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5 China Production Cost Control Tips (for OEM Manufacturing)

August 21, 2017

 by Renaud Anjoran

original equipment manufacturer

This article will help you avoid some VERY common mistakes that have an impact on OEM manufacturing production cost, quality, and/or timelines...

Do you work with Chinese manufacturer(s) to develop and make new-to-the-world products? Maybe you operate a factory, and you need special parts or sub assemblies to be custom-made by a supplier, or you purchase finished goods from a factory. 

In those cases, there are 5 things you need to be aware of:


1. Get correct quotations for the right tooling

Process control: get correct quotations for the right tooling

We have worked on many projects where the tooling was not correctly specified and not accurately quoted (not to mention poorly executed, but that’s another topic).

Here are the three most common pitfalls to avoid:

  • Forget to include tooling in the initial quotation, only to see it added later on;
  • Failing to ensure it will last more than a few thousand pieces in case you need much more than that;
  • Failing to ensure it can make a sufficient number of parts per day.

The production cost overruns can be quite severe. A few years ago we helped a manufacturer of car engine parts that couldn’t deliver in time due to capacity issues. They had to fly all their production to their assembly plant in the US. Their pieces were large and heavy, and it cost them tens of thousands of dollars a week! We had to re-think and change some of the toolings as fast as possible.


2. Make sure the factory does all the product & process engineering in time

You feel that the design and development of the product are close to being finalized, and the Chinese factory says they can launch production soon?

Is it a new product? If so, watch out for unexpected delays. They should start all the NPI (New Product Introduction / PPAP) work right now, rather than waiting for when the time production is supposed to start.

It's already August, and you will miss the Christmas season if you are launching a relatively complex consumer product and the NPI process is not already well under way. Keep in mind; it has to be produced and shipped out in October!


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3. Don't pay for more inventory than is needed

Process control- Don't pay for more inventory than is needed

Chinese suppliers often push their customers to place large orders, and justify it with the need to respect material suppliers’ MOQs. The customer is expected to wire an advance payment that is proportional to the total value of the first order. High risk!

Who knows if this factory will go all the way through and deliver excellent products to you in time and without requesting a price increase?

Well, let’s assume you already know them and this is not an issue.

Is this good for your business? Clearly not. It depletes your cash flow. And it creates the wrong incentives. The supplier will focus on extracting the best “deal” from the sub-suppliers. The larger batch will take longer to be made and to be delivered for further processing. If there are quality issues, getting compensated by the sub-supplier might be impossible, and it will be a large problem.

One of the most important production cost control tips is to buy only what is actually needed at the start of production.
There is seldom a need to pay hundreds of thousands of dollars upfront.


4. Don’t ever skip the pilot run

As I noted before in this article about pilot runs, we have observed a general truth about the manufacturing of new products:

No pilot run = high probability of quality issues and efficiency problems in the first production batch.

The factory might tell you they can do it easily. But they tend to be over-optimistic. Do not take risks here. Insist on a real pilot run.

And make sure they have the right process engineering resources to troubleshoot issues – there WILL be issues. Hopefully, they use good problem-solving tools.

Now, if the factory can show you a process control plan that makes a lot of sense, and if they have manufactured very similar products in the past, a pilot run might be overkill.


5. Manage the project plan proactively

Has the manufacturer given you detailed planning that includes all the important steps necessary to get your product out of their facility? If not, any reassurance they give you about timing has to be taken with a grain of salt.

We have found that fewer than 5% of Chinese plants have a documented planning system that is detailed at the level of each product. Don't expect your supplier to have one…

Do you feel we are asking for too much? Some buyers do none of that and work with unsophisticated manufacturers, and tend to think this comes straight out of ‘Alice in Wonderland’.

However, some other buyers do all that and much more. They work in industries where the cost of quality issues and/or late deliveries far exceeds the cost of doing the non-recurring engineering work and running a pilot batch before production. In what situation is your company? What are you struggling with? What OEM manufacturing tips or experiences can you share?

Download our free ebook '14 Mistake Proofing Examples to Improve Quality at Virtually No Cost'

Topics: Cost Reduction, OEM Manufacturing

Renaud Anjoran

Renaud Anjoran

15 years experience in China.
Partner, China Manufacturing Consultants.
Worked with hundreds of factories in China.
Certifications: ASQ CQE & CRE; ISO 9001 & 14001 lead auditor.
Author of well-read blog, Quality Inspection Tips.

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