You are a professional buyer and you have a certain experience with low cost country sourcing.  You have already identified a short list of good Chinese suppliers to whom you can outsource the assembly of your printed board.  You used some relations of yours in China to have a first evaluation of the manufacturers.  You have just performed a factory tour to decide which one you will pick for your outsourcing.

You have done your homework: your top pick has good pricing, knows how to manage SMT assembly lines, has fully implemented the 5S principles and has a strong quality control (QC) process, and has several RoHS compliant lines.  Everyone is very satisfied of the work and is excited about the savings this operation will bring to your company’s operations.

Nine months later, this deal is becoming a real headache. 

Some deliveries are excellent, some are substandard.  After each substandard delivery, your company’s quality department sends an engineer to identify problems on the assembly line.  But everything seems fine: the lines are perfectly run;  QC is good and effectively takes out defective PBAs for rework.  

The quality engineer is at a loss . . . until he asks a Chinese speaking engineer to accompany him to review in details some of the in-process quality documentation.  Then, they realize that sub-standard deliveries seem to have been subcontracted to other suppliers. 

After heavily insisting, the main supplier leads them to visit the subcontractor, where they easily understand why the output was less good.

The best it to identify such risk at the time of supplier selection or request for quotation.  Needless to say that this is not a simple task: suppliers will not admit such subcontracting, even when we have a strong proof of their practice.  A good illustration of this is what happen to us about 18 months ago.

We were working on a PBA assembly project and we had submitted a file for quotation (bill of material, size of the printed board (PCB), a couple of pictures).  The sourcing engineer in charge and I were visiting the four suppliers we had on in the short list . 

Interestingly enough, one supplier in Suzhou asked us whether we had sent the same RFQ to a supplier in Wuxi.  They said that they had received the same file as ours from this Wuxi supplier.  We agreed that the Suzhou supplier would only make a quotation to us. 

Later in the day, I was visiting the famous Wuxi supplier.  Innocently, I enquired whether they sometimes outsourced their production.  Upon a first negative answer, I insisted a little more, making sure that I was well understood.  Still, the Wuxi supplier confirmed that they did not do subcontracting. 

We knew very well that they were asking at least one other company to manufacture for them.  And it was proven further when the Wuxi supplier could not send us any price quotation because they did not receive any from their Suzhou subcontractor.

There is nothing wrong with subcontracting some part of your work.  After all, this is what we all do with Chinese suppliers.  But what is certainly wrong is when, as a buyer, you cannot trust that the selected supplier will be transparent enough to disclose plans to use a third party factories or plans to change supplier of key components.  Unfortunately, these things happen.

This is one more of the many reasons why China sourcing and procurement best practices call for regular contacts and onsite visits to develop an intimate knowledge of how the supplier operates.

Etienne C         

June 2007         

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