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GPC Electronics comments on manufacturing in China

Sydney – March 2011

Outsourcing Navigator Council member comments on manufacturing in China

By Christopher Janssen, MD of GPC Electronics, Sydney, Australia.



As a member of CBA's Outsourcing Navigator Council, I participated in the January 2011 Industry Update and was particularly interested in the Case Study for the Quarter. This case study is taken from CBA's proprietary database that informs his Global Risk Constant. The firm's clients use the data for making an assessment of a geography's risk in doing a total cost analysis.

I make the following observations:

CBA has considered a particular case where the results did not achieve the expected outcomes. In both time and cost the transition project failed. My concern is that from a sample of one failure, conclusions are drawn for the entire industry, as if it was homogenous across companies, scale, geography and staff. This may occur in part because the companies likely to seek help from CBA are those who have difficulties or are struggling. This skewed sample may well create a coloured opinion.

To conclude with the lesson learnt in the report that "Unless you're outsourcing >$50M USD/year forget about EMS or ODMs in China" totally flies in the face of the thousands of companies active in this space (less that $50M) who have been able to generate business advantages.

Having done many product transitions and New Product Introductions, I viewed this case study very differently.

It appears that the OEM was unprepared for the move, and so suffered the consequences. I don't believe that the error was in the decision, but in the preparation and implementation. Similarly, bringing everything back to North America may well just have been a reaction that it was all too hard, so "We give up." Has this now closed the opportunity to benefit from Asian sourcing in the future? It is unlikely that anyone internally would put that up as a recommendation again soon!

Early in GPC Electronics' experience as EMS, we did a substantial amount of work for Toshiba's laptop division. Timelines were always compressed, design changes kept coming and projects were complicated. Never did the Japanese mention 'problems', but through every project they had many small meetings and always brought up 'risks'. These were addressed by 'countermeasures'. At the time I thought that this was just a quirk of language as they spoke English to us. This approach seemed to be cumbersome and bureaucratic, and when we had so much to do and so little time to do it, it seemed to waste precious time. I later realised that taking the time up front to plan the processes allowed us to deliver the outcome with many fewer complications than may otherwise have happened.

In contrast, we in the Western world like lots of action and to get on with things. If things go wrong, we fix them as we go, and are impressed by the recovery. I have had senior executives personally thank me that we fixed an error and got them out of trouble. I don't get many senior executives who ring me to tell me that the transition or NPI was uncomplicated. In fact, one customer asked me why they pay us so much because it is so easy to do! They didn't see the irony.

Both through our work and through discussions with many others, we regularly see and hear of OEMs who are sourcing less than $10M, who are achieving great competitive outcomes. China offers a wonderful depth of supply chain, and infrastructure for electronics manufacturing that is vast, and labour which is still very competitive with North America.

We need to clearly understand our strategic decisions, and find the right partners to implement them. Then we need to make sure that the project is properly resourced to succeed. This is called management.

Culturally China is very different to North America. People there often do as they are instructed by a customer, and are much less willing to challenge authority. This may lead to miscommunication and frustration all round. Recognising this is part of the battle.

Our approach to manufacturing in China is to blend the advantages of different locations. For instance, we at GPC Electronics run SAP across all plants, so that the Chinese factory is just another location in our system. By preparing the projects out of Sydney, we are able to develop a customised product manufacturing and supply chain solution, which we implement in China. Because we work in the same time zone, we have real time visibility of what is going on. This is augmented by sending Australian staff to China at the time new projects are started.

CBA is right to warn of the risks and traps of moving offshore. Fixing problems on smaller projects becomes relatively expensive, that the benefits are often lost. On larger projects, it is easier to justify the cost of support to bring it back on track. Not everything is suitable for Asian manufacture. Perhaps the conclusion or lesson learnt should be to prepare more, and try to get it right the first time.

Editors' note: Christopher brings up a good point about risk. Certainly, not every program under $50 million that is sent to China fails. However, our job is to assess risk, and we stand by our methods for bringing data-based tools to OEMs to judge the relative cost of risk for the geographies that we study. We agree with Christopher's conclusion especially: preparation is the key, and we would add, data-based preparation based on benchmarks of like-kind programs, and an avoidance of solutions that we know have failed.

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The preceding article, authored by Christopher Janssen, recently appeared in
“EMS Now” (http://www.emsnow.com/npps/story.cfm?pg=story&id=44793) and “Charlie Barnhart & Associates LLC” (http://charliebarnhart.com/archives/onc-member-comment-manufacturing-in-china/)

For more information on GPC, please contact:
Christopher Janssen
Managing Director
GPC Electronics
2 Blaikie Road, Penrith NSW 2750 Australia
christopher.janssen@gpc.com.au
61 2 4737-6610