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When is outsourcing Asia procurement operationally right?

When considering outsourcing, many organisations start with the same question: Which activities should we outsource, and which tasks should we do in-house?

It’s a complicated question, and the answer can have a huge effect on your company’s short-term and long-term success.

Making the right decision can add significantly to your businesses bottom line in terms of cost savings and increased efficiency. Outsourcing can bring fresh ideas to your business, and it can also release time and resource for innovation and other vital tasks. However, making the wrong decision can put your business at a competitive disadvantage. Perhaps you’ll lose control of proprietary information, or receive components that don’t meet your exacting quality standards.

So, how can you ensure that you are making the right decision?

We encourage customers to consider the below questions to help see clearly which tasks, processes, or functions you should keep in-house – and which can be safely outsourced.

How strategically important is the task to your business?
What is the task’s impact on your company’s operational performance?

If you apply this specifically to Asia manufacturing, you may want to split the questions a little further and categorise the type of outsourcing you want.

Retain – projects high in strategic importance and have a big impact on operational performance. These tasks should be kept in-house so that your organisation keeps maximum control. You may employ a specialist to find and deliver the product you want.

Form a strategic alliance – projects high in strategic importance, but contribute little to operational performance. So, although you need to retain control of them to ensure they are done exactly as you want, or you get the quality you want, they are relatively insignificant in terms of cost or smooth running and so not worthy of full in-house focus.

Outsource – projects are important for successful operational performance, but are not strategically important. These tasks could safely be outsourced. They’re simply not worth spending in-house time managing.

At Harvard Solutions, we help businesses in all 3 areas. We have long standing clients for which we are an ingrained part of their development and supply team, clients who ask us from time to time to source new products or services or we help clients by being a short-term gap fill while they create the necessary in house expertise.

If you need that additional expertise, then why not contact us for a free initial consultation.

The positives and pitfalls of Asia sourcing

Companies tend to view global sourcing as a one-way street, whereby multinational manufacturers from developed countries purchase low-cost materials and products from developing countries.

Undoubtedly, one of the most common sources for products is China because of its abundant resources and cheap labour. That is why China is aptly called the “Global Factory.” Businesses commonly seek the materials and products they want without considering all the upsides and downsides of the sourcing process.

Highlighted below are just a few of the considerations needed when embarking on a global sourcing strategy:

Is this the final price? On the face of any quote, the price can look very attractive. We have often intervened in discussions between buyer and seller in respect of the final price. The next 5 points, when addressed correctly will ensure that you have the right and final price for the product to reach you as you wanted it, when you wanted it and in the right place.
Are you really buying from the factory that makes it? We often see buyers finding the product they want from the “factory” – but in reality they are just a front or reseller. This means should any faults occur, you rarely get a satisfactory resolution. Also tracking down the real factory often requires local expertise, the benefit of dealing directly with the factory is cutting out the “middle man”.
Have you understood the buying terms? The world of payment and shipping terms can be a minefield. Buyers can come unstuck when ordering products and being faced with terms that are at worst large deposit requests and also confusion between FOB, CIF and door to door.
Have you a signed a specification and bill of materials? Nobody wants the scenario of thinking you have ordered a blue widget and the container arrives and they are green – this is a basic error that thankfully we are all wise to nowadays. It’s imperative that not only the external “looks” of your product are specified but also what’s inside and that both parties have agreed the products ingredients.
Certification, approvals, testing and safety? I’m sure it never happens, but the power of photographic editing now means that documents relating to approvals, safety and certification (e.g. ISO, TUV etc.) can be manipulated. There is no substitute for face to face factory visits, but these aren’t often practical – so double checking suppliers with the appropriate governing bodies is a must.
What is your plan B? You have expertly navigated the price, terms, specification and approvals – however, the current economic climate means businesses in Asia are also at risk of financial failure. Have you considered what would happen if you came to place an order and the factory had gone?

If you are reading this and you can comfortably sit and say you have all these aspects are covered, then you will no doubt have a long and prosperous relationship with Asia. If however, this isn’t the case and you need that additional expertise, then why not contact us for a free initial consultation.

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