Outsource in Taiwan, Now!

The NT dollar continues on it's downward spiral. This fact, coupled with rapidly dropping shipping prices, means that you can now afford to have legendary Taiwan quality at a China price. Why settle for second-rate products, delays, mis-communications and other problems associated with doing business in China, when you can work with Taiwanese suppliers and their superior capability? Taiwan suppliers have the technical expertise and the capacity to produce your products inexpensively and repeatably.

Remember, it costs you nothing to contact us!

Outsourcing More Sensible Than Ever

With the effects of the “global tsunami” being felt all over the world, now more than ever, it makes sense to outsource from Taiwan with Asian Castings Consortium. Not only is the NT dollar losing value, thereby making outsourcing cheaper, worldwide shipping rates are falling like a stone! I've seen full container load quotations that look like typos because the rates are so low. Please contact us with your drawings and specifications for quotations, and let's see if we can save you some money!

Effective Communications: Email vs: Fax

Sometimes my Customers will ask me why Chinese suppliers don't answer their emails. This is a very good question and it deserves a bit of discussion.

Nobody likes to be put into a situation where they might be embarrassed. Your Chinese suppliers may think that their English isn't good enough to respond to your email. I know of situations where there is a relative nearby who has studied English (usually a female for some reason), but they never studied technical terms in English. A couple of times a week this person may come over to the office to read the English emails that have come in. Naturally, your question about machining tolerances, draft angles, or other technical aspects of production are completely out of the realm of that person's understanding – just as much as the common person on the street in the US wouldn't know either. But the problem just gets deeper when there is a secondary barrier of language difference. You're dealing with both a language and technical language barrier. This is why making your questions and statements as simple as possible is extremely important. So, if you send a complicated email to your Asian supplier, you may never get an answer. Remember what I said before about sticking to the exact information and not resorting to storytelling or other extraneous information.

But there are other aspects at work too. For some reason, emails tend to be given less consideration than other forms of communications. Years ago I wrote about a situation that happened to me. I wrote several emails to a prominent attorney in Boston that went unanswered. This attorney not only worked for me, but was a personal friend, and yet because the secretary who read his email didn't know who I was, I never got past her. So, I took a piece of paper and hand wrote a fax that read:

Dear [name], please call me at [number]. Thanks!

My phone rang 10 minutes later. I've seen secretaries delete email from their boss' inbox, while hand-carrying faxes directly to them. There is something about a fax that seems more “urgent” or important, if you will, than email. I'm not sure why this is but it may have to do with a particular individual's age or computer ability. My dad has never sent an email, but he can fax with the best of them. Many Chinese bosses are absolutely computer illiterate and have their sons and daughters running the computers. You can bet money that if Jr. is put to the test and his English isn't up to par, Dad will be furious. So it wouldn't surprise me if your technical emails hit the bit bucket as soon as they were opened.

My suggestion is that if your emails are being ignored, don't assume that they are purposefully dodging you, but instead send your Asian supplier a carefully worded fax. I know it will cost you more money than sending an email, but you can be assured that an underling won't be able to dismiss that fax and it will get to the boss. The boss might not be able to read it, but he can take it to the local university if necessary and find someone to tell him what it all means. I have a supplier in our own group that has never sent me an email in 5 years. I sent him emails all the time and he calls me to talk about them. He'll send me a fax but never and email. Funny part is, his English is great. So it's good practice to fall back on faxing just to make sure your message gets through.

Life is Life

Customers who visit Asia are often taken aback when seeing workers sleeping on the floor or in the office during the factory lunch hour. They are also surprised that the factory lunch hour is indeed a full hour long. This is because in most US factories, the lunch break is 30 to 45 minutes, and in general not everyone sleeps. A few people may lay their heads down on their desk or table, and the office is still open and taking calls. But in Asia, I can't tell you how many times I have accidentally woken up the boss who was sleeping in the conference room or in his office during this time. You can't normally get in touch with any office during the lunch hour.

When parts are late, sometimes Customers will ask how many overtime hours are being devoted to their products. Usually the answer is that no one is working overtime. I've seen situations where parts were weeks and even months late and yet not a single extra minute was devoted to those making those parts. The supplier will go along on his normal production routine, even taking new orders and scheduling them into the system before yours are completed. It doesn't matter if your products are on-time or not, because this is about work, not about life.

