You are on page 1of 4

Mike Corkran, CEO

n n n

Mike Corkran has 30 years of international and China operating experience including line operating responsibility for integrated manufacturing businesses in China. Prior to founding China Centric in 2003, Mike served as President of North American & Asia Pacific for RELTEC, a NYSE-listed telecom equipment manufacturer where his responsibility included the start-up and management of five manufacturing businesses and two development centers in five different Chinese cities. In addition to his extensive China experience, Mike has held various marketing, financial management, and general management roles and assignments, leading teams of up to 5,000 people and generating up to USD 1 Billion in revenues. Mike earned a B.A. degree in Economics from Dartmouth College and an M.B.A. from the University of Rochester.

For every successful sourcing experience in China, there is more than one disappointment or complete failure. Successful supply chain management in China is very different than in the West. Companies that dont understand and adjust to the differences invite problems. Countless high quality products that enrich our lives are built in and sourced from China every day. Chinese exports range from the lowest tech toys to some of the highest technology computer electronics. So, the question is why are some companies so successful managing China supply chains, while others are not?

A Balanced Look at China Supply Chain Environment

At the most fundamental level, Chinas commercial environment is young. China has been engaged deeply in Western-like commerce for less than two decades. The principles that Western business people take for granted are not ingrained throughout China business yet. Simple rules dont have the same intuitive acceptance in China as in the West, like not substituting materials in customer-specified products without getting prior customer approval. Companies that try to manage suppliers without understanding this fact of commercial life almost inevitably get burned at some point. Decoding the differences is not an insurmountable challenge but it takes patience, curiosity and a more disciplined approach to supply chain management. Suppliers that are capable as the best in the West can be found in China. At the same time, China suppliers who could not find a customer in the West because of their substandard quality and workmanship can still thrive in some segments of the China market. How can this paradox coexist in todays global and increasingly transparent market place? In the West, the absolute quality difference between excellent and poor suppliers is actually pretty small. Our competitive environment continually drains the bottom of the quality barrel; and our fixation on continuous improvement drives acceptable quality standards in a positive trajectory.

Shan g h a i Z h u h a i C l e v e l a n d H o n g K o n g T a i p e i

The China Quality Challenge

In China, the competitive environment is still young and the survival of the fittest drivers have not yet developed to compress the variances of supplier quality standards to the same degree as in the West. Still today, a large percentage of Chinas industrial production remains in the state-owned industrial sector where quality expectations do not meet Western standards.

Three Keys to China Supply Chain Success

Through China Centrics experience managing and developing own supply chains for our customers, we have learned that there are three keys to success in China supply chain management. Get these three key actions right and your chances of supply chain success in China are greatly enhanced: 1. Execute an effective supplier qualification process; 2. Invest the time and effort before placing the first order to assure synchronization of understanding in all aspects of supplier-customer rules of engagement; 3. Refine and adjust your routine supply chain management processes to the differences in the China supply chain environment. Effective supplier qualification in China is much more than checking product samples, equipment and quality documentation. It is assessing a China suppliers management and process stability. Chinese suppliers know that Western customers expect to see control charts, work instructions, and the myriad of visual indicators and documents that fuel our companies. However, a large percentage of Chinese companies do not understand the importance of these tools in effective operational management. Statistical process control charts are often kept and filed with no closed loop management discipline to control operations outputs. For the most part, many of these tools remain new to Chinese suppliers; and the process of infusing them into management discipline is still a work-in-progress. A disciplined supplier qualification process identifies strengths and weaknesses in supplier processes that will be the determinants of success.

Shan g h a i Z h u h a i C l e v e l a n d H o n g K o n g T a i p e i

China Centric believes understanding the strengths and weakness of a supplier is a predictor of a suppliers ability to deliver sustained product, quality, delivery and communication performance. We have developed a Supplier Qualification process that assesses a supplier across fifty measures in six functional disciplines: 1. 2. 3. 4. 5. 6. Manufacturing Facility and Process Equipment; Manufacturing Management Processes; Quality Systems; Technical Support; Logistics and Export Capabilities; General Management and Finance.

