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OM in the News: Still Outsourcing to China?–A User’s Guide

August 24, 2013

PAL clothing factoryWe have blogged many times about the trends towards nearshoring and homeshoring– topics in Chapter 2. Yet thousands of US companies continue, of necessity, to outsource to China. The Wall Street Journal’s (Aug.19, 2013) interesting article, “Outsourcing to China?”, provides these class discussion points:

1. Start the process of finding the right manufacturer, using a site like Globalsources.com.

2. When you find factories that might meet your needs, ask for references and find out if the manufacturers have a history of respecting intellectual property and doing solid work. But don’t offer those factories complete specifications or samples of the product you want created, since your idea might get filched. Instead, send or show them a similar product for comparison.

3. Have your product made in several different places if possible. It also makes it less likely a manufacturer will impose a last-minute price increase, which is a common practice in China.

4. When you’re ready to commit to a supplier, bargaining is essential. “You need to haggle, or you’d be considered naive and taken for a ride,” says one consultant.

5. Watch out for “quality fade” over time. Sometimes the first few batches of a product are made according to specifications, but then manufacturers start to cut corners—say, by using cheaper material.

6. Structure payments according to performance. Make sure your contract allows you to reserve the right to pay less or impose a penalty if a batch doesn’t meet your expectations.

7. Don’t put much stock in patents. A U.S. patent can’t be enforced in China. You can apply for a domestic patent, but the enforcement of Chinese patents in China is far behind the rest of the modern world.

Discussion questions:

1. With all of these caveats, why do US firms still choose to manufacture in China?

2. What other steps can an operations manager take to insure a quality product at a fair price?

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Supply Chain Management Research

Andreas Wieland’s supply chain management blog for academics and managers

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