Americans will frequently make reference to their life in regard to work. “ My life came to an end” is a common phrase heard in the USA when something disastrous happens in the workplace. “ We're dead” is another typical phrase.

In my last article, I said:

“ I know a guy who describes problems while making a hand gesture like a gun, shooting himself in the head to demonstrate the negative impact on his business. The Suppliers never get this. This is because the concept of failure and consequences are different in Asia.”

I've had it explained to me. “Life is life....” Nothing will interfere with life. If your parts are late, no one is going to give up their weekend to make up the time. ¹ When choosing a supplier, one of the questions you want to ask is what resources will they devote to your parts production if things get behind schedule.

1This is of course, a generalization meant to convey the point that it's unlikely. Our Consortium suppliers do respond to problems by increasing work hours.

Etiquette: Communicating With The Supplier

Meetings

So, now you've met the supplier, and you settle down into discussing your needs. Always keep in mind that you are dealing with people who were born and bred on the other side of the world. They are different. Sometimes the difference is imperceptible. Other times the difference is vast.

Asian languages that are tonally based present something of a problem to foreign listeners because the actual tone (the pitch as in high or low) determines the word, as well as the syllable itself. So you could say the same syllable with 4 different tones and thus have 4 different words. And, those words are completely different! They are homonyms¹ to our ears.

Since the pitch is one of the factors in determining the correct word to use, pitch, or vocal inflections are not available to be used to convey emotion. In English, we use pitch to convey a wide range of emotional content in addition to the spoken words. This is possible in Chinese to a much lesser degree. Actors have complained that when speaking Chinese, they couldn't use tone to express emotional depth, so they had to rely on body language to convey emotion. The problem is, this body language is very different from that which we are accustomed to in the West. But this also explains why Chinese movies sometimes seem very over-acted with regard to the body language.

The reason that I am making this point is so that you won't be thrown off when you encounter puzzling emotional displays. Often speakers of Chinese will break out in a sudden burst of shouting, and for no apparent reason. It doesn't mean they are angry or upset – they are just expressing an unfamiliar physical response. I have been in situations where a Customer was patiently waiting for the translator to say what the boss was just yelling about. Usually the Customer is nervous and in some cases, offended even before the translator has given the translation. But it ends up being nothing more than simply how one expresses themselves. Another body language trait is exaggerated facial expressions and body movements. I've had conversations with people in Chinese who appeared to be in agony. Its just their style and it sets them apart from everyone else. Keep that smile on your face and please assume that everything is fine. Just ask your questions and calmly await the translator's reply. Take detailed notes on everything.

Social Situations

In Asia people ask a lot of personal questions. It's not unusual for someone to ask how much money you earn, or how much you paid for your car, home or anything they find interesting. In this society it's not impolite to ask one's age, or to even make very embarrassing inferences such as not having children means an inability on your part to produce them. Every day I go to the store and the owner asks where I've been and where I'm going to. The first inclination is to say “none of your business!” but one has to keep in mind that these aren't actual questions. They are just conversation starters. No one actually expects you to give them answers to these questions. Its like saying “how are you?” instead of “hello.” So when someone asks you questions like these, try to have something innocuous with which to reply. When asked how much money I earn I just say “not enough!” with a huge laugh. Everyone can relate to that and it's a good enough answer to avoid the question directly.

At some point in the future I will talk about social situations in greater detail.

Follow-Through

If I could change one thing, it would be how Asian Suppliers follow-through. I cannot tell you how many times the ball was dropped because of a lack of simple follow-through. Let me give you a recent example:

1. I had a new tool made. I personally hand-delivered it to the Supplier to have samples made. There was a problem and the tool was too tight (investment casting).

2. The Supplier sent the tool back to the tool maker. I called the tool maker to inform him that is was coming back for adjustment (note that the Supplier did not call the tool maker because he assumed that I would).

