3 Challenges Ahead For China Procurement Offices

Procurement offices (also called buy offices or offices supply) of medium to large companies that import from China all seem to be under intense pressure. Many are restructuring, slimming or otherwise internalize the functions that had been subcontracted by changing its operating model, which extends geographically, and so on.

 

I observed three main challenges listed below.

1. The Extreme Pressure On Costs

In many cases, to preserve the economic viability of the entire company, the total landed cost of goods must stop rising. And who becomes responsible for achieving that goal? Purchasing staff.

I see three ways to keep costs down:

Internally, focusing on the efficiency of the procurement organization. Many companies adopt or change to a new system that promises ERP automate many repetitive tasks - not to mention, to reduce the temptation for buyers to extort bribes on the side.

Overall, seeing the whole supply chain and focus on areas with large potential savings.

2. The Need To Explore Other Supply Markets

A solution to reduce costs is to move production to other Asian countries such as Vietnam or Indonesia. Some manufacturers are establishing operations there even though the majority of sub-suppliers are in China. In some cases it can work well.

For example, I know of a European appliance manufacturer is seriously considering moving its operations from China to Vietnam in an effort to contain costs. The key to success is to keep its dependence on China when it comes to buying components. Its aim is to become more vertically integrated.

Another solution is "sourcing close", ie, Turkey, Romania and Poland to Western Europe; Mexico and some other countries in Latin America to North America. In most product categories to see these countries as the real competition from China.

The difficulty is usually no equivalent to the Canton Fair in those countries. Time and effort to find potential suppliers is needed. And that's just the beginning ...

3. Adjustment "Way Of Doing Business" To Supply These New Markets

An executive who works in the purchasing office of a large British retailer said that culture shock was stronger when they opened their offices in Poland when it opened in mainland China (after they had already operated an office in Hong Kong a number of years).

The truth is that many "types who buy China", which are used to working with Chinese suppliers, are now having to change their assumptions and habits. Here are a couple of examples:

    When buying certain wood products in Europe, do not try to agree on tolerances and limits AQL. Many farmers do not even understand.

    When applying for certificates of laboratory tests, be sure to contact abundance suppliers who are not in Asia. They cannot understand this requirement. In their minds may not be mandatory.

Medical Device And Pharmaceutical Quality Compliance In China

As one of the fastest growing medical markets in the world, China offers great opportunities for sourcing and manufacturing for foreign medical companies. However, due diligence and appropriate quality standards are key factors you should consider when considering the supply or manufacture in China. Excellent quality systems that comply with the FDA and international standards are needed to sell your medical products manufactured in China-West.
Quality assurance of medical devices products in China

  

  The Food and Drug Administration of China (CFDA) issued various application of Good Manufacturing Practice Regulations (GMP) standards for all medical devices, a stricter adverse events and the system, and other new standards of industry recalls. In addition to the CFDA, the General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) also addresses the security registration, certification and inspection of certain medical devices to ensure the quality.

    However, despite the improvement of standards and the implementation of the GMP regulations for medical devices in China, there are still scandals defective products because of bad quality systems. Foreign companies will carry out checks to ensure that their Chinese operations or partners are performing to the standards expected.

Challenges to meet the GMP standards in China

    In some Chinese factories, there is no organized or centralized quality manuals that employees can easily access.

    Accordingly, the quality control in factories may be minimal. Extensive checks can help locate areas that are deficient and update quality systems to meet Western standards.

    There may be poor control of documents and reports of inconsistency in Chinese factories.

    In some plants, if procedures change, the changes are usually not documented. When a device is reported as having failed, some factories do not investigate or report adverse effects. Having audited the plant can also help identify post-market surveillance issues and establish reporting systems for adverse events.

    Even after a plant is GMP compliant and a good quality system for medical devices China is implemented, problems still arise if employees are not invested in the process.

    It is essential that persons employed by maintenance plant maintenance required to ensure an effective quality system. Many do not understand (or care about) the poor quality control of branches and theft of intellectual property. Supplier audit can assist in employee training.

Quality assurance for pharmaceutical products in China

    All Chinese drug makers also require good manufacturing practices (GMP) certification. This includes in vitro diagnostic reagents manufacturers, medical gases and drugs for traditional Chinese medicine (TCM). However, foreign manufacturers should note that Chinese GMP does not match the United States FDA GMP.

    China Food and Drug Administration (CFDA) are generally not conducted physical inspections of drug manufacturing sites located outside of China. However, they have been training Chinese inspectors at foreign standards and practices. The CFDA may begin inspections of overseas plants within a few years.

Experts from China Pacific quality medical Bridge can advise on ensuring that your Chinese suppliers and manufacturing facilities are in compliance with the US FDA and international quality standards, and internal regulatory requirements of your business. In addition, we can perform audits of your Chinese pharmaceutical suppliers and manufacturing facilities in China.

China Junk Bonds Pose Most Risk Since ’04 on Credit-Quality Dips

Investors in Chinese junk bonds take the biggest gamble in at least a decade.

Lever to junk status of Chinese enterprises is at its highest since at least 2004, whether measured by gains on interest costs or total debt to a measure of cash flow, according to data compiled by Bloomberg using an index Bank of America Merrill Lynch. Borrowers have also piled on more debt relative to their assets since 2007.

