Adage #6: Utilizing China without a Strategy is a Train without an Engine

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Nothing worse than spinning your wheels except not moving at all or going backwards.

A lot of people do the same things like I stated in the first Blog title.  They get their parts or product and off they go to China to get it quoted.  Whoa, whoa…….WHOA.  Slow down.  What are you trying to accomplish?  China needs to be part of a bigger strategy to be effective, not a first step.

Does it make sense for your product?  Does it make sense in your greater strategic scheme?  Every product has a certain make-up of labor, materials, overhead and freight.  China is not always the answer due to one of these factors.  There’s a reason why pickle buckets, wiffle balls, paint and tires are made in USA (in most cases).  When it comes to labor, I’ve been doing this long enough and have found the magic number is 15-20%.  If your product has less than 15-20% of its cost in labor, china may be a break even at best when you add in freight.  If you’re making pickle buckets that do not stack, you don’t get many into a shipping container.  Combined with low labor (mold opens and it’s about done), you end up being more efficient in USA.  Paint is so heavy you “weight out” before you “cube out” in a shipping container (meaning you can only fill half the container before it gets to its max weight and it ships half full).  Same with tires.

If you know your costs, and you’re still getting an unbelievable quote from China, I suspect it is just that – unbelievable.

Real World Example:  Very simple example, had a client with a low labor (machine finished) extrusion.  They were confused why China wasn’t 40% lower like they’ve heard of.  I explained that spec raw materials are a worldwide commodity, USA pays about the same as China for raw material.  So if you’re raw material cost is 90% of the total, China and USA will be about the same.  China will save in labor in O/H but that’s less than 10%.   Add freight including USA duty and taxes and it’s not a savings at all.

Summary:  Save the time, know your factors that make up your product before you take the China step.  Could save you a lot of energy.

Posted by Joel Buckley
Specialized in product development, sourcing, marketing and branding

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