3. The tool maker fixed the problem and shipped it back to the Supplier. I called the tooling maker and confirmed this.

4. I called the Supplier several days later inquiring about my samples, which were desperately needed.

5. The Supplier informed me that he never received the tool.

The Supplier knows that I'm on a tight schedule and need those samples off the new tool. But it would never occur to the Supplier to call me or the tool maker and ask where the tool was so they could produce the samples according to my schedule. It would also never occur to the tooling maker to confirm delivery. Why is this?

Asian Suppliers expect you to call them when things are not right! Therefore, an unforeseen problem that occurs with a project that is not being actively followed-through may not be discovered.

It all depends upon where in the supply chain the problem occurs. Asian Suppliers are generally very good at doing their own thing, so watch out for holes when other parties get involved. Nearly everything is outsourced here. Operations such as shell mold cleanup, cutoff, grinding, sandblasting heat treat, etc., that would happen under one roof in the US may all be performed at other facilities, owned by other people. Sometimes those outsourced operations are the cause of problems and delays. So the normal policy of calling is even more dangerous that it appears at first because:

Someone only calls when the situation is a problem for them. They're not going to call if it's a problem for you.

This is why your Asian Supplier won't email you to inform you of schedule or production problems, but only concerning payment issues. Not getting paid is their problem. Your parts not shipping is your problem.

Rule: You manage your own parts production, or you will come to regret it later.

If any single person in the above scenario had asked questions they would have found out that the tool never arrived and was lost in transit. I hate it when I hear “if there is any problem, they will call me” in response to my request that someone call to check on something. It almost seems that Chinese people don't like to call and ask questions because of some unspoken, implied mistrust, or belief that the other person is incompetent. In the West, we risk the implication rather than waiting to confirm that the person was indeed, incompetent and has risked our business instead. In the end, it was my own questioning about the samples that uncovered the problem. Otherwise, that situation would have gone on indefinitely because nobody followed-through.

Rule: Do not rely upon people calling or emailing you for critical information.

However, those 2 rules being said, there is a right way and a wrong way to ask for information when managing your production. Remember, the basic rule is always keep your cool. Your communications shouldn't sound demanding or threatening. You should ask direct questions about things like the schedule, or materials, but avoid getting into micro management discussions or you will never get anywhere. You have to keep the Supplier focused on the goal, not the details. The reason is because no matter what you may think, your Asian Supplier will proceed quite differently than your US Supplier. This also means that those typical little “sanity checks” that US Customers like to do generally don't work. I have some Customers that actually assume the Supplier is working on their parts every day, or even exclusively. This is especially true if the parts are late. Don't expect that your Asian Supplier will do anything differently whatsoever if your parts are late.

This brings me to the topic of my next article, entitled Life, Is Life.

1Modern Language Association (MLA):

"homonym." Dictionary.com Unabridged (v 1.1). Random House, Inc. 24 Oct. 2007. http://dictionary.reference.com/browse/homonym>.

Etiquette: Meeting The Supplier

So, you've been negotiating over the internet for a few months and now you want to take a trip to meet your new Asian Supplier. He might be anywhere in Asia, but the main rule is the same: be polite!

The Asian concept of being polite is often lost on Americans and other Westerners. In general, people from Western countries are polite, but that statement is based upon Western standards of politeness, which is quite different than Asian standards.

This photo was taken in a small village in Laos on a side trip that my wife and I took while in Thailand to visit a supplier. After traveling by van for several hours, we decided to pull over at a small village and take a break. As soon as I opened the door to the van and stepped out, this man jumped up with a bottle of Beerlao and a glass, then proceeded to pour each and every one of us in our party, a glass of fresh beer. This man also invited us for lunch in his home and it took a great deal of explanation on the part of our hosts to explain that we were indeed, genuinely busy and couldn't accept his gracious invitation. This situation very well describes the Asian concept of being polite.

In Asia, people say “no” when they mean “yes” much of the time. It's not lying, it's an appearance. When someone pours you a glass of beer you are supposed to “protest” saying that its too much for you. This makes you appear to be a reasonable person, not greedy and wanting too much. People who clearly would love to drink more will say “no thank you” to someone pouring them another round. No Western person that I know would do this.

