China Manufacturing, Etc.

HERE’S WHAT YOU SHOULD DO ABOUT IT

I’m often asked by foreign factory managers in China how I would handle the various difficult situations that might arise; fake resumes (fire the perpetrator), violence among the workers (fire anyone who throws a punch), sexual harassment (fire the guy who…), etc. But the one questions I get asked most often goes something like this: I can’t prove it, but I suspect my Purchasing Manager is corrupt. What should I do?

And here’s the answer.

First, any sizable factory has some corruption, and the Purchasing Manager is a perennial suspect, regardless of whether or not any evidence of corruption exists. While any corruption is unacceptable, you have to get used to it the way you would cockroaches in your apartment. No matter how much stamping or spraying you do, you will never truly get rid of all the cockroaches and always assume that cockroaches are out there. What you can do is contain the population to a size that allows you to act as if there are no more cockroaches, because you are pretty sure they are not in your bedroom, nor are they in your fridge,  crawling over your food at night. And so it is with corruption in your factory. You cannot really eliminate it, but you can take steps to contain it so that it doesn’t bother you.

(Note, however, that when you can see or prove corruption, you must stamp on it immediately, just as you would a cockroach walking across your kitchen floor. Unlike cockroaches, corrupt employees will feel empowered by your tacit approval.)

Now comes the hard part. You suspect so-and-so’s been taking money from a vendor, but you can’t prove it. You would hate to accuse, and likely lose, an innocent employee. But you just can’t let it go. How can you get the proof you need to take action?

The answer is, that you don’t need proof to take action, nor do you have to accuse anyone. What you need to do is make corruption a bit less profitable and a bit more risky than it has been.

I have two separate strategies, one for major component or material purchasing, and one for the miscellaneious or administrative purchasing. Corruption in the major materials purchasing is more serious, and the efforts to controlling it should be systemic, procedural and on-going.  For the miscellaneous and administrative purchasing, corruption is not usually damaging, but targeting corruption at this low level is easy and it puts the evildoers on notice that what’s below the radar today may not be below the radar tomorrow.

For baseball fans, think of this as a pitcher “dusting off the plate” with a high, inside pitch.

FOR MAJOR COMPONENT OR MATERIAL PURCHASING 

• Ensure that your vendor qualification procedures require sign-off from people in various functions, not just purchasing. Often, engineering, quality and production staff will have a say in new vendor qualification.
• Ensure that your internal procedures require quotes from multiple vendors for major purchased items, and use those alternate vendors to get competitive quotes. Once you’ve gotten a competitive quote from an alternative vendor, let it be known that this is the work expected fo the Purchasing Manager, not the boss. Let your Purchasing manager know that you will now be looking at other large-ticket items, and you expect him or her to start proactively requesting quotes from more alternates.
• Track, over time, your purchasing costs for those items and compare them to the market prices. If it’s commodity whose price fluctuates over time, plot your pricing, along with the market price, on a curves and compare them.
• Set very aggressive cost-reduction targets, incent various people (not just purchasing staff) to hit them. For instance, don’t just reward purchasing staff, but maybe also people in engineering and quality (assuming they are involved in the process).
• Sometimes you can jump in yourself, find a new vendor, and put them into the qualification procedure. If their pricing is competitive, make it known that you expect your Purchasing team to get these types of results.

FOR SMALLER / ADMINISTRATIVE PURCHASING 

• Occasionally, ask probing questions about smaller purchases. Find an excuse to ask detailed information about a specific small vendor. Where are they located? Why choose them?
• For appropriate admin items, direct your staff to buy from large stores such as Wal-Mart, or from large on-line stores that offer legal receipts.
• If not disruptive to your business, guess at one of the vendors you suspect is paying off your staff, and summarily disqualify that vendor and order an alternative be found.

Once again, the goal here not to eliminate unseen corruption, but rather to control it, keeping it as far below the radar as possible.