Vendor Evaluation (or You Can’t Know Everything)
By Blake Keller
I’m currently in the middle of a crisis. The lessons learned during this bit of trouble will certainly make me smarter, and hopefully, will help you avoid a similar situation in the future.
I’ve done business with a company for about three years. Let’s call them SH — it’s representative of their company name, and also reminds me of a certain phrase, as in “went to SH*#!” When I was Director of Engineering in China for an American company, SH was one of our preferred vendors. When I started my own company, I sent whatever work was appropriate to SH, and was quite happy.
So why the trouble? I have a good process which I follow. I know much about SH. I’ve audited them, I’ve studied them, I know the owner and the key staff. How could it have gone wrong?
I don’t know all the reasons why it went wrong. I do know that the technical director left, and not on great terms. That didn’t seem like an immediate problem, as I knew the other department heads, and they seemed sound. I do know that some family members were being placed in key positions, but heck, I knew the owner, and he’s a great guy, so no problem. Several other staff members left, but that’s ok, SH is a good company, they can find new people. So my castings are running a bit late. Well, this is likely just a temporary problem.
Now I’m not claiming that this rapid company disintegration is a problem unique to China. With smaller US companies, changes in the upper echelon can have immediate and disastrous effect. In fact, one of my former employers went bankrupt soon after junior took the reigns from daddy. This can happen anywhere, but I’ve seen it happen twice in China, and it has happened both times with the departure of senior staff and replacement by family members who were completely incapable of performing the required job. Is that a sign to find a new vendor? It could be, but it’s certainly a sign to pay more attention.
So what was my mistake? I certainly followed my process, and still things went bad! Here are my takeaways from this:
1. Have a vendor management program and follow it. Even if informal, you should periodically re-audit, and track vendor performance.
2. Dual source when possible. Due to complexity and volume, I couldn’t practically dual source this part.
3. Keep a list of qualified alternates in case you need to move quickly, and never stop hunting for new and better vendors. Does this mean don’t build relationships with vendors? Absolutely not!! Just be prepared to move if things get bad — I have a good relationship with this vendor, but not so good he’s going to repay me for the money I’m going to lose!
4. Don’t be lazy!! If things start to smell bad, they’re bad! I knew this company was starting to have troubles, it’s just that it took so long to get this part qualified, and….
5. Know who owns your moulds, if applicable, and don’t be afraid to move them. Fortunately, I do own these moulds, and can move them to a new vendor.
Blake Keller, General Manager, Quality Sourcing Solutions
August 22nd, 2008 at 3:54 pm
Blake, you’re not going to like this….
You come to China on the back of your employer. You develop a/some suppliers with them, you leave your employer and rip off the resource you have developed for him…
what am i missing here?
the work you did for your previous employer was his intellectual property , not yours. The mere fact that a supplier would deal with you is bad news.
and you’re surprised it turns sour?
develop your own sources
dont rely on your previous employer
this kind of naive behaviour is doomed to fail
this isn’t a question of “you cant know everything” more “you know fuck all”
August 22nd, 2008 at 5:42 pm
Blake,
Your list of takeaways are good. Key to my success have been:
#2/3 Always be researching and developing new business relationships and work very hard at developing and strenghtening current ones.The more you work on this the better your position will be all around.
#4 If it smells like fish..it usually is. So
address it as early as possible directly with the company. Remember, it needs to be a relationship based on respect. Many times I’ve assisted vendors solving their own internal problems which not only ensures delivery but also strenthens the relationship.
#5 Unless the tooling is inconsequential, ALWAYS retain ownership to ALL of your tooling and make it clear from the begining of negotiations, write it into your contracts and all POs. For me ALL tooling is my IP. That alone will not guarantee you will be able to move your tools to another vendor at will but it help make it more palatable.
Regards
August 22nd, 2008 at 6:28 pm
Hi, Blake,
You’re right. As the buyer, you should never trust someone 100%, esp.a supplier whose earnings is from you.
I do auditing and quality control service to on behalf of my customer. If you need, I can help with your sourcing in China.
August 22nd, 2008 at 6:42 pm
David,
Thanks for the comments, and in general, I agree with you.
For the point of the story, I summarized my relationship with this vendor in two lines. Reading again, I should have not mentioned it. Here’s the lengthy version:
1. Did come to China on the back of my employer. Did a bang-up job for him. At then end of my contract, I was offered several options, but decided to resign. We parted nicely and I remain friends with all.
2. Never used any of my previous company’s IP or vendors.
3. Met a client who, by chance, was using one of the old vendors — completely different and non-competing industry.
4. Got permission from all.
5. Proceeded with project, and then added some other business, again, not competing with my former employer in ANY way.
My apologies for not realizing how misleading my summary was. I completely agree with developing independent sources, and have done so.
August 22nd, 2008 at 9:00 pm
Blake,
I have been sourcing in China since 2002. It is what we do. I have an office in Shanghai with 6 employees.
I agree with all your take-ways. The only other thing I would add is to remember that no matter what, you are always the foreigner and not Chinese. This prejudice can be overcome by building close relationships, but as soon as some of the key people in the upper management start to disappear, you better get your but on a plane and firm up the relationship and make new friends at the company if you want them watching your back. Or you are just a foreigner.
I have 6 employees in Shanghai who are:
a) Chinese and
b) can monitor our relationships.
It helps a lot. Having said all of this, it is not an unusual story and why China has so many expats.
All the best!
August 23rd, 2008 at 4:59 am
Hey Blake,
I am suffering the same as you,what’s morse,I don’t think I can get any of Concret anchor moulds from SH.
I am going to meet the owner today,hope can move out our own thread roller machine,we paid the whole bill.
Blake,pray for us!!!! God,it’s tought,looks like really good company,and nice owner,but to the work,pain in ass
August 23rd, 2008 at 2:13 pm
One additional point to make life easier..
There are several companies capable of providing a quality control inspection at various stages of production or pre-shipping (or even for the shipping process)…
Although I have as of yet not utilized thier services, due to the quantities we purchase being prohibitive for such activities as it would increase the cost of goods to the point the inspection charges would make the baseline for cost of goods too high, I still recommend locating and utilizing this type of overseas vendorl. They normally only need you to outline your benchmarks for:
1. Quantities
2. Quality expecatations
3. Shipping requirement process
I did find what looks to be a very reputable service that allows for a reasonable per inspection charge, and whom maintains offices in various export cities and who are willing to send someone to whatever location your company desires.
Good Luck!
August 24th, 2008 at 5:50 pm
Hi, Blake,
I think you did everything right, but don”t forget how your importance is when you run you own business with the vendor, more important or less important compared to your previous role in your employers company. That could be the reason the vendor doesn”t focus on your business as a 1st priority.
I think now it is time to use GuanXi, supplier relationship management. If I were you, I would have a direct meeting with the owner of SH, asking for his help and showing him how much more business I can bring to him if he can overcome the current difficulty.
Good luck.
Regards
August 26th, 2008 at 4:24 am
Blake,
I know I am a little late, but as a network marketer and business owner. You really have to do you homework before you can trust anyone. For Business check into their back ground see how they tick. But for one thing I would have never gone back to the person you were working for to to do business with, since you started your own business and not doing it with them.
Keep your options open, I know this is a learning process for you. We all go through it at one time in our life..
All the best to you.
Marge Carter