This can be troublesome for the Western visitor who finds that people don't listen to him when he says “I have had enough” or as in the case above, when you honestly cannot accept an invitation. All you can do is keep a smile on your face and understand that your hosts are only trying to make sure that you are happy and satisfied with the food and drink they have provided. The problem lies in the definition of what constitutes “happy.” My Chinese friends have told me that if you aren't drunk, you aren't happy. So naturally, they try to get everyone drunk.

Male visitors in particular will have to deal with another aspect of Asian culture: face. Men will have to “show face” by being macho to some degree. Usually this means smoking and drinking. Since most Western men have given up smoking long ago, this leaves drinking to deal with. Sometimes saying “I don't drink” will work, but often it won't given the desire to get everyone drunk. The good news is that women aren't expected to drink like the men.

My wife and I were in Thailand visiting a supplier and we were invited to dinner in the local village. The men sat down on the mats to drink while the women prepared the meal. My wife was the only woman invited to sit with the men because she was a foreign guest. The men told me that they wanted to drink with me. I toasted them a few times and then let the last glass sit there, with only an occasional sip. The meal was absolutely delicious, comprised of local chicken, freshly killed and local hand picked vegetables. The alcohol was locally produced too, from rice wine and very strong. If you are not used to such drinking, I suggest that you be careful. I will expound on socializing in a later article.

When meeting for the first time, you should know a few things beforehand. In Taiwan, I have read magazine articles about how to meet Americans and other Westerners, written from the standpoint of Taiwanese businessmen traveling to the US. I would like to outline some of the points of advice for Taiwanese businessmen that I've read and explain their impact.

1. Make eye contact. Don't look around the room to see who else is there, while shaking hands with your contact. This means that eye contact isn't that important to Taiwanese businessmen (I would generalize this towards most Asians based upon my personal experience), so don't take it the wrong way if the guy you are meeting doesn't appear to be paying attention to you.

2. Don't assume that your contact will be a white middle aged man. If you are a woman, expect surprise on the part of your Asian Supplier. Don't be put off by this. Consider it proof that Western culture has successfully removed gender barriers.

3. Don't assume that the only woman in the room is the secretary. I've heard stores of Taiwanese businessmen asking the CEO to get them coffee, assuming that the woman in the room was there to serve the businessmen. Again, just smile and let it roll off your back.

4. Give a firm handshake. If you've watched many kung-fu movies, you've noticed that Chinese don't normally shake hands. Virtually all of the people with whom I have shaken hands in Asia have been educated abroad. Don't take it the wrong way if you meet your Asian supplier and he gives you the “dead fish” handshake. He's just not used to shaking hands.

Now, I would like to make my own list of advise for American/Western business men when meeting Suppliers, and anyone else in Asia.

1. Use both hands when presenting your business card. The proper way to present your business card to someone in Asia is to stand tall, both feet together, facing directly towards them. Using both hands, present your card to them, with the information facing them so they may read it from their perspective. You should give a slight bow if you are in an Asian country other than Japan or Korea (in which case a deeper bow is appropriate), and smile like you are genuinely happy to meet this person. While bowing is not really a normal every day practice in most countries, all Asians recognize and appreciate a bow as a sign of respect and dignity. I've been to meetings in the US where the attendees literally tossed out their business cards to others like a dealer in a poker game. This is considered to be extremely impolite in Asian! Never do that, ever! When someone else comes into the room, don't be shy about standing up and presenting your business card to them. The others in the room will remark about how polite you are (and also how you respect their culture).

2. At the meeting table, keep the name cards face up and in view at all times. Asians call these “name cards” because they represent the person. By showing respect for the card, you show respect for the person. Make sure that at least a few times, you stop and look at the card to double-check the person's name and position. They will really appreciate that. You will be demonstrating and understanding of Asian culture that most Westerner's don't get.

3. Respect company literature and name cards on the same high level as the person and company the represent. I have seen US Customers graciously accept a company brochure from the boss, only turn it face down and draw a diagram on the back of it, while the entire group watched in muted horror. This is very bad! In Western culture that wouldn't be considered such a bad thing, but in Asia that would be abject rudeness. I've also seen people write such things on name cards too. Unless you are adding information relative to the card itself, such as an updated phone number, or a note to help you pronounce the person's name, do not write on the name card as if it were a piece of scrap paper. Just ask for a piece of paper and you will avoid problems. Better yet, bring your own notepad with you and avoid the possibility of doing something to offend your hosts.

