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It’s that time of year again: Many OEM and EMS companies have come out of 2012 looking for ways to lower supply chain costs. Purchasing agents, quality managers, and business owners have booked travel to Hong Kong or China in the all mighty search for direct suppliers. This segment of our industry is off to Asia armed with five to 10 of the 200+ e-mails received from Asian suppliers (mostly trading companies) and a free ticket to a trade show at the Hong Kong Convention and Exhibition Centre. Most will just gather business cards from new suppliers handing out hordes of brochures and playing Russian roulette with a new supply chain.
Don’t get caught up in new supplier hype because instability is just around the corner. I know this because it took my company three years, 10 years ago, to get our rigid and flex PCB supply chain in place. After visiting China for more than a month each year for four consecutive years, we finally had in place everything we needed to be successful and produce a world-class product.
What will most businesses find after a year of “testing” new suppliers?
Trading Companies Most PCB suppliers at trade shows and featured in the e-mails you receive are not suppliers--they are “trading companies” quoting product out to every relative who has ownership in, or an association with, a PCB factory. They are not a factory and if one of the factories their associated with does not know what you want, they will find a factory that does--regardless of their history, skill, or quality. You can end up with a factory not familiar with or your product and that product will end up with fabricated UL documentation. Well, at least something was fabricated well.
No Control Over the Supply Chain It can happen with a trading company or direct supplier: If you aren’t personally familiar with a company and haven’t spent time at their factory, be assured they will pull some “fast ones” you’ll never know about…until it’s too late. The stories I’ve heard from customers coming to us from direct suppliers and trading companies would amaze even the most seasoned business person.
No Payment Terms Most suppliers and trading companies only accept prepayments. Do you really think your EMS company can handle that kind of hit to cash flow?
Uncontrolled Shipping Costs Have you ever received an international shipping bill? Do you have enough volume to manage costs and keep them under control? Major shipping companies do not hand out cheap international rates to just anyone--there is a long process of history, negotiation, coordination, and volume efforts that result in competitive international shipping rates for custom-fabricated products.
Customs Compliance Are you aware of the requirements you need to manage customs compliance and all other importing details?
Lack of Quality Control With so many lines of communication, it will be increasingly difficult to manage quality and when they have sent product they don’t want to credit you for, it is no issue to let go of the relationship.
No One Ever Says “No” This is one of the scariest parts of doing business with an unknown Asia supplier: No one wants to say “no” to any business. If there’s a cousin with a shop, he can take the business, or find someone who can. Worst of all, a supplier will commit to a lead time just to earn the business and you won’t have any choice but to wait it out when they are late because you’re behind a much larger customer who gets priority. Starting over is not an option either because you’ll double the time on the delivery schedule. No Credits or Returns Since you’ve paid 100% of the product; no one wants to take it back. Margins are thin as it is and a return for them is a loss. Very seldom do you find a supplier willing to give you a credit--you’ll just wait for the product to be reproduced, adding another month to your delivery and eating away at your shipping costs…that is, if you’re lucky enough to get a reproduction.
The list of potential issues goes on and on. Customers hire you for your expertise; you hire a supplier for its expertise. Is it worth losing your customer base for savings of a mere 10 to 15%? What about shipping a final product that eventually fails in the field? That could multiply your losses by a factor of 4 or 5!
Take the money you were using for that trip to Asia and take a trip to Hawaii instead. Take your wife and kids on vacation and allow a reputable PCB supplier to manage your supply chain and inventory. They’ve ironed out the wrinkles and can make manufacturing in Asia a pleasant experience. James Brown is co-owner and vicepresident of sales and marketing for PCB Solutions, LLC, a provider of high-quality PCB manufacturing and competitive solutions for the industry. Brown, with the company since its inception in 2002, specializes in customer relationships and developing customer service procedures that enhance customers' experience while focusing on growing organic business. His company has established domestic and offshore relationships with several high-quality fabricators to support prototyping, high-volume production, and basic to complex multilayer PCBs.