Archive for September, 2012

Monitoring the Production Progress is an absolute Necessity for all Importers

Constantly monitoring production progress is an important and necessary follow up task. Assuming everything is going according to schedule if you do not hear otherwise is much too risky.

What Can Go Wrong?

Anything could still go wrong for many reasons. The tooling can become damaged and the factory has to stop production until it is repaired. The factory does not want to be embarrassed telling you the bad news and may not inform you about the delay. They often have a naïve hope of fixing problems without having to tell you about them. It is a gamble that usually fails and you as the importer suffer the consequences one way or another.

It is a good idea to ask the factory for a status report on daily basis if necessary. Certainly ask them to inform you immediately about production problems that come up.

If a problem does arise, ask the factory for an estimated date it will corrected. If the delay is long, check back with them regularly, and have them confirm when the problem is fixed. After the problem is fixed, have the factory confirm the production completion date can still be met. If it cannot, have them provide a new date.

Capacity Constraints

The factory may have limited control over some capacity constraints.

These include:

 

  • Available number of production lines
  • Number of trained workers
  • Injection capacity of their own injection machines or from outside partners
  • Sufficient electric power available
  • On-time component and raw material supply
  • Legal requirement (e.g. allowed overtime working hours)
  • Weather conditions such as severe Typhoons can interrupt production

 

Some of the limitations can be overcome by subcontracting part of the production to other factories in the near vicinity. Unfortunately, this may have a negative impact on the product quality and raises liability concerns.

Many importers do not know the Chinese Government has imposed restrictions on the use of electric power for production. In many cities, factories will not have electrical power 1 or 2 days per week. Of course, the electrical power is not completely cut off but severe penalties are imposed if the factory is caught disobeying the Government instructions. Many factories have purchased electrical power generators to overcome the power shortages. The generators run on diesel and everyone knows how expensive this has become recently. Some factories do not want to absorb the additional cost so they stop production during the electrical shut down period. Without constant communication, you may not know about it.

Industrial Growth in the North

Another important factory is the shortage of workers, especially in the Southern China provinces. You may be surprised by the fact that China, a country of 1.3 billion people, cannot provide enough workers for all the factories. However, it is true. Factories need trained workers and it takes significant effort transforming unemployed young people from rural areas to skilled factory workers. The result is, trained workers are in short supply.

Northern China has undergone dramatic changes in its infrastructure over the last couple of years. Major investments have been made to build new factories on former farmland and the process continues. Compared to a few years ago, the changes in places like Ningbo, Wenzhou, and Xiamen are breathtaking.

Workers that previously migrated to southern China for jobs are now finding them in the North. You might recall the terrible events shown on TV at the Guangzhou railway terminal when approximately a million migrant workers waited for days to catch a train to their home provinces. Severe weather prevented the trains from running on schedule and hundreds of thousands got stuck at the railway station.

You can certainly understand that these people appreciate finding jobs near their northern hometowns rather than going through such an odyssey again.

One reason for the southern migration was for better pay. That enticement no longer exists. With all of the new development, workers in the North are now receiving nearly the same pay as in the South.

The factories in southern China no longer enjoy the luxury of workers competing for jobs. Wages are higher and they have mostly abandoned production of low price products. Southern production has shifted towards more complex and more profitable manufacturing. It should be no surprise that sourcing of really low-end products in southern China is becoming more and more difficult.

Chinese New Year

The Lunar New Year Holidays are an annual opportunity for workers to travel to hometowns and reunite with family. The opportunity usually only comes once a year. Factories close for at least a complete week and usually for 2 weeks or even 3 weeks.

If you happen to have production completing shortly before the Lunar New year Holidays or production starting immediately after it, you may be in trouble. Of course, no one will tell you, but from my experience I can tell you, try to avoid these periods because the quality deteriorates. The workers have their forthcoming holidays in mind and lack the concentration to do a proper job.

After the holidays, between 10-20% of the workers fail to return to the factories for various reasons. The result is, that again the factory is short of manpower and even if they manage to hire workers, they have to be trained. It could be your schedule that suffers. Be sure to take precautions if you are forced to run production during this time.