4. Thailand: Do not raise your feet off the floor, showing the bottom of your feet. Do not point to anything with your feet. Thais believe that the feet are the lowest part of the body. When you point with your feet you are showing disrespect for the person you are talking with because you don't care enough to even use your hand to refer to something. A famous story on the internet talks about a Western man getting a massage while watching TV. He wanted the channel changed so he pointed to the TV with his foot. At that very moment, a likeness of the King of Thailand came on the TV and he was asked to leave because of showing such disrespect for their beloved King.

5. Thailand: Do not touch a person on the head. In general, it's good practice to not touch anyone, except for a handshake. Touching someone on their head is very disrespectful in Thailand. On Thai television shows, people who are being shamed and humiliated are often kicked in the head, not hard enough to hurt them, but in order to touch the head with the lowly foot.

6. Don't use sound effects when talking to people. I've been horrified to attend meetings where the Western Customer resorted to sound effects to depict things like drilling holes or machining. While I understand that this was borne out of a desire to communicate, Asian people who do not speak English are not stupid. They just have other words for the things you are trying to say. Allow your translator to speak for you instead of acting like an animal and making noises to get your point across.

7. Be careful when making gestures. I know a guy who describes problems while making a hand gesture like a gun, shooting himself in the head to demonstrate the negative impact on his business. The Suppliers never get this. This is because the concept of failure and consequences are different in Asia (I will explain in a future article).

8. Smile, and keep your cool at all times. I have been guilty of violating this one myself, so I can tell you from personal experience how important this rule is. Even when you have to tell someone something very bad that they have done, when you smile that means “this is not personal.” In the West we would just say those words, but in Asia, people don't listen to words so much – they watch what people do. I know a Western manager in an Asian country who told me he got very upset when his accountant explained to him that she made a multi-million dollar mistake. He was upset because she was smiling while she told him. This demonstrates that he does not understand the culture. The woman was smiling because she was trying to disarm the situation and avoid abusive confrontation. The manger thought she didn't understand the gravity of the situation. Her smile tells me that she does understand and takes it very seriously. In Asia, getting upset, raising your voice, throwing or hitting objects, cursing, slamming doors or any of the other demonstrations that Westerns normally do, will have only one, singular result: your Supplier will become uncooperative. Remember, if your Supplier decides to not make your parts there isn't much that you can do about it. So don't give him a reason to quit by making an ass of yourself. Even if your world is coming to an end, smile and calmly explain how to solve the problem.

In my next article I am going to talk more about how to communicate effectively.

To receive this article in PDF format, send an email to asiancastings@gmail.com with the title of the article.

More Rules of Successful Outsourcing

My last post discussed the necessity of always having a backup plan for your production in Asia. Continuing on with our discussion are more Rules of Successful Outsourcing . Keep in mind that I didn't actually lay out the rules in order of their importance. They are all important. The numbering scheme is so that I may refer back to them in the future.

Rule #2: Make sure the company you do business does what you need as a core competency, not as a sideline.

Since outsourcing is a way of life here in Taiwan, and not viewed as deceiving or underhanded in any way, you may find yourself sourcing parts with a company that has no earthly idea how to make them , but has outsourced the parts to someone else. If you don't ask you will have no way of knowing, unless the information that you receive from the Supplier seems odd.

One problem that I personally experienced was with a boss who really wanted to get into a new aspect of business with his company. He led me on for some time, while I was working on designs, until his wife just told him that she wouldn't permit him to do that because they should stick with what they normally do. So, with a single conversation it was over before it began. Sometimes people will tell you that they can handle things and end up not being able to perform. It's not deceit mind you, it's just a different viewpoint on representation of one's capability.

Rule #3: Make sure you know who is really making your parts, where they are and how to contact them directly.

