5 Key Considerations of Sourcing Mechanical Components Abroad
By Mary Iannuzzi on July 3, 2019
The decision to outsource mechanical components abroad is daunting, especially if you don’t have prior experience. Nevertheless, the need to stay competitive in an increasingly global economy is driving many manufacturers into uncharted territory. If you’re considering moving some of your production to a low-cost region (like the MITI-V), some early preparation can help avoid future headaches and unforeseen costs. Reflect on these five key considerations to determine if your company is ready to make a production switch abroad.
Getting the point across to your own co-workers can be difficult. Communicating in different languages over vast time differences is much harder. When working with a foreign supplier on a new project, invest ample time in dialogue up front. Engineering drawings should include every necessary specification, eliminating as many questions as possible.
Supplementary documentation specifying production and packing requirements would also be helpful. 3D drawings can be a good alternative to physical samples. Clear communication about samples, payment terms, and production timelines is critical. Legal issues such as non-disclosure agreements should also be clearly spelled out in the contract. Keep in mind that expectations differ greatly between cultures, so leaving any room for assumption will lead to frustration.
2. Lead Time and Logistics
Including shipping time, an overseas order may not get to you until four or five months after it is placed. Production time for samples can be short, but quick shipping is costly. If your bulk order is smaller than a single shipping container, the cost of shipping may be split between your company and others through a broker.
Be cautious of the many standard fees which may not be included in a shipping quote, such as Cargo Ready Date (CRD) charges, demurrage fees, value added taxes (VAT), and tariffs.
3. Supply Chain Stability
Unforeseen factors such as political uprisings or dramatic changes in the economy and can destabilize a country's currency and ability to produce and export. Unsatisfactory infrastructure such as poor road conditions or power outages can strain logistics and consistent production. Are there in-country accountability measures if your supplier goes out of business?
Some factors can be anticipated, such as cultural holidays. Religious pilgrimages can disrupt the work flow in India, while Chinese holidays can shut down manufacturing plants for a month at a time - even when the official holiday is listed as only one week.
Chart from our Chinese logistics manager detailing 2018-2019 holiday work schedules
"Made in China” has become an American colloquialism for low quality. While not entirely unfounded, these perceptions are increasingly outdated as the quality of Chinese parts has improved significantly. Wages have followed suit; however, giving other countries a new edge on price. When quality is a concern, communicate expectations clearly. Once a satisfactory sample is presented, be sure that no changes are made without your approval. This should be contractually bound, alongside your right to refuse parts that do not meet initially agreed upon expectations.
Bear in mind that many quality issues will not be discovered until parts are at your door, months after your order. Request quality reports and photos via email before each shipment so any obvious problems can be addressed before the parts leave the supplier’s facility.
5. True Cost
The cost quoted by a foreign supplier will often be Ex Works, so you’ll have to add the cost of logistics, warehousing, and quality control. Some companies choose to fly a quality manager to their supplier for routine inspections. This is effective but incredibly costly when accounting for flights and lodging. There are also legal risks and complications, such as intellectual property theft. Additionally, outsourcing abroad is generally more beneficial for larger quantity orders. You may need to place orders for a year’s worth of parts or more from your supplier and have the warehousing capability to do so.
Outsourcing components abroad is clearly the right choice for some companies. The cost savings may not be worth the work and risk for others. Michigan Manufacturing International partners with American companies to mitigate these risks. Our supply managers live and work in five low-cost regions, maintaining decade-long partnerships and ensuring quality before parts leave the supplier. Logistics, warehousing, and engineering are handled at our headquarters in Stevensville, Maryland. Our business model offers a single partner solution to sourcing abroad, providing the cost savings of purchasing internationally with the ease of buying from an American supplier.
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