Labor, Sub-suppliers and Time--3 other ways to lose money in China

A quick story before I get to the issues at hand.An interesting thing happened on the way home from church…  I was picking strawberries with my boys at a small farm yesterday when I overheard the workers talking about us.  Now, hearing people talk about foreign kids isn’t all the interesting, but what was unique this time was that I realized that they weren’t speaking Chinese—I could swear they were speaking Lao, but even that wasn’t quite right.  Turns out the workers are Dai minority people from southern Yunnan province and they were speaking a dialect of Dai (Tai) and we could communicate a bit.  They told me the Thai people in town (owners of the local Thai restaurants) often come to the farm and they can talk together.  I couldn’t understand everything, but I could certainly follow their conversations and they mine.  The language sounded like 1/2 Lao mixed with 1/4 Chinese and then 1/4 of something else.Anyone know anything about the Dai and their language?_______________________________________Now for the real stuff.This a portion of an email that I got from a lady that is doing some work on her own here in China:

Hi David,I wonder about my current manufacturer.  This is what I have encountered.....Last time I visited the owner tried to give blame to the holiday for not having the required staff to finish the order.  She also created worry about the reliability of a sub-supplier, and urged me to purchase fabric more than one month before I need it.  For these and other reasons she also requested that I pay extra money.I have mentioned that I intend to take this trip and I have been providing orders for a number of weeks. As I was finalizing the details they told me that I needed to personally order the fabric at least 21 days in advance of any order. She led me to think that she is unprepared for my arrival and this visit might create some problems.Regardless I feel that she is trying to make me feel like I am in a desperate situation and so will be willing to pay more  It becomes difficult to argue because I spend so much time at the factory, I naturally take the "YA TEAM" mentally in managing the work being done.In the last visit, I just paid the extra fees. This time I don't want to pay extra fees because of the problems and unprofessional-ness I’ve experienced.I also worry that because I am a “foreigner” they may be taking advantage of me.