You will call the company and get all kinds of stupid excuses. Some of them sound way off – things which don’t make sense given the stream of excuses you’ve been given. That’s a sure sign that your parts are not being made there. You’re getting 3 ^rd hand information, translated into English. You may never know the truth about what is going on with your parts. I recommend sending someone to the factory to find out what is going on.

If you haven't already met your Asian Supplier in person and have been talking through email only, at some point you will have to meet with your Supplier in person. In future articles I will tell you about some important cultural aspects you need to know in order to make the right impression on your Supplier.

The Rules of Successful Outsourcing

Last time, we talked about the real possibility that your Supplier may quit on you for no acceptable reason.  How do you handle that situation?  The problem is that in Asia laws aren't the same as they are in the US. You can't strongarm someone into doing something here.  Once your supplier decides to give up there is virtually nothing you can do about it.  So you need to concentrate on a way to solve these problems that will keep you on track.

In this article I am going to introduce you to one of many of my Rules of Successful Outsourcing.

Rule #1: Always Have A Backup Plan.

You should always expect the worst when you are sourcing from Asia.  Smart buyers (including myself) always have a second and third source lined up in case of emergency.  In the 2 examples I have give you thus far where the supplier quit on me, I was able to go on to the backup plan and continue.  Otherwise I would have been in the undesirable position of having to develop a new supplier "under the gun."

I cannot emphasize this enough!  You must be able to pick up your tool and move it to another factory at a moment's notice.  For example, in a single recent year I moved my tools at many as 4 times in order to keep production going.  I refused to allow a supplier to put me out of business just because he decides for one reason or another, to quit.  In all fairness, sometimes other things happen, such a a person's death, typhoon or earthquake which can destroy a factory or seriously disable it.  Just be prepared to go to the next phase of your plan.

So, remember: any outsourcing plan should include some backup provision.

Let me give you another good reason why you need a backup plan:

Often Chinese suppliers do this thing that I call "Touch the Customer."  They purposefully undercut their own profit and quote you a ridiculously low price so you will order from them.  The reason that they do this is because they want an opportunity to ship you the first order of your products so you will be impressed with the quality and will want to order more.  On the second order however, you will find that the price is significantly higher than the first order, and now you know the real price.  Their logic is flawed in that for the most part, the Buyer knows that the quality from Supplier to Supplier in China is virtually the same.  In this game, price is everything.  So once the Buyer finds out that the China Supplier has done this, it's pretty much game over.  But, if the Buyer doesn't have a backup plan then he might be forced to buy from this shady Supplier until he can develop another source.  Here is where your properly outlined plan to outsource pays off.  You have a second supplier and you can just turn them on.

To Be Continued....

technorati tags:rules, outsourcing, backup

The Case of the Reluctant Die Caster

In a previous article, I mentioned a Supplier that gave up before he even started a project, out of fear of losing money.  I would like to give you more detail about this case because it is an excellent example of what you can expect for commitments and resolve from your Asian Supplier.

In Asia, suppliers typically quote casting products based on weight.  One can go into virtually any foundry, ask them for their price-per-KG and walk out knowing what you need to know to figure your costs.  The die-cast Supplier in this case was told by the Customer that the tool was bad, the previous Supplier had many problems producing parts, etc., to the point where this Supplier was literally scared to touch the job.  However, he being a tool maker, I asked him to take a look at the tool and if possible adjust or repair the tool so he would have confidence in the tool's ability to produce good parts.

After an audit, which included mounting the tool and shooting parts, the die-cast Supplier recommended repairing a slide.  I told him to proceed and I paid him for the repair.  But, the fear was not eliminated, even after repairing the tool.

Because the Customer had mentioned problems more than once, this supplier just could not get his head around the possible perceived N/G percentage.  He and I sat down and talked about his margin.  Using his own price-per-KG rate per piece, we found that there was enough room in the quotation to ensure that he made his normal rate + 50%.  We talked for over an hour and he was assured that as long as the N/G rate off-tool was less than 50%, he would not lose money (notice that I did not say "he would make money").  After reviewing the costs and his own audit of the tool, which concluded that the tool may produce on the order of 25% N/G parts, this Supplier finally agreed that he would be able to run the job.

