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Kelly’s 1st & 2nd Laws of China Sourcing

Years ago, when Murphy’s Law calendars were all the rage (and yes, I am that old), my father submitted and had published two such laws; Kelly’s 1st & 2nd Laws of Aerial Navigation (remember this is from the 1970′s, so paper maps were the standard – no GPS).

  1. Your destination will always be on the other side of the map.
  2. All pertinent information will be in the crease of the map, which will be torn.

Recent events put me in mind to postulate laws of my own, Kelly’s 1st & 2nd Laws of China Sourcing.

  1. Every project will suffer delays.
  2. The primary source of project delays is the customer.

Now, before the hate mail floods in from all sources let me clarify.  China is inexpensive, but it is NOT fast.  There will always be delays in any project.  Virtually every decision cycle takes at least 24 hours, often much longer.  When a client comes to us, I always try to manage expectations. Often we encourage or even aid a customer to establish or maintain a domestic supply chain while setting up the China connection.  The long term health of the client is the goal for all of us, and we recognize that doing business in a foreign country is never easy or quick.  I have had this experience in the Czech Republic and Taiwan before entering Mainland China, so this is not a slam at the Chinese.  It is just indicative of doing business across vast distances with a language barrier thrown in for fun, and is one of the great arguments for domestic production.

Nor is it necessarily a slam at the customer, just recognition of reality.  Now, for some customers reading this, they will probably want to throttle me, because in their particular cases, the Chinese suppliers ARE the source of delays.  To you who fall into this category, you know who you are and I am NOT referring to you.  Don’t take this article the wrong way.  Our team is hard at work steering the suppliers back on schedule and we will succeed.

I said the “primary” source, as defined by Merriam-Webster as, “first in order of time or development“, not the only source.  And for the majority of projects, this is true.

This in no way means the customers are wrong per se.  There are often very good reasons for delay.  But we have a number of projects in our history that arrived in the market months and sometimes years “past schedule” because of some very common reasons.  I list them here as a teaching exercise, so that if you are thinking about launching a project in China, I encourage you to learn from those that came before you.

  1. Incomplete Design Databases – this is the A-#1, super-duper granddaddy of all causes of delays.  As I mentioned in some of my blog writings, you really, really, REALLY need to have all the elements of the design finalized before going to production.  Leaving even the smallest element of the design open to interpretation will lead to the supplier interpreting it in the way exactly opposite from what you wanted.  Remember Murphy’s Law, “If it can go wrong it will”.  Third parties work very hard to try and search for these errors and omissions, but are not the project designer.  Some of the people I work with at PassageMaker are engineers, and many of us have years of manufacturing experience, but I stress that we are NOT getting paid to do the design work.  For that we have a very competent group of Endorsed Service Providers that we recommend at the China Sourcing Information Center, should the client choose to utilize them.  One of the reasons we began building our CSIC network was not so much the clients who showed up with “lipstick on a cocktail napkin” drawings, but those who came with “databases” they’d spent thousands of dollars on that…weren’t.  Oh, there were a bunch of drawings, but it is amazing how many folks promote themselves as product designers who don’t even know how to do a proper mechanical drawing.  3D CAD packages with no 2D drawings and vice versa are common.  I’ve seen drawings with no material specs, no finish specs, no tolerances, and no scale.  In one case after signing a Non-Disclosure Agreement (NDA), the client gave us a drawing of a circle with no scale or dimensions at all.  I asked if it was a drawing of the moon to illustrate the point.  I advised that they get a refund from the “engineer” they paid to produce that useless document.
  2. Payment – As I’ve written before China is pretty close to a cash economy unless you are a buyer for a Fortune 500 company.  All Purchase Orders (POs) will require a deposit, in most cases because the manufacturer is going to use that money to pay cash for the raw materials.  Tooling is typically 30% At Time of Order (ATO), 40% at 1st article and 30% at final approval, before delivery.  Production is most often 50% ATO and 50% At Time of Shipment (ATS), which means in practice, 100% is due before the product leaves the factory.  All these terms are clearly communicated early in the project, but at least 80% of the time, there are delays from clients not paying in a timely fashion.  We advise the client to transfer the entire PO amount to an escrow account at the beginning so funds are immediately available to disburse when milestones are met.  This rarely happens.
  3. The uncommunicative client – it is not uncommon for projects to get caught in the doldrums and go nowhere for days, weeks, even months because the client is AWOL.  It is very, very common to have clients play “hurry up and wait”.  I’ve had panicked project managers contact me frantic because they haven’t gotten a client response to a critical question for over a week, only to find out that the client went on vacation without telling anyone.  The delays of course are somehow our fault.
  4. The client who’s in a hurry – while this might seem to be the right kind of client to have, the client who is in a hurry often places speed over accuracy.  They want to cut corners, skip prototypes, skip writing a Product Quality Manual (PQM) with us, not bothering to proof-read the PQM, etc.  Sometimes this works out, but not often.  More commonly when you deviate from the normal project flow, you end up causing more delays.

Chinese vendors screw up all the time, otherwise we would have a lot less work to do, but it is not all the vendors’ fault.  In short, the customer is NOT always right.

By Whit Kelly, Global Director of Sales, PassageMaker

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