The Do’s and Don’ts When Working with an Overseas Supplier
Interview with Aaron Muir from Argus Tracking. Aaron Muir is a director of Auckland-based firm Argus Tracking, which has had its asset management hardware manufactured in multiple countries.
How did you come to start outsourcing manufacturing offshore?
We originally sourced our first generation tracking hardware from a niche supplier in Canada that was recommended to us, but eventually its security of supply, price, turnaround times and functionality didn’t meet our expectations so we decided to look elsewhere.
We asked ourselves what a larger business would do and as a result became much more proactive, searching for a new hardware manufacturer that would produce to our design and meet our delivery expectations.
We searched locally and then offshore for a manufacturer and we finally settled on a supplier in China. Its price was half what we were quoted locally and it had a lot of the tooling already to place, reducing our upfront costs.
How did you assess whether the Chinese supplier was suitable?
We settled on that manufacturer after a lot of research and reference checking.
Also, before we placed our first order, we bought some of its off the-shelf products and pulled them apart to see if the components in their specification were what was actually used and assessed the quality and care that had been taken in the manufacturing.
We then field-tested the hardware. All products passed with flying colours so we went ahead and sent our design and ordered the production of our second-generation device.
What did you learn from that experience?
Over time the quality began to slip and failure rates on the hardware became unacceptable. Then the quality of the relationship began to decline, especially with lack of customer service.
What we learned from this was that price is not the key consideration when your clients depend on you.
For us reliability is paramount. You need to have a very close working relationship with your manufacturer because its critical to success, so you need to make your service, supply and quality expectations clear.
Where did you go from here?
We moved to our present Taiwanese manufacturer after we accepted the fact that the Chinese supplier no longer suited us. Our present manufacturing relationship grew out of a few years of knowing who each other was and talking.
We realise now that it was playing the long game and it continually made sure we knew what it was doing for other customers.
So, for example, it made us aware it was building chipsets for two well-known global TV brands and that its customers were not having any of the issue we were experiencing with our Chinese supplier.
What have you done to ensure this relationship remains successful?
We approached this manufacturer differently from our previous suppliers. Rather than talking about price up front our initial focus was on what we needed to meet our customers’ needs.
We discussed quality control, quality components, robust relationships and processes with the component suppliers, the strength and knowledge of their R&D and support teams and their turnaround times.
Once we were satisfied with these we began to negotiate the price.
We also stressed the differences between Taiwan and New Zealand.
I remember when we told the supplier there are only 4 million people here and that we don’t have mobile phone network coverage over 100 per cent of our country he nearly fell over.
Then we stressed that quality and reliability is key. We backed that up by talking about the direct cost to Argus Tracking if a piece of hardware fails and we have to dispatch a technician to repair or replace it.
They think about this differently in Taiwan because labour is much cheaper, and here we need to travel further. We also visit each other every six months.
The supplier has a better understanding of our requests for product changes after seen the product in use and can suggest improvements.
When we’re in Taiwan we can see developments in its manufacturing techniques. On a global scale we’re a small business and we want the supplier to think of us as special, so having a fantastic working relationship is critical.
The company’s managing director came out with our account manager this year, and we took them to Waiheke and also the Auckland Seafood Festival.
They had a fantastic time and got to see the landscape we operate in, again reinforcing the differences between Taiwan and New Zealand. When we’re in Taiwan we also try to arrange it so our products are being produced while we’re there.
What advice would you offer companies looking to outsource offshore?
Email and Skype are great tools, but you really should jump on a plane and go to meet these people on the other side of the world.
Your manufacturers are your business partners and when you meet and talk over challenges, people bring innovative ideas and suggest product improvements that increase customer value and reduce costs in ways you couldn’t otherwise know.
Understand at least a little of their culture and put in the effort to speak at least some of the language. This will go a long way in building your relationship.
Price is important, but don’t get price and value mixed up. As our clients increasingly depend on our technology to operate effective businesses, our reliability and capability matter more.
At the end of the day paying a little more for our equipment to be manufactured in Taiwan has been very good for our business – and for our clients’ businesses.
Source: NZ Herald
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