INSIGHT REPORT
Vol 4  #8
September
2001

INSIGHT REPORT

I

N

S

I

G

H

T

Insight Report No. 4 Vol. 8

Outsourcing - China

Outsourcing is defined as "transferring the control of a process or product to a supplier."

Thus, when you decide to outsource, you make the decision to transfer part of your business processes to your suppliers. A successful outsourcing partnership is one where you would not need to guide your supplier on how to perform the task, but where can just focus on communication with the supplier and monitor the results you expect. Your supplier would be completely responsible for achieving those results and supplies you a quality component or in some cases a finished product. In this way, you can focus on your own core business.

At the present time, It is reported that the world wide annual revenue of outsourcing industry is over 50 billion USD.

Because of this kind of transfer, outsourcing is becoming a challenge. As your dependence upon your supplier grows, it is imperative that you make certain the supplier can control the processes and provide the results your products require. Therefore, when you make the decision to outsource, you have created a reliance on your supplier to provide you with high quality products in a timely manner -- this includes shipping time.

Over time, as areas of the globe develop, spheres of outsourcing change. Looking back to the time following World War II, we see that Japan had become the area of choice for the outsourcing of supplies for the USA. But, when that area had grown more developed, and the cost of labor had increased significantly, global business turned to other less developed areas as the new outsourcing centers.

Currently, the new area for outsourcing is main land China where the labor pool appears to be so large that this new center of outsourcing should be a strong supplier for years to come.

When considering outsourcing, there are many good reasons to use a procurement outsourcing service firm in China, to guide and support you in this endeavor. China is a large and complex country and trying to weave your way though the myriad of companies to make your decision on which company meets your requirements can take an enormous amount of your staff's time. The use of a qualified outsourcing service can provide you with the guidance to find you the right partner, assist in monitoring the quality and negotiating the finance arrangement, thereby reducing your time and costs. A good outsourcing service will act as your strategic outsource partner who supports you in the management of the outsource process in China. Your outsourcing service/partner can also control the outsourcing process and its results to help you meet your expectations and reduce the expense for the entire process.

Once you have determined to use an outsourcing service, your should expect such a service to provide the following support:

* The outsourcing service would need a complete set of documents to support your outsourcing request. This would include drawings, specifications, materials, etc. The service would then locate several of the most competitive suppliers in the related industry based on the required product.

* They will then perform vendor survey and create a bidding table which contain the information including the capability, capacity and initial price quoted.

* A bidding score sheet will be generated for these suppliers. It is usually weighted as follows: price - 50%, quality - 30%, delivery - 10% and service - 10%. This is the initial measurement based on the service's professional opinion. You would then make the final selection based on this information.

* A sample will be provided for your approval. It will then be your decision to run mass production.

* The outsourcing firm will be expected to perform the manufacturing readiness review during the pilot run and measure the manufacture if they can go to mass production. You should expect that a routine report would be sent to you for review.

* All product defects, failure reason, and corrective action will be documented and sent to you for verification.

* The supplier will make the shipment, and it would be expected that the supplier will also handle all export issues. The packaging method will follow up your instruction.

* The outsourcing service will be expected to perform the OOBA (Out of Box Audit) inspection before the shipment. The AQL will be as your instruction or our general requirement according to MIL 105E standard or similar standard.

* An inspection report will be signed by both the supplier and your service and forwarded to you for verification.

* It is recommended that regular measurement to the supplier to make sure the product quality is under control. A regular quality report should be forwarded to you for your reference.

* The outsourcing service should assist in setting up a quality target for the supplier to achieve and make on-going improvement for your product.

You should not rely only on the inspection to control the quality of the product. With your supplier being located in foreign country you must expect the outsourcing service to make sure the manufacturing process is under control with a fully implemented and acceptable quality management program.

The focal points to address, using your outsourcing service during a supplier qualification are:
1. The Engineering Change Process Review
2. The Incoming Material Inspection Process Review
3. The Technique Capability Review and Production Process Review, etc.
4. Management Review
5. Corrective and Preventative Actions

A major concern, when dealing with outsourcing contractors is whether the Engineering Changes are being fully understood and fully implemented. The key here is to verify how the Engineering Request is issued from the client side to the contract supplier's R&D department. It is important to make sure that there is a strong relationship between the customer and the outsourcing company. There should be an initial contact inside the supplier, usually someone in the Production Engineering department, who will responsible to review all updated engineering documents. This person will also be responsible to make sure that this information is transferred to the Production Lines, where the Working Instruction will be updated and given to the operators who will be the ones who will actually implement the Change.

The Incoming Material Inspection is also important for the whole process. A key element is to be certain that the right material is received and inspected, based on the procedure. An example would be with some mechanical parts, it is important to make sure the critical dimensions are being measured properly and the inspection method is be adequate. It is also vital to make sure the rejected parts are returned or reported to the clients, in the event that the disposition require that the rejected parts be modified to meet specifications.

One area that is missed by clients, when seeking out an outsource supplier, is the determination that the supplier has technique capability. You need to fully establish that the supplier has technique capability adequate to do the job as well as the plans to continue to upgrade technology to meet any requirements in the future. Learning this information should be done prior to entering any long-term agreement. This area will also assure that you do not have to keep on looking for alternative suppliers as your technology progresses past your suppliers' capabilities.

During the entire production process, it is essential to witness the operation to be assured that your outsourcing company is well organized and that there are no potential failures due to the arrangement of the production lines. Ascertaining that all the operators in their employ should be qualified and trained to follow all the Working Instruction as provided by the client for their product.

It is also important to receive a shipment that can be used or shipped directly from the container. This can only be assured if you use an outsource group to do a random check on the Final Inspection at the supplier. The outsourcing group will be responsible for batch release and provide an inspection report. They will supervise any rework or corrections.

Outsourcing is one way gain an edge in this very competitive marketplace; however, a bad supplier can be the downfall of any company. The selection of your supplier, combined with setting up a check on the supplier, is a necessity in maintaining a quality supplier and preventing surprises when you open your container.

A company should not be afraid to outsource, but that company must venture into outsourcing with open eyes and backup to maintain the controls necessary to succeed with this option.

Next Insight Report - to be announced. 

If you have any comments on these INSIGHTS we hope that you let us hear them. If you have any of your own INSIGHTS that you feel would be of value to other companies, we would be pleased to hear from you and to discuss them with you and if you allow, we would even put them up on this site for others to learn from.
e-mail INSIGHT