True Cost & Associated Problems – Are They Worth It?

The other day I was visiting a customer, and he told me something very interesting about the way he sources parts, and from where.

He told me that he much prefers sourcing parts from the U.S., but he feels a great deal of pricing pressure from his competitors.  He knows that they, his competitors, are getting some of their parts that they buy from China.  So he feels that he should source some of his parts from Chinese sources and try to save money in so doing.

He sources about $10 million per year in parts, and of that about $2 million (20%) are from Chinese sources.  Now this customer of ours is a wonderful gentleman, very kind and gracious, and he really did feel personally bad about that.  But I told him that I fully understood and he needed to do what he felt that he needed to do.  And we continued with our conversation.

Later as we chatted he told me about a weekly meeting that he has with all his Department Heads, Buyers, Operations Managers, etc.  They talk about operations and each week they specifically talk about problems with components – particularly with components that they have outsourced from other companies.  And he admitted that, in this meeting, 90% of all their problems with incoming outsourced parts are from parts that they have brought in from China.  I was so surprised that I clarified with him to make sure I understood – these parts from China represent only 20% of your incoming volume, and yet they represent 90% of the issues, problems, rework, etc. that you & your managers have to deal with.  Yes, that is what he told me.

I asked about how he was able to deal with these issues, these non-conformances, etc. when China is so far away and any rework or resolution would take so long in transit.  He said that they, at their facility, with their personnel, have had to set up a rework operation to correct/fix all of these problems internally with these parts that they receive.  Really?  I was incredulous.  And I think he could see that, and he was a little embarrassed by what he had just admitted to me.  I did not push further as I did not want to embarrass him, but I still had many more questions that I would have loved to have asked.  Who pays for this rework?  If they are able to do it, are they able to charge their rework time & materials back to the manufacturer who provided parts that were not to print?  Has he ever really “gotten his hands around” the true costs associated with his people doing all of this rework on these incoming parts?  Is he confident that he really has the “true cost” attributed to these parts that are causing such consternation & effort within his company?  I just left those questions unanswered.

Bill Remes

Vice President, Sales & Marketing, AmeriStar Manufacturing Inc.

Providing Metal Stamping (Short and Long Run), CNC Machining, Sheet Metal Fabrication, Assembly, Welding, Metal Finishing, Laser and Waterjet Cutting

Website:  www.ameristarmfg.com

Email:  BillR@ameristarmfg.com

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