Sourcing Medical Devices in China: Long-term Supplier Relations

Sourcing in China: Best Practices for Medical Device Companies

By Kandace Nguyen Fu, Senior Vice President of Pacific Bridge Medical

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. Start reading from the beginning of the series at Phase 1 – Supplier Search, or navigate to other topics through the links below:

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 sixth blog in this series discusses the importance of frequent communication with your Chinese suppliers and the continuous reevaluation of the value of your China sourcing activities.

Maintaining Supplier Relations

When working with Chinese suppliers, it is essential to enforce and enhance transparency in order to maintain fruitful relationships. Transparency requires constant and direct communication between the buyer (or their agent/consultant) and the supplier, and includes the sharing of tremendous amounts of information related to product specifications (and specification changes), product quality expectations, purchase order status, and pricing expectations. Oftentimes, a sophisticated file sharing system that provides both parties with access to information and materials in a timely manner is necessary to facilitate effective communication across cross-functional departments. By maintaining regular contact with the supplier, buyers can expedite the production process and ensure that potential problems are avoided or resolved before they turn into costly, time-consuming issues.

Even if a supplier has proven to be competent and reliable, continuously evaluating the value of individual sourcing activities with each supplier is still crucial. Companies sourcing from China should regularly consider and assess the following questions:

What actions do we need to take internally to improve our China sourcing practices?
What preventative measures should be taken to eliminate or reduce supply chain risks?
Does leveraging China sourcing place us ahead of our competitors in both product quality as well as pricing?

At PBM, we routinely use our 28 years of experience to connect our clients with qualified Chinese suppliers—yet some of our most difficult projects involve helping clients who have found themselves bound to unreliable, incompetent suppliers. Buyers can avoid many potential problems simply by finding the right suppliers and being diligent in managing and communicating with their suppliers. This requires employing a capable team with the necessary experience, language capabilities, familiarity with local business practices, and on-the-ground presence. Under no circumstances should there be a substitute for establishing a professional on-the-ground team in China that is dedicated to supplier relationship management and quality assurance.

With the advantages of sourcing from China becoming increasingly robust, it is only inevitable for medical companies to look towards China sourcing initiatives. If conducted with the proper care and attention to the points discussed in this blog series, sourcing medical devices and equipment in China can prove to be a very rewarding venture for your company.

Case Study: Establishing Direct Communication with Suppliers

Background

Our client was working with a trading company in China to source medical wipes from a Chinese supplier (Company A). Our client did not correspond directly with the supplier, and instead let the Chinese trading company handle all supplier communication. At one point, Company A stopped producing the wipes and outsourced the manufacturing to another Chinese company (Company B) without informing our client. Our client was not made aware of this change until over two years later, when they hired PBM to reevaluate their China supply chain processes.

Action Taken

While assessing our client’s Chinese suppliers, PBM’s China team conducted an on-site visit at Company A’s manufacturing facility. During our visit, it became clear that Company A was not producing any medical wipes, since they no longer had the equipment to do so. PBM undertook an extensive investigation that involved reviewing inventory in Company A’s warehouse, where we discovered boxes of medical wipes that indicated Company B’s name on the outside packaging. Thus, we were able to trace the production of the medical wipe products to Company B.

PBM also learned from the investigation that the reason the original supplier began outsourcing the manufacturing of the medical wipes was because the product line was not making money for them. Company A happened to have a close personal relationship with a smaller company, Company B, who found this business to be profitable, so they transferred the manufacturing work to Company B without our client’s approval.

Results

Because our client never corresponded directly with their suppliers, they were completely oblivious to the fact that their wipes were being manufactured by a different company for over two years. PBM recommended our client to dissolve their relationship with the trading company and instead work directly with all their suppliers, thus cutting out the “middleman” fee that the trading company was pocketing and facilitating transparent communication with the suppliers. By establishing a direct relationship with the suppliers, it was much easier for our client to address any quality issues and manage the manufacturing process to make sure that all production requirements are met.

This example illustrates the importance of maintaining regular communication with your suppliers as well as an on-the-ground presence at the manufacturing facilities. Even after finding and signing a contract with a Chinese supplier, you must remain diligent and be aware of your supplier’s activities.