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11/30/2011 04:20 PM
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Looking to reduce leadtimes, manage raw materials, and product costs working with a Contract Maunfacturer in China. Current CM is having trouble meeting material costs and lead times are @120 days. Looking for insite on how to work with CM to reduce leadtimes, and cost of materials for products. CM makes money off the Value add as a % of material cost so there is no incentive to reduce the cost of materials.
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12/05/2011 05:04 PM
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Obviously your company is now grasping the core problem with outsourcing your value-adding process... you outsource your profits, and you outsource the knowledge of how to make your product.
Fundamentally if the contract manufacturer is meeting their agreements per your contract, and is satisfied with their own performance, you are going to have an uphill battle
Assuming they are actually interested in learning from you, it will require a pretty heavy involvement of full-time or nearly full-time intervention to teach them how to run their business differently. I say full time because if you just dabble, everything will likely look great when you are there, but revert when you aren't. This isn't a Chinese thing, it is universal.
Many Chinese companies have a high resistance to westerners coming in and taking a superior "let us show you the right way" attitude. So if you DO intervene, you will need to come in as equal partners working on shared interests, not as "the pros from Dover."
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03/30/2012 04:03 PM
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Once you baseline the existing material cost and present value add (% to matl cost), offer to share 50-50, any improvements made either in material cost or in value add. That should motivate your CM. Any reduction in lead time should mean early payment. This too should motivate CM to work with you to make improvements.
Yes, your involvement would be the key driver. And remember, you'll have to share 50% of the gains with CM.
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04/02/2012 02:16 PM
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Welcome to the chapters in the Outsourcing book that Procurement neglected to have you read. Your problems are actually quite common. In fact I might venture that your lead times aren't (comparatively) all that bad - which should scare anybody who hasn't been down this road.
What I'd suggest is a breakdown of the components of the current 120 day lead times. You're going to find that some big chunks (like time spent floating on a boat, Customs, etc.) are out of your supplier's control. What's left is all you can work with them on reducing.
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04/24/2012 11:50 AM
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You can try to improve forecast for your CM, then thay can monitor the raw material and production efficiently.
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