Contract Manufacturing in China
High-Tech Products
By Filomena Mitchell
XPI China Correspondent

Sourcing high-tech components and finished products in China for the IT, consumer electronics and appliances markets are not without risks for the international client, but it is not without benefits either. This is why most international companies have started, and continue to develop, sourcing in China.

Supply chain definition

Before switching your traditional sources to Chinese suppliers, you have to ask yourself the question at the strategic level of what you want to achieve. Spot buys for short term savings might not be the best solutions over the long run, taking into account the time and effort required to set up a trustful relationship.

All costs have to be taken into account, from the transfer of knowledge, supplier development, travel, non-quality, and logistics (regular and expedited) that will have to be supported during the products life cycles. Cultural, technical, and geographic parameters can impact lead times and costs.

As a rule of thumb, companies tend to move for Chinese sourcing when they forecast material cost savings of at least 20 percent, which would normally cover the transition and management costs and leave them with some money left over. Each case being specific, in particular with the low margin and competitive markets of IT and consumer electronics, it is recommended to perform a cost and benefit analysis based on different scenario to take into account currency, fuel, political and technical exposures and so forth. How many suppliers would you deal with, and where? How much integration would you need? What transportation modes and logistics would you use?

Supplier selection

Only with the right partners can you achieve the expected level of performance. The number of high tech and electronics suppliers in China is huge and so are the contrasts in terms of capabilities.

Electronic manufacturers are concentrated mainly in the eastern coastal areas such as Shenzhen, Shanghai, Ningbo and Suzhou. Concentrated areas give the benefit of a large choice of generally mature companies, with well developed (sometimes saturated) logistics routes, while more remote locations might be of interest from a pure cost perspective. A thorough assessment of the supplier's capabilities is necessary to evaluate the financial situation, cost structure, technical expertise and quality systems and production capacity. Most importantly, you have to assess their willingness to do business and to improve to meet your expectations.
Supplier management

You have defined your supply chain network and selected the best suppliers, but just like traditional sources, it is still necessary to keep the lines of communication open. From the on-time introduction of new products to the smooth delivery of mass production, regular attention must be paid to your supplier's operations. You will ensure the highest quality and confidence levels through a quality management program that will cover regular on-site audits and inspections. Local presence is a plus and it can be achieved through an extensive travel plan, set up of a Chinese office, or through the services of a professional partner, whose scope of activities could cover basic product quality, outgoing inspections, audits and final product logistics.

Subcontracting to Chinese manufacturers can mean the difference between success and failure in this global business landscape, but to succeed requires professional attention and support.