Outsourcing Body of Knowledge II

In August of last year, I posted about Mr. Govindarajan Ramu and his effort to develop an outsourcing body of knowledge. Mr. Ramu is an experienced professional, and highly knowledgeable about the topic. I just found out that he presented on the topic of outsourcing quality to the Hong Kong Society for Quality. You can find the announcement here, and the actual presentation here. Looks like great material!

China's Indifference to Quality

This piece from the online San Fransisco Chronicle just caught my eye, "Cars, bad air, slipshod quality trouble China." In general, the tone of the article is negative, but unfortunately, I have to agree with most of it, in particular:

"Last, and perhaps most dispiriting, China remains a nation with an
astonishing indifference to quality - a problem that's hardly improved since I first went there in 1994."

I wish it weren't so, but for many industries, it's true. There have been only the smallest changes in general attitude about quality. One of my oldest clients was just complaining to me about the difficulties with finding vendors that seem to care, especially in his industry.

Should you consider China for sourcing opportunities? Of course, but do it in a systematic way. I've written numerous posts about developing a process, and managing your supply chain. I won't repeat them here, but if you plan to source product in China, the rules have NOT changed. You must be vigilant, and you must have a systematic way to run your sourcing projects which includes proper vendor and quality oversight.

Getting to 'No'

I just came across a blog piece by Bill Conerly entitled "The End of Chinese Quality Products?" Bill speculates that in addition to increasing costs in China, we may also be seeing a general decline in the quality of products from China. He refers to some general posts from my friends at the China Law Blog, I believe this one is likely one he's referring to.

While I don't agree that we will see a general decline, I do believe that economic pressures may cause your suppliers to seek new ways to reduce cost. The result will certainly be a change in your product, and maybe a change that causes the product to fall outside your specification limits. This is a good time to review your practices in general. Do you have supplier agreements in place? Are you managing your supply chain?

Now, more than ever, it's important to understand getting to "no." I've stated before that "yes" in China means only "I hear you." You'll be delighted to hear that you'll almost never hear the word "no." Suppliers will often agree to your target price (please keep in mind that I'm usually dealing with smaller suppliers), and try to figure out how to meet it later, often with disastrous results. You need to understand your cost structure before entering into negotiations. If the price you are offered is lower than you think practical, you'd better dig into the details to make sure the product meets specification.

In these hard economic times, it's more important than ever to get to "no," if that's really the answer. If your supplier can no longer meet your required cost, it's possible that they will seek to reduce cost without informing you. Now's a good time to reach out to them and see what you can do together to keep your supply of product stable and in specification.

Do You Need a Supplier Contract?

No. If everything is going really well, and always will, then don't bother. You, my friend, are an enlightened master, but you don't need me to tell you that.

For the rest of us, likely you do. There are scores of articles about how to source product from low-cost countries. I've written several myself. I usually dance around the topic of contracts, and am even uncertain about what to tell my clients. I do have experienced legal advisors that I trust, and I count on them to help me figure these issues out.

Let me give you a couple of scenarios, one with a contract, one without. Please do seek legal advice before you finalize a sourcing project. As the old saying goes, an ounce of prevention is worth a pound of cure.

Scenario 1: I source a small stainless retaining clip. The value of the clip is a few pennies. The mould only cost me $200. My staff performs QC checks prior to each shipment, and I buy sufficient quantity to cover 90 days of supply. My relationship with this vendor is great, and I've used him for a couple of years. I also know that I could likely move this project to another vendor in less than 90 days, and that my mould cost will be less than $1000. I have no contract, but do issue detailed purchase orders with each order. I'm comfortable with this arrangement.

Scenario 2: I work with a partner to source a large aluminum casting for the automotive industry. The cost of the mould and tooling was over $30,000. The part is complicated and we ship monthly. Of course, relationship and VERY pro-active project controls are necessary. My risk, however, is tremendous if there is a problem. I certainly need a contract on this one!! If things go wrong, I will need to recover the tooling, which my partner and I own! I'll need to recover damages, as I would likely miss shipments if I needed to move the project. With the right team, legal remedy is possible in China.

The last contract that I worked on in China cost about $4,000. Expensive, yes, but if your tooling costs $30,000, it's worth it. If you don't include vendor disagreements as part of your failure mode and effects analysis, perhaps you should. The corresponding process control could be a well-written, enforceable contract.

Lean Six Sigma

I stopped collecting initials many years ago. You know the ones I mean, the certified this or bonafide that. There's nothing wrong with those initials. In fact, it's helpful for organizations to standardize a body of knowledge. It certainly simplifies training and communication in general. I just realized that at some point, it was getting silly. For instance, I have a Master's Degree from an Ivy League school in Engineering Management. Do I really need to go through the process to become a certified engineering manager? I don't think so.

I confess that I am an ASQ Certifed Quality Auditor (CQA). I needed to learn more about how to perform effective audits, so I did. I took a course offered by ASQ, and stuck around to take the exam as well. I'm proud of that certification, but it was just an extension of the learning.

I have decided to expand my skillset more, and so will be collecting a couple more initials. I recently enrolled in a Lean Six Sigma Black Belt program. I've used the tools for years, but think it's time that I formalize that knowledge and expand my skills even more. I'm really looking forward to it!

There have been some recent criticisms of Six Sigma. I recall a Business Week article claiming that Six Sigma stifles innovation. There is some truth to that, and in response, there have been several new initiatives such as Design for Six Sigma. In addition, Six Sigma practitioners have been bringing forth many new, and some old, innovation tools, such as TRIZ.

I'm excited about the program. I'll keep you posted as I move through the program, which starts in November. If you're a Six Sigma practitioner, will you please share a brief synopsis of your project(s)?