Sunday, June 2, 2013

Overseas Sourcing Psychosis

A sales staff recently asked doing a repeat order on a big presentation book that we have done last year.  Customer needs another one for his upcoming book release.  While this is not something out of ordinary, this big presentation book did cause quite a bit of stir last year when we did it.

The book is huge, 140 pages at a finished size of 40 x 30 inches.  It is meant to be sitting on a pedestal for display during some type of press release event.  It also has to be a functional book as it should allow people to flip through the pages and read the contents.

Open size: 80 x 30 inches, 140 inside pages.  This is the "Big Book."

Needless to say, this big book cannot be manufactured through traditional offset.  An inkjet printer was used to produce this book and tediously hand-bound.  Prior to the actual manufacturing, which was relatively expensive, we'd produced a few white dummy books for the customer to test and approve.

Being a one-of-a-kind product, there were certain issues that had to be resolved resulting in duplicate prototypes been made.  Shipping something this big through international express delivery didn't help either.  Minor damages resulted from shipping had also made the road to completion very difficult.

A year later, customer came back for a reorder.  However, this time, he wants us to "guarantee" everything - from shipping to manufacturing.  While this is not totally unreasonable, and quite understandable, having the previously experience, this is not something I was willing to commit to.  The sales staff in charge, as any overly-zealous and eager sales person, was a staunch supporter to meet customer demand of a blanket guarantee.  On the other hand, I personally feel the sales staff did not do his job in educating the customer and setting the right expectation.  My decision was that I'd rather walk away from a potentially good job.

This brings up the main topic: Overseas Sourcing Psychosis.  How is the topic related to the "Big Book?"  It's simple, really.  It's so simple that I hate to point this out...

The primary objective of a buyer souring overseas is one and only: price.  There is no other reason that can come close to justifying overseas sourcing.  With that in mind, one has also to assume that all overseas buyers have already done their homework.  That is, they already know how much it'll cost them domestically, and because there is a big enough cost difference, the buyers elect to go overseas to source the item.

In the case of the "Big Book," customer must have already known how much it'll cost to produce this book domestically and have chosen to go through us to go overseas because of the price saving.  However, being a smart buyer, he now wants us to unconditionally guarantee both the product and shipping.  The shipping part is that if any damage was caused by shipping, we'd pay to reproduce the book and express it without having to get carrier's compensation.

The sales staff is being very naive in this case.  If this product is being produced domestically, the seller would not be able to guarantee the shipping.  That will fall upon the shipping carrier.  Once the shipping carrier clears the case and makes compensation, the seller would be able to make reproductions.  In order to bring the job in, the sales staff is going to all length to try to meet customer demand.  Looks like some basic re-training is needed.

My condition on shipping begins with a requirement for wooden crate.  Without this being agreed to, I would not consider guaranteeing anything.  While the wooden crate will surely protect the Big Book, it'll add weight and volume to the shipping cost, not to mention the cost of making a quality wooden crate.  Naturally, customer decline to pay this and insist on paying the lowest possible price on shipping.

If the product itself was manufactured domestically and something goes wrong, the seller can easily print out the damaged pages and drive over to fix the book.  When it's done overseas, something just as simple cannot be easily done.  The Chinese factory will not be able to drive over and fix the book.  More than likely, the book either has to replaced or flown back to get repaired (this option is not viable as it'll cost more to do so).  This means that the product has to be done in 100% perfect condition that'll stand up to normal wear and tear without having any issue.

To do a book this big once a year and asking for 100% perfection that'll last through time is unreasonable.  That is, unless the manufacturer is specialized in doing books this book and have tons of experience.  In this case, one can safely assume that the cost will be high as the buyer will also be paying for the expertise and experience that will yield a better product.  Having bypass the notion of paying more to get more, an overseas buyer will not see the value of this whether the book is manufactured domestically or overseas.  In his mind, he is so locked into the lowest price possible, nothing else matters.  That is, until something goes wrong...

And with overseas sourcing, something most likely always go wrong...

I should not venture to say that Americans are "spoiled."  We are not.  We pay for the better quality of life with our hard-earned money.  Everything is better in the U.S.  There is really no comparison, but we do really pay dearly for this.  We are so used to enjoying high level quality of life that the concept of "quality" eventually disappears; we take it for granted.  When overseas sourcing comes into the picture, we often forget about the normal standard of quality that we are used to and kind of assume that we'll get something similar in return.  At a much lower price, of course!

I call this symptom: Overseas Sourcing Psychosis.

