standards enforced?

• Standard Operating Procedures-QC inspections (WIP vs Finished Goods)-Product Development

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Internal Expectations

• Transparency - Presenting full and complete information - Honest portrayal of business and accurate forecasting - Providing timely feedback on time sensitive items

• Projection of domestic supplier expectations onto Asian suppliers

- What do your domestic suppliers demand from your business organization?

- How can your business provide the same level of attention to Asian suppliers as you do domestic suppliers?

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Working for Today

“Everyone has a plan – until they get punched in

the face.”

-Mike Tyson

• Great plans are only as good as those who execute them

- Great People vs Great Plans

• Even the most well constructed procurement organizations in Asia face unforeseen challenges

- Troubleshooting and conflict resolution

• Ever changing conditions-Essential to continually re-

evaluate opportunities and challenges in the marketplace and within your own organization

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Planning for Tomorrow

• Creating a physical presence in the region

- Creating a dual headquarters- Decentralization of Procurement- Supplying Chinese consumers

through “Made in China” products / licensing

• Using China as a proving ground for activities in future emerging markets

- Transitioning from coastal provinces inland

- Tier 2 and 3 cities- Other countries

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