The deterioration in the credit quality coincides with the lowest annual growth since 1990, Asia's largest economy, and helps explain why Fitch Ratings Ltd. predicted default will climb. It's bad timing for bond investors who swallowed a record $ 209.2 billion Chinese society Notes denominated in either dollars, euros or yen last year, Bloomberg data show.

"The Chinese credit cycle has peaked," said Hong Kong-based Arthur Lau, the fixed income head for Asia ex-Japan at PineBridge Investments Asia Ltd., which manages $ 35.3 billion debt worldwide. "Corporate profits are generally negative and investors are preparing for a deterioration in action."

The typical high-yield corporate China earned an average of 2.7 times the interest they paid in 2014 and has approximately 35.5 times more debt than their annual operating income, according to data compiled by Bloomberg from the data of the index Bank of America Merrill Lynch. The average debt taken by the 65 companies in the index climbed to 34.3 percent of assets.

Jump Payments:

Over the past month, developer Kaisa Group Holdings Ltd. and coking coal importer Winsway Enterprises Holdings Ltd. both missed payments of bond coupons, and Sound Global Ltd. Water Treatment Company potential audit issues reported. Hotpot restaurant firm become cloud Live Internet Technology Group Co. also became the second-defaulting debt still onshore in China after failing to
repay the Noteholders.

China's debt has exploded amid soaring bad loans and declining industrial profits. Overall social financing, credit measure covering traditional sheet and off-balance sheet loans, increased to double the gross domestic product of China at the end of December. While that is below the peaks reached earlier last year, it is close to the highest since Bloomberg began tracking the data in 2003.

"When credit is growing so fast, it's normally a strong misallocation of capital signs have occurred," Sander Bus, head of high-yield loans, and Victor Verberk, investment-grade credit of the head, the manager Dutch Robeco Groep NV, wrote in April 1 10 E-mail.

Downgrades:

"We would not be surprised if China and some other emerging countries that face similar increases in the debt turns out to be the location of the third episode of the global financial crisis, after the United States and Europe," they write. Robeco had about 246 billion euros ($ 260 billion) in assets at the end of 2014.Moody's Investors Service lowered the ratings of Chinese companies rated unwanted 11 times in the first three months of 2015 and updated once, Bloomberg data show. The report is the worst since at least 2006.

"There are two reasons for deterioration, one is that companies take too much debt and the other is that the operating environment is deteriorating," said Joep Huntjens, head of Asian debt Dutch NN Group NV, which was about $ 197 billion under management at December 31. "What is happening in China is this, many companies suffer from excess capacity."

Prospect Stimulation:

Moody's said on March 11 that 5.1 percent of high-yield corporate brand in China she had missed in 2014. The number of defaults increased to five in 2014, two in 2013, pushing the default rate of leakage 12 High Yield months for Asia nonfinancial businesses to 3.9 percent, against 2.2 percent the previous year.The rating company lowered Yingde Gases Group Co. by a step to Ba3 January 27, citing challenges in low steel industry. The ratio of debt to assets Yingde increased by 53.6 percent at the end of the year from 49.7 percent in 2013.

While corporate profits "will not be this nice over the next six months," Nikko Asset Management Ltd is more positive on high yield bonds because China can strengthen its monetary and fiscal stimulus, according bonds high efficiency, a Singapore-based manager Wai Hoong Leong. People's Bank of China Governor Zhou Xiaochuan said in a speech last month, there is still room for action for monetary policy then Premier Li Keqiang, which set a target of around 7 percent against 7 4 percent last year 2015 growth is committed to take action if the expansion slows toward the lower end of this range.

Does Your Supplier Use Sub-Suppliers?

It has an inspection of the product that has revealed a problem with a component or material of your product that is not made by your provider? Does your provider using sub-suppliers for their goods?

When ordering a factory, we all like to think that the factory will make the entire article. We like to think that the same factory is the quality management of each process to ensure the item is made to our specifications.

 

The reality is most manufacturers only have the ability to make a couple of key processes of own manufacture. There may be components that do not have the necessary equipment to produce. And these parts are entrusted to various sub-suppliers. This increases the chances that defects will occur with each additional provider introduced. More processes between different plants mean more handling of your product and a greater chance that quality standards are not met.

How can you know if your ISP uses sub-suppliers?

The key to knowing if your product is made in a single vendor is working on what the team has its factory. This reveals that the components are able to do at home, and what other components that need to outsource. This can be done by yourself in your next visit to China, or to involve a third party to visit the factory and audit their production capacities.

When they are cause for concern Sub-Supplier?

If the factory has the capacity to do most of the major or important components of the house, and only based on the sub-suppliers of non-critical components, then there is not much to worry about.

Take, for example, a furniture factory making upholstered armchairs. It is hoped that the factory has the capacity to make major components such as wooden frame. We can also expect the same factory to be doing the cutting and sewing fabric, plus assembly and packaging of finished products. Do not expect the factory is able also manufacture plastic accessories such as handles.

 

However, if a factory does not have the ability to make key components of the house, this could be detrimental for product quality. In this case, the responsibility for quality management processes falls into a sub-suppliers of which you can have no knowledge.

Having once sent to a "manufacturer" bike audit, we found a factory with only a very basic assembly line, and unable to metalworking at all. In fact, this particular vendor was ordering all components from external suppliers and only the assembly and packaging of the finished product.

This type of situation can be very risky as product quality depends on the production capacities of sub-suppliers we are not in contact. If you have quality problems, it will be very difficult for them have improved in future orders as your provider has no direct control over the materials and components they receive from sub-suppliers.