From Wikipedia: 
Psychosis refers to an abnormal condition of the mind, and is a generic psychiatric term for a mental state often described as involving a "loss of contact with reality". People suffering from psychosis are described as psychotic.  The term "psychosis" is very broad and can mean anything from relatively normal aberrant experiences through to the complex and catatonic expressions of schizophrenia and bipolar type 1 disorder.

The world is a big place, but the law of nature is the same anywhere you go.  There is still gravity and pollution in China as well.  The concept of "getting what you pay for" works just the same on both sides of the Pacific.

China is still a developing country.  It has been famous, or infamous, for being the world's factory for over a decade.  Due to its low wealth and high concentration of people, China started out substituting a lot of how we make things by machines with rural farmers.  Yet the tradition continues till this day.  However, over the course of its growth, China has slowly being modernizing.  Yes, more and more automation, more and more machines.  This is due to rising labor cost and the pursue of better quality.  With manual labor, the quality will always be inconsistent.  One worker's handiwork will be different from the next worker.  With machines, you take out the inconsistency issue.  And over the long haul, with rising labor costs, machines and automation will easily become a cheaper option.  Yes, Chinese businesses are learning just that and is currently going through a shortened industrial revolution.

Most people think China's quality sits at the bottom of the pool.  While that may not be totally wrong, it may be becoming out of touch with reality.  Over the last decade, cost of manufacturing in China has risen so much, it finds itself not competitive with other developing countries such as India, Vietnam, or Thailand.  On the flip side, the quality of products have improved as China modernizes, both in its manufacturing facility and management.  Nowadays, you'll easily find products made in the aforementioned other countries having the same inferior quality as what we remembered China used to make 10 years ago.

For example, it is now nearly impossible to find a pair of Nike shoes made in China.  I look for those.  As those that are still made in China costs more but lasts longer.  Shoes that are made in other developing countries are the lower-end and lower-cost items that tend to last much shorter and would break in very unexpected ways.

So, back to the point about quality.  While China has grown leaps and bounds on quality compared to what it used to do, it still has a long way to catch up to what we are used to here.  As overseas buyers, on certain products, we cannot expect to receive the same quality but paying 40% less.  You'll be lucky to get "similar" qualities.  Having done overseas sourcing for over a decade, I know.

I qualify if something is a good fit for overseas by two methods:

   1). Timeline.  Is there enough time to make the product and ship it?
   2). Quality.  Does the product require a high degree of consistent quality?

For mission-critical products, I always advise my own customers to stay state-side.  Meaning that if customer is extremely picky about a product, and there is a definitely timeline that the product has to fit, it is not a good fit for overseas sourcing.  Under such circumstances, I would not stick my neck out so I can disappoint my customers.  On the other hand, if the product is meant to be more or less disposable and not something you'd put on a pedestal, and of course, if time allows, overseas sourcing is definitely going to save you money.

Just because a buyer sees the potential in cost-saving by going overseas does not necessarily and automatically equate the project to yield the same expected quality.  As buyers, we tend to forget the quality of item we need in the face of lower costs.

I have a feeling I'll lose the Big Book business.  But in fact, I'd rather lose the business than lose money on the job.  There is no way I can guarantee both the product and shipping.  We always take care of our customers.  Meaning that if something goes wrong, we always go to great length to make amends.  And yes, that even means if we have to dig into our own pockets and pay for issues that weren't caused by us.  But knowing walking into a situation where a written unconditional guarantee on everything is just not a wise business decision.  This buyer may get the assurance he wants from overseas factories, but he won't be able to get this from us.  Anything promised by these factories are worthless; there is no legal recourse available if they don't meet whatever contract you can throw at them.  I know this because I have many cases pending to take these factories to the Chinese courts.  Please keep in mind that I'm doing this with my native China company; it'll be next to impossible to do this as a foreign company.  But then, this is another blog for another time.

If you are one of those overseas buyers who may be suffering from this type of psychosis, take comfort in knowing the fact that there is no chronic state for this mental fallacy.  Over the course of your overseas sourcing experience, you will eventually learn to accept that quality often has to take a back seat.  You will learn to accept.  And you will learn how to justify and re-quantify why certain products that you source overseas can have a bit less quality than what you used to enjoy.  This disease is self-curing.  You are all set.

I, personally, cannot become the fool who'll promise you big savings and the best quality under the sun.  We are an American company that abides under the same law as our buyers; unlike Chinese factories who are out of reach, reputation, honor, and law suits are all very important to us.

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