The very next morning I got a call from him.  He was all upset, saying that he was afraid he would lose money on this job and he didn't want to put the tool on the press.  Once again, I reminded him of his own price-per-KG rate and the 50% extra and he calmed down.  Over the next 2 days I got 2 more calls from him and he finally said that he had to "give up" on the project.

I took the tool to another Supplier.  His company made some further repairs on the tool and then produced the entire order with an acceptable reject rate.

No matter what the commitment is, you run the risk of having your Supplier bail out on you because of something that is not even quantifiable: fear.  It doesn't matter to your Asian Supplier that you've already agreed on the price and delivery.  It doesn't matter to him that you've spent 6 months developing a new Supplier in Asia and if he quits on you, you are in serious trouble.  This is because this kind of "serious trouble" does not exist here. He knows there isn't anything you can do about it if he decides to just walk away and leave you hanging.

Or is there?

My next article will tell you how to handle this situation.

technorati tags:die-cast, commitment, fear

Blogged with Flock

Supplier Commitment: What Should You Expect?

Last time we talked about keeping Supplier communication simple. This avoids misunderstandings and keeps the issues focused on your parts production and not on other distracting things. Sometimes though, no matter what you do, the Supplier has fear issues and can be an impediment before production even begins.

Case Study: The Thai Iron Supplier
I spent considerable time in Thailand on numerous occasions searching for and qualifying Suppliers. Satisfied that I had found a reliable and capable cast iron supplier, I took an order for 1,000 pieces as samples for the Customer to use for qualifying this new supplier. About six months prior to receiving this order, I had personally taken the US Customer to this factory and everything was all set.

Once the order had been placed, the Thai boss began to bring up issues that didn't seem relevant, given the fact that the Customer typically ordered 50,000 pieces per year and the US Customer had actually been to the factory and met the boss. Nevertheless, the Thai boss kept bringing up a "what-if?" and he just couldn't get past that.

Talks ensued. Sometimes, Asian Suppliers will talk so much that you want to give up. Don't let it throw you. Just remember that you are investing this time and hopefully the investment will pay off. The Thai boss was concerned about losing money because he wouldn't get the big order. Right from the beginning he knew about the machining requirements and had his tooling guy design fixtures to handing the machining. Now the boss wanted investment money from me or he wouldn't begin the 1,000 piece order!  Up to this point, investment was never mentioned.

By our standards, the amount of money he wanted was trivial - a few thousand US dollars. This was to cover the cost of the "bases" (the plates upon which the fixtures were to be mounted). The Thai boss made it clear that I would not own the tooling, but only the bases. He was insistent upon having this investment money up-front before he would perform any work.  The really weird part is that after I agreed to pay the investment money, he then went on to tell me that he couldn't guarantee that the machining would meet the specifications!

Keep in mind that this is a foundry. They wouldn't buy the plates for mounting the fixtures - they would cast and grind the plates. So, what did the boss want that money for?

So he could insure a profit on the venture no matter what the outcome.  He was afraid that somehow, there was some unforeseen problem that would kill his margin.

The US Customer had personally told the Thai boss that once he was qualified he would receive a large order. The 1,000 piece order was part of the qualification process. No matter what I said or did, this boss would not budge on his position because he feared he would not get an order beyond the 1,000 pieces. Clearly, he did not have confidence in his own ability.

This boss feared that he would not get the big order, and he made that happen by not taking the small sample order.

This situation tends to happen in the less developed areas of the world. Even so, I have had Suppliers quit projects out of fear in Taiwan too. I cannot stress enough, the importance of eliminating fear of any kind up front in the beginning of negotiations. But what can you do if the boss pulls something like this just when you expect to finally get started? How can you handle this situation?

You should expect that something will go wrong.  Always.  Always keep in mind that at any moment, something that you would least expect back in your home country, will go wrong.  A pump will break and the factory cannot get spare parts for it (for any number of reasons ranging from cost to availability), a typhoon caused flooding damage, the boss realized that his cost accounting methods were wrong and he is going to lose money.

In a following article I will tell you how to handle this and other undesirable situations.  But before I do, I should relate another case study to help you understand how Suppliers think in Asia.

technorati tags:supplier, commitment

Blogged with Flock