The Challenges of Overseas Manufacturing, Part II of III

This is the second of a 3 part cross post between Product Beautiful and Product Global.

Overseas ManufacturingIn Part I, we discussed an overview of the problems a company faces when using overseas manufacturing and design. In this post, we will show some specific tactics that Product Managers can use to overcome these problems. Note that depending on the size of your organization and the scope of your responsibilities, many of these problems will fall into other functional groups, such as Operations. As a Product Manager, when the Executive team asks you to make a buy-build-partner decision, understanding the risks of going overseas are critical to making the right call.

Part II – Tactics

If you have decided to use overseas manufacturing or design, there are several tactics you can use to increase your chances of success. First, you have to understand your risk areas. In Part I we called out communications as the #1 point of risk – mitigating this is key, so how do you do it?

Translation

Using translation services are one of, if not the most, important actions you can take as a company to increase your chances for success overseas. Ashton outlines 4 reasons why:

1) Having someone whose core competency is language and translation will greatly speed the process of communication.

2) A translator can help those in other cultures who are concerned with “saving face”, avoid embarrassment when they do not understand. Often, higher-ups in other cultures do not like to admit that they don’t understand or are wrong. A translator helps ease the obviousness of this.

3) Translators are better trained to ask questions when they don’t understand and answer questions that verify their understanding. In many cultures, people will tell you they understand when they really don’t.

4) Language is the tip of the iceberg when it comes to communicating across cultures. For this reason, I would find a translator native to the country I am working in, who has a proficient command of English (usually, this involves a college major in English), who understands the cultural nuances of the culture you are dealing with.

Translation is especially important during 2 critical times: communicating requirements, and contract negotiation. We have even had 2 translators look at contract language in the past to make sure that it was clear to both parties what was being agreed to. Since your only (realistic) recourse in many countries is not to use the manufacturer again, make sure that the contract is detailed.

NegotiationNegotiation

Contract negotiation is the next critical path tactic. Most Product Managers will not directly negotiate this contract but you still need to be able to tell your Operations counterpart what pieces are non-negotiable and what you have space on. Negotiate everything, and memorialize it in the contract. Aside from the normal profit margin and volume commitments, you should also include stipulations for:

  • Turnaround time – For prototypes and for production changes
  • Translation – Who pays?
  • Travel – Should they come visit you once per year for an operational review?
  • Exclusivity – Many overseas design firms want to retain the exclusive right to manufacture your new product, don’t get pinned down.
  • IP ownership – It is not unheard of to allow the design firm to retain ownership of the IP for a major price discount on the design, just make sure you get exclusive rights to it for a period of time, this might be useful if you are a startup working on spec.
  • Payment terms – Structure it so that they don’t get paid until you are satisfied.
  • Staging of long lead-time parts – Be careful here! Your manufacturer doesn’t want to carry the inventory of parts while you are still finalizing, but you want to hit the ground running when you lock down the final design. It’s a nasty surprise to find out that they didn’t stage a 16-week lead-time part because they weren’t sure how close you were to being ready, then you have to scramble and pay more for some obscure part, essentially playing their supply chain management.
  • Timely BOMs – You need BOMs to set pricing (yes, you set pricing based on the market but you still need the BOM to fact check). Make sure that they are ready to turn a BOM to you as you need it.

Ashton adds:

In our own country, people often fail to take stock of all that is negotiable in transactions in general. Clearly define the terms you agree upon with your vendor and get it in writing. You may even want to take it as far as having the contract translated into their language, to leave no room for excuses of “I didn’t understand”. You want to leave as little room as possible for this, because once you begin work, it is very very difficult to change the terms. Also, if the relationship is important, don’t try to squeeze the people you are working with as hard as possible just to save every penny you can. Often people go to other countries because they hear tales of rock bottom costs and want to take pride in having procured the lowest costs. Often, you get what you pay for. Make sure there is incentive left in the deal for everyone and sow the seeds for a productive long term relationship. This will save you money in the long run.

Rapid PrototypeDo Specifications and Prototypes Locally

Most overseas design and manufacturing firms do not know how to deal with an MRD. Even translated into their own language, seeing “The system shall…” and a bunch of abstract requirements does not compute. However they are very good at working face-to-face, from drawings or specifications, or copying a prototype. Assign an developer or engineer from your team to travel to the firm at the beginning of the relationship to assess their strengths and weaknesses, and how they expect to receive instructions. Attempting to shoehorn them into using an MRD will fail (or at least be very expensive).

Design your process so that an engineer on your team is responsible for digesting your MRD and writing a functional specification document, drawings, or other materials the overseas firm needs. You can iterate with your engineering counterpart very quickly, and once she/he nails down the requirements, they should be able to accurately communicate them. It will usually still be necessary to iterate multiple times with your manufacturer, as Ashton explains:

Generally speaking, people from non-western countries will not be intimately familiar with the nuances and aesthetics of good western design, and are very unlikely to know your market. Design houses will probably be better in this respect, but contract manufacturers will almost always not be competent in this area.

It is very difficult to get it right the first time. I have seen examples of drawings that were sent over correct, the manufacturer said that they understood, and the product we received had a completely different silkscreen. In fact, just this week I had a reset button that came out of production labeled “rest” – and this was a change that the manufacturer made between prototype and production after we had approved the samples! These things happen, so add buffer time.

Hedge Your Bets

When you are starting a project, strongly consider using multiple overseas firms in parallel, until you get to your comfort level with one or more. If you can negotiate well, it is not very expensive to get samples made based on a locally produced prototype (see above). The back-and-forth during samples should give you enough data to tell if the firm is good enough to scale their process and work with you. If in doubt, keep several going in parallel. This has the added bonus of allowing you to play them off one another, lowering your costs, and lowering your risks. The downside of this tactic is that it puts enormous pressure on the person managing the overseas groups, because they are up until 2AM every night on Skype answering questions and doing contract negotiations for a bunch of firms you will never use past samples can be frustrating.

Working with overseas vendors can be frustrating. It can also be rewarding, when you get a product of equal (or better!) quality to something that would cost twice the price to do locally. These are but a few of the tactics you can use to be successful – in Part III we will discuss the strategies and decisions you must consider before choosing to work overseas.

Product Beautiful

Product Global

Previous Post Next Post

4 Comments

  • Reply hello August 21, 2007 at 8:01 pm

    Can’t find a place to send you email, please drop a note…

  • Reply Paul August 21, 2007 at 9:38 pm

    You can reach me at pt.young@gmail.com

  • Reply Product Beautiful » Blog Archive » The Challenges of Overseas Manufacturing, Part I of III August 21, 2007 at 10:16 pm

    […] The Challenges of Overseas Manufacturing, Part II […]

  • Reply Bart Salmon December 5, 2007 at 4:54 pm

    Do you have some company examples who have used these principles of risk management? Can you provide details of their actions, communication, processes for managing risks overseas in light of points cited above?

    Thanks.

  • Leave a Reply