Metals Parts: Assured quality critical in global sourcing
Sometimes a cost-benefit analysis will steer you away from suppliers in certain regions, says a veteran buyer. That's because the cost of quality for foreign-made parts may be the same or more than domestic supply.
By Tom Stundza -- Purchasing, 8/16/2007 2:00:00 AM
Quality continues to be the Achilles' heel in the low-cost country sourcing of metal forgings, castings, stampings and fabricated parts—especially for small- to medium-sized metalworking companies that can't afford their own international procurement offices. In fact, "when it comes to buying metal parts offshore, constant vigilance is essential," says Mark Zakrzewski, the global sourcing director for C-Tech Industries, a manufacturer of industrial high-pressure cleaning equipment in Camas, Wash.
The level of required product-quality diligence tends to vary, depending on the country of origin and the manufacturing sophistication of the supplier company, says the veteran buyer, who insists "there's no such thing as quality being a given when buying from foreign sources."
Zakrzewski buys up to $2 million annually just in foreign-origin machined metals parts used to fabricate high-pressure washers and water-treatment systems made at five plants in the U.S. and Europe. Like many other procurement professionals, he is relying on low-cost country sourcing to help counteract persistent commodity price inflation. However, Zakrzewski also is a vocal proponent of what he calls "inspecting-in quality" when sourcing metal parts in regions outside of the U.S. and Canada.
A wide range of original equipment manufacturers (OEMs) all show a marked increase in sourcing from low-cost countries, according to the Procurement Strategy Council of Washington, D.C. The council's members say their primary motivation is lower material and parts costs. In fact, various researchers have estimated a 15% cost saving for offshore sourcing of metal castings, forgings and stampings.
However, "the lower prices obtained in emerging markets often are offset by increased costs and performance issues that moderate the net benefits that companies actually achieve," according to a Procurement Strategy Council report. Zakrzewski says that's because buyers soon discover hidden costs of freight, insurance, extended leadtimes, increased inventories, warehousing costs, communication delays, re-engineering of problem parts or design changes and "overall purchasing management costs in the face of supply chain inefficiencies."
Purchasing consultants have suggested that North American firms buying from foreign suppliers must consider such additional costs factors as import/export duties for particular commodities and fabricated parts, value-added taxes on exports and shipping regulations and fees.
The Supply Chain Executive Board in Washington agrees that when sourcing in emerging markets "procurement organizations cannot rely on traditional supplier qualification, quality control, risk management practices and assured delivery systems." That's why many procurement groups must adopt new approaches to contend with uneven supplier maturity and unreliable information about the supply base.
It's not so easy, says Zakrzewski, to ensure an offshore market intelligence structure that understands and integrates the parent company's factory requirements with foreign suppliers' market knowledge and product capabilities. "That's tough to handle," he says, and it makes it equally difficult to engage with offshore suppliers in cost-improvement and develop purchasing/supplier new-product development projects."
Surveys of buyers by Purchasing consistently show an average 90% sourcing at least some manufacturing and construction raw materials from foreign suppliers. But it appears that the rate of growth in offshore purchases has stalled: Census Bureau data shows the pace of expansion in the value of metal parts over the past three years only matches the rate of metals inflation.
Over time, metals parts buyers have complained about being burned when sourcing parts from offshore by having brokers move the jobs around, overloading good suppliers with too many orders or losing control of designs and/or tooling. "That's because quality simply isn't a given for metal parts bought offshore," says Zakrzewski, who has purchased steel, aluminum, copper and brass parts for several companies from fabricators in India, China, Mexico and various nations in Europe. And that's why he and other parts buyers interviewed say that they won't pay for purchased metal parts until they have passed quality tests.
For example, Zakrzewski agrees with Dennis Ledgerwood, the vice president of global sourcing for Jakel, the maker of subfractional motors and air-moving blowers based in Aurora, Mo., that offshore buying turns purchasing into a manager of quality control specification management. Identify quality and coordinate sourcing. Ledgerwood, who coordinates sourcing in China and Mexico, insists that "buying quality and managing inventory" are more important tasks than price savings when sourcing offshore.
The Supply Chain Executive Board worked with another organization recently to poll members this spring about the expected cost advantages of sourcing in China in future years. Interestingly, the survey participants believe China's metal parts makers will be forced to boost prices due to rising wage rates and materials' inflation in coming years. The buyers also believe Chinese suppliers will lose competitiveness ahead due to higher quality demands and a lack of innovation capabilities.
 Zakrzewski: “Without dilligent oversight, the quality tends to drop off.” |
And that may explain why there has been a wave this decade of third-party outsourcing specialists being used by manufacturing firms that are too small to afford company-dedicated offshore procurement and inspection operations. This doesn't surprise Zakrzewski, who has been buying offshore for a quarter century and says somewhat cynically that "the mistake a lot of U.S. manufacturing firms make is to assume that an ISO certification in places like China means something."
He and other buyers interviewed contend that parts makers in many offshore plants that don't have direct connections to the automotive, aerospace or electronics industries won't commit to ISO quality programs. "The prices are good but the quality stinks on key metal parts from China," he says, "simply because there are no industry-wide quality programs." What annoys him, he says, is that "when dealing with new suppliers, the first couple of shipments are good and match the samples and specifications sent to them earlier; but, without diligent oversight, the quality tends to drop off."
Zakrzewski, for example, says his small staff hired third-party purchasing and quality coordinators to identify suppliers, coordinate offshore auctions and handle inspections—no matter where the parts are produced. "We have our people identify and qualify at least five or six suppliers capable of bidding on our jobs," he says, "but also cautions that even with third party-personnel in place, corporate visits and testing sometimes are required."
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