Sourcing in China: Best Practices for Medical Device Companies
By Kandace Nguyen Fu, Senior Vice President of Pacific Bridge Medical
In the past ten years, China has become a leading manufacturing center for medical devices and components. With the potential for lower overhead and labor costs, steadily increasing production capabilities, and rapidly growing demand for healthcare products in the local Chinese market, it is easy to see why China may be an attractive site for your sourcing and manufacturing needs. However, the risks and hurdles that are commonly associated with Chinese factories—poor quality management, intellectual property theft, and differences in language and business culture—can make sourcing in China a complex and daunting prospect as well.
To provide tips on how to avoid common risks and ensure the success of your China sourcing ventures, Pacific Bridge Medical (PBM)’s blog series, Sourcing in China: Best Practices for Medical Device Companies, will outline the sourcing process and provide tips for effective “best practices”, along with illustrative examples from sourcing projects we have assisted clients with in the past. The blog series will cover the following topics:
- Phase 1 – Supplier Search
- Phase 2 – Contract Negotiation
- Phase 3 – Purchase Order
- Phase 4 – Customs Requirements
- Phase 5 – Quality Inspections
- Phase 6 – Long-term Supplier Relations
The first blog in this series discusses the process of identifying qualified suppliers that you can trust with the production of your medical device products.
Finding and Qualifying Chinese Medical Device Suppliers
Searching for suppliers in China is a challenging task, and extensive due diligence is necessary to ensure that you find a capable and trustworthy manufacturer for your medical products. Many medical companies have been unsuccessful with their initial ventures into China sourcing and have found it challenging to increase their production units because of the limited availability of qualified suppliers. However, investing the time and effort to find a reliable supplier from the beginning will minimize the likelihood of troublesome quality issues and other problems down the road.
To start off the supplier search process, you can look into potential suppliers online and evaluate their company website or their profile page on Alibaba.com—a Chinese e-commerce company that directly connects manufacturers in China to buyers all over the world. A reputable manufacturer’s Alibaba profile should include abundant details about the company, such as the number of employees in each department, the company’s production capacity, trade capacity, quality management process, photos of the facilities and equipment, and more. From this information, you can form a general impression of each company and come up with a list of manufacturers that look promising. You should then contact these companies to ask for more information about their products as well as scans of their certifications, licenses, and other relevant documents.
No matter how carefully you carry out these initial steps, there is always the possibility that some Chinese companies will provide fraudulent information online or over the phone. Therefore, it is crucial to have a representative on the ground in China to visit the manufacturing sites and verify the Chinese supplier’s claims in person. An extensive assessment must be conducted, which includes gathering detailed information regarding the company’s employees, manufacturing equipment and facilities, warehouse, products, export markets, annual revenue, regulatory certifications, and past experience with exporting to international customers. The results of this assessment should determine whether the supplier is the most suitable for your particular medical product. In addition, you should pay attention to whether the company’s staff can speak English and are properly trained professionals.
Changing suppliers later on due to problems that arise, as opposed to completing a thorough assessment from the start, can easily cause issues that consequently disrupt production. Therefore, even if the number of units being sourced from a certain supplier is relatively low in volume, it is still imperative to conduct an on-site evaluation of each and every manufacturer. In addition, another characteristic that distinguishes successful medical companies from others is the experience level of their on-the-ground staff in China. Qualifying and developing suppliers while integrating them into the product development process requires specific skills and experience, both from a cultural and technical perspective.
Case Study: Trading Companies vs. Manufacturers
A common problem that we have come across in China is that trading companies will often mask themselves as manufacturers despite not actually possessing any manufacturing capabilities. Unbeknownst to the overseas buyer, the trading company will act as a secret “middleman” between the buyer and the real manufacturer, and charge a higher price to the buyer so that they can keep the profits for themselves.
In one case, PBM was helping a client to source various syringe products from a Chinese manufacturer. At the time, the client was working with a company (Company A) that claimed to be the manufacturer of certain syringe products; however, a visit to Company A’s offices revealed that they had no manufacturing equipment. In addition, Company A’s representatives did not have business cards with the correct company name and seemed to be unfamiliar with the product details and production process. Through this visit, we discovered that Company A was actually a trading company that was outsourcing production to the actual syringe manufacturer (Company B).
PBM’s China team tried to call Company B, but the representatives who answered the phone would only refer callers to the various trading companies that they worked with. Oftentimes, these representatives are low-level employees who are not in charge of customer accounts and cannot answer detailed questions regarding the products. We were only able to confirm Company B’s identity by visiting their manufacturing facility. After meeting with the senior staff and asking in-depth questions about the product designs and quality, our China team was finally able to verify that Company B was the real manufacturer of our client’s products, not Company A.
After re-evaluating and confirming Company B’s production capabilities, our China team helped our client establish a direct relationship with Company B. By working with the manufacturer directly rather than through a trading company, they were able to cut out the hidden middleman costs. This example illustrates the importance of conducting thorough checks before entering into a contract with a Chinese company. The situation with the trading company could have been avoided if proper due diligence and an on-site assessment was conducted in the first place.
Tune in to next week’s blog on phase 2 of the sourcing process: negotiating contract terms with your Chinese supplier!