7 things to note when outsourcing supply chain management to China

7 things to take note of when outsourcing supply chain management to China

Outsourcing supply chain management to China? Watch out for these 7 things

If you are planning to build a team to manage your supply chain, it’s critical that this team contains the right skill sets to effective coordinate Chinese suppliers and execute a global supply chain.

Regardless if you buy 1 USD or 100 Million USD, in addition to product knowledge, at least one team member needs to have solid experience in at least one of the following core functional areas:

  • Supplier research
  • Due diligence
  • Negotiation
  • China business law
  • Tax
  • Quality assurance
  • Logistics
  • Language skills
  • Project management
  • Human resources
  • Government resources

As a rule of thumb, when you are purchasing over 30 million USD per year from China, it may make sense to set up your own sourcing office in China and recruit/manage local talent in-house to cover the above mention functions.

But if you are spending less than 30 million USD, the typical cost-benefit analysis almost always indicates that outsourcing the vendor coordination and supply chain management to a 3rd party (often called a sourcing agent or purchasing agent) makes more sense than setting up your own office and team in China.

On main advantage of outsourcing your manpower and management to a company like PassageMaker, is that you can leverage their China-based infrastructure (China-savvy management, SOP’s, business templates, quality systems, office space & business licensing) to recruit, employ, train & manage a dedicated team of sourcing professionals responsible for coordinating the client’s supply chain.

It’s pretty easy to find a service provider in China to provide manpower, but most providers lack the experience/ skill sets to manage the manpower and look out for the best interests of the client.  The small agents simply don’t have a large enough management team to cover all the bases: Supplier research, Due diligence, Negotiation, China business law, Tax, Quality assurance, Logistics. As a result, critical functions like quality assurance and supplier contract creation get assigned to staff with general sourcing experience.

In the US you would not ask a junior staffer to draft the terms and conditions for a major purchasing agreement. In Europe you would never send an office clerk with no factory experience to audit an ISO quality system.  But that happens all the time in China among the sourcing agents.  Sadly, far too many international companies hire China based agents under the assumption that the agent’s team has the right skill sets.  This is a dangerous assumption.

Here are 7 mission critical items that the vast majority of sourcing agencies don’t have. Their clients aren’t wise enough to ask about these items until it’s too late.

#1: Quality Systems Expertise

PassageMaker’s Product Quality Manual (PQM) documentation conforms to ISO standards and is from an actual project. In order to protect the interests of the client, some information has been removed or adjusted, but the following template is typical of the professional work instructions and inspection criteria used at PassageMaker.

Highlights include:

  • Clear revision management procedures
  • Bi-lingual
  • Total transparency to client regarding identity of sub-suppliers
  • Well defined quality standards, inspection methods and assembly process
  • All internal QC data/ results are made available for client review
  • Unit and lot traceability in terms of Bill of Material (BOM) used, Dates and Personnel involved in the assembly/inspection process

As PassageMaker has clients in quality-sensitive industries such as Automotive, Military and Medical, we have chosen to apply an advanced QC system to all of our projects. This ensures that we always meet or exceed our clients’ expectations in terms of required documentation and QC systems regardless of product type/industry.

#2: Code of Conduct for vendors and staff

For reference, PassageMaker’s comprehensive Code of Conduct covers the following areas:

  • Child Labor
  • Involuntary Labor
  • Disciplinary Practices
  • Non-discrimination
  • Health and Safety
  • Environmental Protection
  • Wages and Benefits
  • Working Hours
  • Freedom of Association
  • Legal Requirements
  • Monitoring of Compliance
  • Corrective Action

#3:  Project Management Software

PassageMaker uses a customized version of ACE project management software with over 100 seats in the system managing over 10,000 tasks.

#4: Written operations manual with robust SOPs, Templates and Checklists

For your reference, PassageMaker lives and breathes the following:

Mission Statement:

With a foundation of trust, transparency, and uncommon courteousness, PassageMaker helps our customers reduce costs, ensure quality and maintain security in China. This is a company-wide commitment.

Code of Ethics:

The four-way test of things we think, say or do

Is it the TRUTH?

Is FAIR to all concerned?


Will it be BENEFICIAL to all concerned?

Creed of Rotary International

Guiding Principles for Management


PassageMaker, as a business model, must:

-Provide consistent value to our customers, employees, shareholders, suppliers, and lenders- beyond what they expect.

-Operate under a comprehensive system rather than be dependent on the skill of individuals.  In other words, create the very best system through which good project managers, researchers and engineers can be leveraged to produce exquisite results.

-Stand out as a place of impeccable order (management/physical appearance/ documentation).

-Carry out all work in accordance with a well-documented Operations Manual.

-Deliver a uniformly predictable service to the customer which is beyond their initial expectation.

“A great business will have a strong mission, great leadership, a competent team of managers who work well together, excellent cash flow and financing, clear and effective sales and marketing communications, systems that work efficiently, clear and tight legal documents and agreements, and of course, a great product.”

#6: Import-Export Licensing, ability to make RMB payments & process VAT rebates

PassageMaker is the first (and perhaps only) medium sized, 100% US-owned, assembly/inspection company in Shenzhen possessing the following:

  • In-house licensed customs brokers
  • Full import-export rights
  • Authorized by the Chinese government to process Value Added Tax (VAT) rebates.

These allow us to avoid all middlemen, protect sensitive documentation (such as identities of buyer and shipping destination) and ensure our pricing to customer receives the maximum amount of VAT rebate possible.

#7: Robust system to register, protect, monitor and enforce Intellectual Property rights (in cases where the client has sensitive information).

Visit here for an inside look at PassageMaker’s system for protecting intellectual property in China.

Unfortunately, there is a lack of professionalism, transparency and experience among these China based agents.  Far too much overpromising and under-delivery.  If you are going to engage an agent to look after your China sourcing, make sure they have the skills, experience and reputation worthy of doing business with you.

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