Identifying a methodology to create sustainable supply-chains for mid-sized companies in China and outlining the difference between buying from China and conducting business in China. www.theabcgroupllc.com

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2. Agenda
►Importing as an Identity
►Utilizing Chinese Supply-Chains
►Developing a Sourcing Strategy
►Current Supplier Assessment
►Active Management and Beyond
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4. Who We Aim to Reach
“In 2011 SME’s
imported $597.4
billion worth of
goods and
services”
International Trade Administration
• Wisconsin business owners
• C-Suite executives
• Trade associations
• Financial, Legal, and Private Equity
professionals
• State and local policy makers
• Educators
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5. What it Means to Import
Successful importers possess:
Strong, forward looking leadership
An entire organization that understands the importance of
the global economy
The ability to view Chinese supply-chains as more than
just a source of cheap labor
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7. Value Created
The real value of using foreign supply-
chains extends far beyond reduced
labor costs. Additional benefits
include:
• Reduced risk with the addition of
secondary suppliers
• Increased production capacity with
minimal or no capital expenditures
• Expanded product offerings and the
ability to offer customers blended
costs
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8. Game Theory
Potential Ramifications:
Increased pricing pressure at home and abroad
Pricing interdependency between product offerings
Heightened demand for product development
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9. From Theory to Action
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11. China Business Plan
•Why are you now deciding to explore using Chinese suppliers?
-Are your competitors active in the region?
-Are you facing increased pricing pressure from customers?
-Are you looking to expand your business by using foreign supply-chains?
•Why haven’t you explored using Chinese suppliers previously?
-Protectionism or “Made in the USA” branding
-Lack of available resources to successfully operate in Asia
•Short-Intermediate-Long Term Objectives (S-I-L)
-Based on your motivations for exploring Chinese suppliers where do you want to be:
-Short Term (3-9 months)
-Intermediate Term (1-2 years)
-Long Term (2 years +)
•Available resources and desired level of investment
-Have you identified your capital and manpower constraints?
-Can you sustain unexpected delays or increased expenses in the short run?
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12. Internal Evaluation
•Does anyone in our organization have
experience vetting or managing
suppliers in Asia? (China is a unique
market that differs significantly from
Europe and Latin America)
•Do we have personnel that are
capable of traversing significant
language and cultural barriers?
•Do those individuals have the
necessary time available to become
fully invested in our company’s China
initiative?
“Do we
possess the
ability and
resources
internally to be
successful in
China?”
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13. Strategic Oversight
•With the necessary personnel in
place, how does our organization
effectively manage new Chinese
suppliers?
-Designated responsibilities
-Information flows
•How will we measure our success
and effectiveness operating within
China over time?
-Quantitative metrics
-Qualitative metrics
Senior
management
should retain
control over a
company’s China
Business Plan
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15. Blind Value Assessment
•What value does your company place on your
Chinese supplier?
-Critical supplier
-High Value supplier
-Tactical supplier
•What value does your Chinese supplier place
on your buying relationship
-Essential customer
-Preferred customer
-Low value customer
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16. Stress Test
•Cost vs. Price
-What is your effective cost?
-Travel expenses
-Re-work costs
-Shipping costs
-Claims
- Comparing “apples” to
“apples”
• “What if…” scenarios
-Major fluctuations in demand
-Personnel changes
-Changes in payment terms
Effective Cost =
Price + Rework
Costs + Freight
Costs + Production
Delay Penalties
+…
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17. Supplier Improvement Program
•Tracking quantitative values
-On-time delivery rate
-Reject rate
-Claim resolution time
-Product development cycle
• Tracking qualitative criteria
-Ease of communication and
responsiveness
-Ability to solve complex issues
• Technical improvements
-Personnel training
-Technical certifications
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19. Creating Realistic Expectations
•Successful US/China business relationships are based on
collaboration
-US companies too frequently view Chinese suppliers as
inferior to their company or those in other markets
• Attempting to be a “tough” negotiator over telephone and email
only increases friction and reduces efficiency especially during
times of conflict
• Everyone views their business as bigger, better, and more
influential than they are-this can lead to a misalignment in
expectations
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20. Supplier Expectations
• Payment terms
-If a Chinese company wanted to purchase
your goods, would you offer them open terms?
-30% deposit should be expected though
financing options are available
• Quality Standards
-Suggest using those in place at other suppliers
-How are standards enforced?
• Standard Operating Procedures
-QC inspections (WIP vs Finished Goods)
-Product Development
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21. Internal Expectations
• Transparency
- Presenting full and complete information
- Honest portrayal of business and accurate forecasting
- Providing timely feedback on time sensitive items
• Projection of domestic supplier expectations onto Asian suppliers
- What do your domestic suppliers demand from your business
organization?
- How can your business provide the same level of attention to
Asian suppliers as you do domestic suppliers?
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23. Working for Today
“Everyone has a
plan – until they
get punched in the
face.”
-Mike Tyson
• Great plans are only as good as those who
execute them
- Great People vs Great Plans
• Even the most well constructed procurement
organizations in Asia face unforeseen
challenges
- Troubleshooting and conflict
resolution
• Ever changing conditions
-Essential to continually re-evaluate
opportunities and challenges in the
marketplace and within your own
organization
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24. Planning for Tomorrow
• Creating a physical presence in the region
- Creating a dual headquarters
- Decentralization of Procurement
- Supplying Chinese consumers
through “Made in China” products / licensing
• Using China as a proving ground for activities
in future emerging markets
- Transitioning from coastal provinces
inland
- Tier 2 and 3 cities
- Other countries
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