You might have heard recently how rising wages in China are eroding the cost savings which can be made by manufacturing in China. When it comes to pricing, the opportunity gap between China and Europe seems to be getting smaller as Chinese wages increase. This, coupled with the perceived headaches of dealing with Chinese suppliers – slower lead times, communication issues, quality control – can all make sourcing production in Europe seem more appealing.
However, unit cost is not the only measure to consider. Any business looking to outsource manufacturing needs to consider the true cost.
What is true cost?
Working out the true cost of production is not just about finding the lowest unit price. Understanding true cost means considering all the relevant factors which come into play in a truly global supply chain.
The cheaper labour on which the Chinese model is built is only one of a range of variables contributing to true cost. Even though this has fluctuated, (and will probably continue to change) businesses also need to weigh up the cost of raw materials, speed of production, quality, time to market and service levels in order to see the full picture.
China still leads the way
Taking all these factors into consideration, sourcing manufacturing in China can still be 50% cheaper than in Eastern Europe. As experts in lean supply, LeanPie’s team are very experienced in dealing with Chinese factories. With LeanPie engineers on the ground in China, we’re able to see exactly how China is remaining competitive when it comes to production:
Keeping costs low
With manufacturing production in China increasing by 5.3% in April this year vs last year, productivity is high. Along with this increase in productivity comes an improved level of overall management, and an increase in technical skillsets. Add to the mix lower material costs than found in Europe, and you have all the ingredients to keep prices low and standards high.
LeanPie are completely transparent about passing on these low costs to our customers. Our unique position allows us to maintain a database on all factors influencing costs. This in-depth understanding ensures a strong negotiating position directly with Chinese factories, which can be a huge barrier to entry for companies without the on-the-ground knowledge. Our unique transparent, open book pricing allows our customers complete peace of mind that they are getting the best price possible.
The already well-established manufacturing infrastructure in China is constantly evolving and improving. With a network of specialised factories, and a skilled workforce eager to do business, China can offer exceptionally high service levels. This is in contrast to Eastern Europe, where networks and efficiencies may not be always as streamlined or mature.
LeanPie are able to add further value to these already high service levels too. With all our quality control undertaken on the ground by qualified engineers, we’re able to ensure exceptional standards and streamlined project management for our customers.
Speed and quality
As China is so far away, lead times have in the past been a deal-breaker for some businesses. Shipping and transit holdups cause headaches, and ultimately cost a business sales. For some businesses, manufacturing in Europe seems (on the surface) to be the simpler solution. However, this approach doesn’t take into account the true cost savings to be found from China.
With unrivalled manufacturing lead times, and an extremely reactive and skilled workforce, the Chinese model can still deliver a lower true cost of production than European equivalents. The China Express railway is cutting shipping times from the 40-day maritime shipping standard to around 18 days, opening up huge possibilities for faster deliveries at lower cost.
Getting started in China
Lots of people are daunted by the thought of using China for lean supply. The distance, language barrier and perceived complexity can seem overwhelming, not to mention the difficulties in benchmarking or understanding costs.
Here’s where LeanPie can help. Our business model is built on complete cost transparency. We’re skilled and experienced in dealing with Chinese manufacturers, and we pass this value on to our customers directly. Our lean way of working means no hidden or unnecessary costs, and communications both ways are efficient and fast.
We’ll tell you which factory we use, the factory cost, our margins, but most importantly how to ensure the true cost of what you need is as low as it can be. It’s this engaging, direct, open and honest approach which makes LeanPie the best choice for anyone looking for lean and transparent supply chain and manufacturing.
Want to find out more about what we can do for your business? Get in touch for a chat today.