| Locating quality suppliers is always the challenge | | | | the American companies with a clear |
| when doing business in China. While visiting with | | | | understanding of the supplier's capacity and |
| several suppliers in Dalian, I went to one of my | | | | scalability and teach the Chinese supplier how to |
| favorite suppliers - Mr. Lu. Mr. Lu was capable of | | | | do forward planning. |
| quoting from engineered drawings, and providing | | | | Part of Mr. Lu's forward planning was quantifying |
| quality prototypes and samples, but not capable | | | | his machinist labor content. By that time, Mr. Zhu |
| of sustaining product quality during production runs. | | | | had grown to 16 machinist and 2 inspectors. |
| These inefficiencies required Mr. Lu to invest in his | | | | Before I tell the per hour labor cost of Mr. Zhu's |
| infrastructure in order to establish operating | | | | machinist, I should explain the following: The |
| systems that would produce sustainable quality | | | | employees were 16 years of age or older (80% |
| during production runs. | | | | grown men and women), uniformed, housed, and |
| The new operating systems would earn Mr. Lu | | | | fed three squares a day. Although I could never |
| the privilege of quoting on long term purchase | | | | convince Mr. Zhu to provide safety glasses to his |
| orders (3 to 5 years) from several American | | | | employees, he did compromise by providing |
| companies. In general, the commitment required | | | | fatigue pads at every work station. Employees |
| to establish the new operating systems will take | | | | could not work more than a 12 hour shift, but |
| Mr. Lu about 6 to 12 months of tutoring, auditing, | | | | could work a six day work week. Every |
| and persistent sampling. If successful, Mr. Lu would | | | | employee was required to take off one day a |
| become a great quality low cost supplier, creating | | | | week. Employees were given appropriate breaks, |
| long term revenues and relationships with several | | | | could eat at their work station, and smoke |
| American companies. | | | | anywhere they preferred. Outside the PPE |
| The downside to Mr. Lu's successful transition is | | | | (personal protection equipment), the shop |
| his lack of capacity and scalability. Most Chinese | | | | resembled and operated like several |
| suppliers, like Mr. Lu, end up failing in their second | | | | manufacturers I had audited or consulted in the |
| and third year because their American customers | | | | states. |
| get greedy for gain and assume that 6 months | | | | Mr. Zhu's Hourly Labor Rate - (16) Machinists: |
| of success with Mr. Lu gives them a green light to | | | | Machinist Hourly Rate $0.35 |
| unload a wagon load of purchase orders. | | | | Total Machinist Hourly Rate $5.60 |
| This wave of purchase orders is generated from | | | | Mr. Zhu's Labor Breakdown Per Machinists: |
| an over zealous American executive who loves to | | | | Machinist Hourly Rate $0.35 |
| reduce the annualized PPV (price part variance) | | | | (72) Hour Work Week $25.20 |
| regardless of the suppliers capacity and scalability. | | | | Monthly Net $100.80 |
| And, why not? The over zealous executive just | | | | Annual Net $1,209.60 |
| received a whopper bonus for realized annual | | | | Don't be shocked! The annual rural income of |
| savings of 60 - 70% after freight cost for buying | | | | $1,209.60 is double the Chinese national average |
| product direct from China. The only way to | | | | of $480.00. |
| prevent the failure described above is to provide | | | | |