Global Sourcing Specialists’ Partner, Ashton Udall, Speaks at IHA CORE Group

This last Wednesday, Global Sourcing Specialists partner, Ashton Udall, gave a talk to a Bay Area group of CEOs that are part of the International Housewares Association group CORE.

The talk was a lot of fun and it was interesting to hear the anecdotes from both small and mid-size housewares companies’ execs.  To recap, below are two points from the presentation and discussion which I thought solid takeaways:

How Badly do we Really Want Manufacturing to Return to the US? It was not surprising to hear complaints about many of the standard issues that have challenged foreign businesses manufacturing products in China: quality, IP protection, sourcing reliable factories, etc.  As with most discussions like this, there are always a few funny stories of the absurd (by US practices) things that have taken place when operating overseas (e.g. factories using customer owned molds as collateral for bank loans, the bribing structure which Chinese factories must play in, etc.)  There was also quite a bit of talk and concern amongst executives about the price increases being experienced in China manufacturing, particularly in the last 6 months.  No question…a lot of companies are feeling the pressure.

However, an interesting sentiment from many execs in the group was that US manufacturers made it difficult to do business here.  Will the trend of a Renaissance in US manufacturing, as predicted by the recent BCG report, include SMEs?  I heard many experiences in which they had a hard time getting call-backs from US factories, US factories were not interested in anything but very high volumes, and it just plain seemed like US manufacturers didn’t care to earn business.  Some said they loved the can-do attitude of the Chinese and found that, for all the challenges, Chinese sources were generally more eager to please and win business.  A few of the executives had substantial manufacturing operations in the States and, despite enjoying the control they obtained by being much closer to their sources, they concurred with the difficult attitude found in many US organizations.  Will this continue to be a problem for SMEs as things shift towards 2015?

The Sourcing Landscape is Changing–Which Means Analysis and Tough Decisions Lie Ahead: I began my presentation with the observation that most companies do not consider how they design and optimize their supply chain to support their corporate strategy.  Stepping back to look at how this could be done can give a great deal of insight on making decisions to balance cost and risk in selecting suppliers, and regions to source from.  I think most executives of SMEs are content to battle the tactical challenges of manufacturing in China, so long as costs are low.  Rising wages, a shrinking labor pool, and the fact that the Chinese govt. is purposefully enacting policies to shut down many manufacturing industries in the coastal regions and redeploy them inland, is now giving many pause as to how long the cost advantages will exist.

It’s clear that costs will continue to increase in China in the next few years and companies should be far more critical of who their suppliers are and whether they will be able to evolve, survive, and continue to offer value-added services.  There are great organizations in the coastal areas of China that provide tremendous value-add in the way of expertise, service, and engineering.  For those working with the dirt floor factories and in industries where low cost pricing pressure makes it difficult to work with factories that offer more than the bare minimum, it is high-time to begin thinking about sourcing suppliers from other regions (inland China) or countries if you aren’t already.  Either way, in the short term, it’s going to be ever-more critical to assess the suppliers you are working with and to source suppliers that can support you as the China landscape continues to change.  Paying a little more in unit cost is better than waking up one morning to find out your factory has shut down and your money, molds, and product have disappeared.

In the coming years, your company will face tougher decisions.  To stay?  To go?  If we go elsewhere–where and why?  Do we follow the herd?   If one has to make tough decisions and think about overhauling a substantial portion of your supply chain, you might as well step back and assess the bigger picture of how your customers would like to be served and which regions and factories are best able to support you in doing this.  I’ve never heard of a scenario in which following the herd offered a competitive advantage.  Take a look at this business model canvas:

What will be your market segments in 5 years?  What will be the value proposition that can set you ahead of your competitors?  And will following the herd allow you to deliver it in a way no one else can?