In China Centrics experience, the First Key to China Supply Chain success is executing a comprehensive field-proven approach to supplier evaluation that is sensitive to the realities of the China supply chain environment. The Second Key to China Supply Chain success is synchronizing the understanding of all Customer-Supplier rules of engagement from the outset. The importance of this action cannot be overstated. Innocent mismatches of expectations between Western customers and Chinese suppliers about Western commercial principles are extremely common. If you engage a Chinese supplier assuming they intuitively understand principles that are routine in the West about how suppliers and customers interact, you are taking a risk. Simply sending a purchase order to a Chinese supplier may work for trivial commodity-like buys, but for any non-trivial or recurring relationship, purchase orders alone are insufficient. The more strategic the buy, the more critical it is to assure that your Chinese supplier understands clearly all required dimensions of your supply relationship. China Centric recommends that for all non-trivial supply relationships, a comprehensive supply contract be used. The contract should be far more comprehensive than we would use in the West and define all possible rules of engagement, including but not limited to product specifications, quality assurance requirements, terms and conditions of sale, intellectual property considerations, stocking programs, and non-compete provisions. Investing the time before actual purchases avoids problems later. In combination with disciplined supplier qualifications, a comprehensive supply contract sets a sound foundation of transparent understanding and expectation between customers and China suppliers. The Third Key to China Supply Chain Success is refining your Companys routine supplier management processes. They work effectively in the West, but they are almost certainly suboptimized for use in China. In the West, we expect Arms Length accountability for supply consistency and compliance across all product specification, quality and communications requirements. We expect our Western suppliers to manage these requirements with a minimum of active intervention by us. China will someday reach that same developed state, but the China supply chain is currently far from being that developed. Western customers who adopt the same Arms Length approach in China that works in their own market can be risking their franchises.

Shan g h a i Z h u h a i C l e v e l a n d H o n g K o n g T a i p e i

A high-profile Western toy company damaged their reputation perhaps irreparably by losing the recipe for managing their Chinese suppliers. After over twenty years of seemingly problemfree imports of high volume toys, this Company relaxed or lost their supplier quality assurance discipline and suppliers began to use lead paint and produced toys that failed to meet Western consumer safety standards. The Western Company not only lost millions and damaged their consumer reputation; the CEO was forced to admit publicly that the problem was not with the Chinese suppliers, but came from failures in the Companys own documentation, designs and management processes. Qualifying the right supplier and executing a supplier contract establishes a foundation, but sustaining an effective China supply chain requires routine diligence. It is your responsibility not the suppliers to be sure that product designs meet all regulatory requirements of the market, in which they will be sold at your specific needs. It is wise for any Western company sourcing products or components in China to exercise routine mentoring and monitoring of supplier performance because of the relatively unsophisticated nature of many Chinese suppliers. This means visiting suppliers, performing periodic requalification audits, and implementing on-site quality assurance programs or inspections at least annually, but preferably more frequently. Any company can get the first order right when all eyes are focused. It takes systemic stability of supplier production and management processes to turn start-up success into long term supply performance.

Disciplined China Supply Chain Management Revisited

Back to our initial question -- why are some companies so successful managing China supply chains, while others are not? The simplest answer is that companies that succeed in China understand they need to adjust and that practices that work in the West need to be refined and in some cases scrapped when working in China. Supply Chain success in China is really no more difficult than anywhere else in the world, as long as the company understands and follows the three keys to China Supply Chain success as mentioned earlier.

Since 2003, China Centric has been helping companies understand what China may mean for their business and assisting them in developing and executing strategies in China. As we enter our 10th year, we have worked with over 175 companies. Our team consists of 33 professionals, 26 based in China. Our offices are located in Shanghai, Zhuhai, Beijing, Hong Kong, Taipei, and Cleveland. Our areas of expertise include: Marketing and Sales develop and execute comprehensive China market and sales strategies; Manufacturing and Supply Chain Services customize and implement operations strategies, including subsidiary formation; contract assembly/management; supply chain management; in-country quality assurance programs, bonded logistics; staff recruiting and development; Operations Improvement cross-functional operational performance assessment and corrective action project management; and Acquisition Services in-country acquisition support including operational due diligence on China subsidiaries, strategic supply chains and local market potential, supplemented with transactional execution services and post-close integration programs. For additional information, visit

Shan g h a i Z h u h a i C l e v e l a n d H o n g K o n g T a i p e i