Answer #1 Labor shortages. Staffing is a HUGE issue in Southern China right now.Warning from the NYT about two weeks ago.  And more this last week.We’ve had five factories, all in different industries (plastics, wood, stitched goods, packaging/printing, metal furniture), all tell us the same thing, “The order you placed in January is going to be late since we don’t have anyone to finish it now.”In the press, the lack of labor is usually blamed on three things: bad conditions, high cost of living in GD province and politics (hukou, no workers’ rights and no help with injuries/grievances, etc.).Sure these are partially to blame, but there are significant reasons why these are not the main motivators as well.1. Factory conditions, in my experience, are much worse inland than they are in Guangdong.  Guangdong conditions were particularly bad when Guangdong was unique and there was excess labor.  But that hasn’t been the case for at least the last 4 years.  New factories in the inner provinces are not “shiny new buildings” with the latest in worker comforts.  Rather they are probably relocated machinery and management from Guangdong in either new industrial zones with no supporting amenities nearby or in older (cheaper) areas of towns or out of towns where the land is cheapest.  Either way, working conditions are not significantly different (if different at all) back home.  Remember, the point of opening a new factory farther inland was to save money.2. For sure, the cost of living is higher in Guangdong province, but wages are higher too—much higher.  Wages can be as much as 30% lower inland than on the east coast for the same job (or so say my employees in the first ever Quick SRI Office Poll).  Sure that’s not scientific, but a quick scan of income stats online says that a 3-1 urban/rural ratio is probably pretty common.  Again, the point is to get more for less, so back home people are probably making “chabuduo” (approximately the same) wages when compared with local living expenses.My theory is that people will work for less money and in the same conditions if they are closer to home/family—that’s the reason that people aren’t coming home.  Oh yea, and they don’t have to fight for tickets and then stand on a train for 24 hours every year either.3. The Hukou and other issues are a bummer for sure, but the enforcement of hukou laws isn’t any more strict these past 3-4 years than it was in the previous 10 years and there were no significant problem in years past—so why is this now a “new” issue?  It’s not.  It’s a lingering issue that has been a thorn in the sides of migrant workers for 30 years.  But it hasn’t stopped workers from coming to Guangdong before and so I don’t think that it’s the reason now.Follow the money.Let’s be honest, as soon as the demand for labor in Guangdong rises to a point where wages rise noticeably, people will come back—they’ve been here before and as soon as it’s worth it, they’ll come back again.  It’s happened as recently as a couple years ago.  It’ll happen again.But of course when the labor wages rise, that’s also when it affects us, the buyers. And the real point isn’t the why they aren’t coming back yet, it’s the bottom line result (what to do about late delivery and higher wages?).So what do you do if your factory is now telling you that projects scheduled to be done in March will be done in April or May (and projects after that will cost more)?The usual get out the contract and bang on the desk approach won’t work.  Neither will the incentives approach (more money to get what you originally wanted, late).  The physical limitations make both of these options worthless.Option 1. Accept the fact that you won’t deliver on time and start making adjustments  to your supply chain now.Option 2. Incentivize the factory to hire more workers.  This will take time (and cost money), but not as much time as waiting for them to find the workers themselves.   This is what large box stores are doing now—(aka: this is what people with a lot of money and influence are doing now).Options 3. Cut orders in half and give the other half to your back up factory (you do have a back up option, right?).  Of course, this only works if you don’t have specialized products or tooling.  But even for specialty products, if you split up pieces or components you can save time.Option 4. Prioritize SKU’s and qtty’s and take delivery in pieces.  This is what most people that we work with are doing.  They know what their show orders are.  They know exactly what qtty’s they must have and they know that they have to deliver to certain suppliers or lose their business (while others are more flexible).Answer #2 Subsuppliers. Unfortunately, even if you’re small sub-suppliers should be your concern.  Why? 1. Most factories don’t do QC incoming components.  2. Most factories don’t forecast delays, price changes or rejects into the bids they give you. 3. No one will be as careful as you are about your own product—if you’re not having 3PQ check incoming goods then no one will—contract with your factory for this service.  4.  The flip side is that if you buy on your own, factories will waste materials as they don’t need to be careful/save anything—so again, contract this service and tie performance to payment.Answer #3 Time. Yes, prep time is often the longest part of the process.  We often have projects with 50+ day production times but actual manufacturing can be less than a week.  Packaging/fulfillment is usually only another week too.  So the remaining 30+ days is either spent buying raw materials and/or waiting in line in the factory.A word of warning, don’t confuse waiting in line and waiting for materials with getting pushed out of the queue for larger projects.  Get a fixed date for when your product will be manufactured.  The actually day may vary a day or two but more than that and you should be looking for the “real” problem.  We’ve been completely pushed off line (in the middle of manufacturing) for larger projects.  They only way to get people back to work on your product is to be there everyday all day pitching a fit until they acquiesce.Answer #4 What’s really going on. If you don’t know exactly what’s going on with your suppliers (because you are overseas, because you don’t speak Chinese, because you are working with a non-transparent middleman, etc.) than you are indeed in a desperate situation.  You need to know.  You need to have fixed times, milestones and other checkpoints that you can confirm to know how your project is doing and so you can make concrete shipping/delivery plans.  You also need to have a physical presence in the factory to confirm the things that you’re being told and the quality standards are up to your (contracted) expectations.This is the very hardest part of the whole process—finding out what’s real, what’s a story and what’s a mixture of the two.  If you’re not here, you’ll figure out that your being told stories, but by that time it’ll be too late.  If you’re here and you don’t speak Chinese you’re either reliant on others who may have competing agendas or you may have to spend an inordinate amount of time on a single supplier to the detriment of other responsibilities.Answer #5 Money. If you’ve paid fees in the past, of course the factory assumes that you can pay them again.  Remember, you’re made of money (at least that’s what many think).  The concept that has been told over and over again to me by Chinese sales people is this: “I’d be stupid not to ask for more money—what if you’re dumb enough to actually pay?!”  You will be asked to pay for EVERYTHING.  If you do it once, you will be asked to do it again (and again).  Sometimes you need to give in and help out.  Sometimes there are real mistakes that you choose to forgive, help out with or use as a punitive tool later.  Sometimes you’re just taken out back, bent over and beat ugly.  You may never know.   Each situation requires a health dose of Sherlock Holmes.Just remember, before you decide to fight the price increase, understand what the battle will cost you in things other than money (time, quality, relationships and the like, which, in the end will eventually cost you money).  Sometimes it’s better to pay more and get less and sometimes it’s worth it to fight to the death.