Sourcing from China? Marketers Need to Think Twice, Maybe Thrice

On a cold, blustery day at 1 p.m., your supply chain and operations managers call a meeting to discuss outsourcing the manufacturing of a best-selling item to China. While facts and figures for cost savings and lead-time reductions are bandied about the room, you notice something crucial missing from the conversation: customer expectations and satisfaction. In fact, sourcing from China deserves very careful consideration and isn’t even close to a slam-dunk decision.

If everyone is sourcing from China, it must be a worthwhile endeavor right? Author Paul Midler might disagree. In his tome, Poorly Made in China, Midler discusses Chinese business culture, manufacturer/importer relationships, counterfeiting, and more. Of particular interest, Midler provides a behind-the-scenes look at quality control in a typical factory, where he spots workers sticking their hands in product, problems with substandard and “wobbly” packaging, and the routine shipping of defective products. “Consumer and product safety (are) not large concerns,” he says.

And that’s why, despite initial cost advantages, some companies are finding that it is ultimately a better choice to bring production back home.

A March 2011, Wired Magazine article titled, “Made in the USA,” mentions a case study for Sleek Audio, a high-end maker of ear phones. Every few months, Mark Krywko, CEO of Sleek Audio, would make a trip to China’s factories to discuss quality challenges. And when Krywko visited his outsourced factories “his Chinese partners would assure him that everything was under control. These promises always proved empty.”

According to the article, in one instance, Sleek Audio had to discard an entire shipment of earphones (10,000 in quantity) because they were improperly welded—a mistake that cost the company millions of dollars. Another issue was continually missed production deadlines, which caused Sleek Audio lost profit opportunities.

Fed up with quality issues, Sleek Audio decided to bring production back to the United States. After exhaustive research, Sleek Audio contracted with a Florida company to produce the company’s earphones. Granted, the product cost 50% more to produce in the United States vs. China, but the benefits of increased product quality and faster time-to-market far outweighed an initial up-tick in costs.

And while this is just one case study, the Wired Magazine article notes that many companies are finding that once design considerations are taken into account—to remove as much manual labor as possible—manufacturing in the United States can actually be quite competitive.

Before we get too far ahead of ourselves, let’s be sure to recognize that there are many advantages to sourcing from China. China is still the manufacturer to the world—from shampoos and lotions to high-end technology. And without a doubt, according to a recent World Bank Report, there are few “low-cost” countries that have China’s infrastructure (transportation, electricity, telecommunications, water supply etc.) for making and transporting goods in an efficient manner.

However, as sources from this article recognize, an initial low cost is only part of the overall value equation. The entire supply chain must be considered in addition to the demand chain. It is for this reason then, marketing executives—with a pulse on customer needs and expectations—should be a crucial component of any product or service outsourcing discussion.

Questions:
• Paul Midler writes, “American consumers had once preferred to see the Made in USA tag, but somewhere along the line, made in China began to sound like a bargain.” Do you see a sea change in consumer expectations, or does the mantra “as cheap as possible” still reign?
• Is “paying a little extra” a wise trade-off—not only for companies but customers too?

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2 comments

  1. I’m completly into this book ever since you’ve reccomended it. And it’s a great marketing book actually. Also most managers should read it I guess.

    What is even more interesting, I was at a conference 2 years ago with an experienced Denmark consulatant. And he was telling me that most of the Denmark companies were largely taking production off from China and into Eastern Europe (Poland, Estonia,…). Just because the prices were a bit higher, but quality was way better, transport was cheaper and even management is simple to them (can be there quickly).

    Do you see a sea change in consumer expectations, or does the mantra “as cheap as possible” still reign?

    Unfortanetly, cheap as possible is still prevealing. Personally, I look for more expensive things if I see “Made in China or whatever not close to Slovenia”.

    Is “paying a little extra” a wise trade-off—not only for companies but customers too?

    Absolutely. No second-thought on this.

    • Dusan, I bet you are absolutely right about how some companies are bringing their supply chains “near shore” instead of off-shore. There are plenty of companies here in the USA that produce in Mexico and even Canada. It’s all about quality, faster time to market and being able to reach out and choke your supplier if necessary. Tough to do that in China where there are plenty of factories that just don’t care – (until you bring them another order that is).

      Thank you for adding your expertise to this column!

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