There is an age old, ok more like several decades old, myth, that all
things from China....and if not China then surely India, are cheaper
and better quality than anything Europe and for that matter Russia can
produce.
The truth of the matter is that this is a well crafted PR illusion that China has nourished for two decades and that most American managers, directors and VPs accept on blind faith. One sr. director of mine would repeat "I can't believe that Russia is cheaper than China" over and over at the start of every weekly meeting, even as we poured resources into establishing Russian suppliers. The facts were right there in front of him and with quite a bit of personal push we were moving in the right direction, but some part of him could no believe it.
He even had other supply chain managers demand that the Chinese forge shops give him the same prices as our Russian suppliers. To his credit, they did. Unfortunately for the company, that only lasted long enough for the company to invest in dies and samples and then the Chinese bumped their prices straight back up.
But why is this so and in what steel goods?
True, in open die forgings, the Chinese are kings and for good reason. Open die forgings are low technology, no engineering efforts pushing out blocks and round bar. You can easily dump minimally trained employees on to these efforts and the equipment does not need to be to high tech.
However, the Chinese quickly loose all advantages when faced with manufacturing details that are complex and thus engineering and machine driven. Closed die forgings, detailed machining, coatings and assemblies are all such items and in all such items, the Chinese are not cost compatible, not if a real analysis is done, and when TCO costing models are used, it gets even worse.
Russian suppliers, in these categories, tend to be 10-40% CHEAPER than the Chinese. Yes, that's not a misprint. No its not 1-4% it is 10-40% and with the ruble devaluation, things have gotten even better.
Furthermore, taking into account TCO (Total Cost of Ownership), things only get worse. Considering that once producing at high quality, Russian manufacturers will remain true to the course and take great pride in manufacturing quality. Chinese suppliers tend to take great pride in maximizing profits and that tends to come at the cost of quality. Any shortcuts even potentially deadly ones will be observed over time with most Chinese suppliers.
We experienced several cases where we were forced to scrap up to half the Chinese production, which was still considered a good buy because of the per piece cost (on paper). Well, dear fellows, when you scrap half, the base price just doubled and that is before you count holding inventory costs, logistics, replacement (usually out of desperation at the highest spot prices) and lost business and contractual fines.
Furthermore, Russia is better placed to service Europe and the US logistically, with shorter routes and thus quicker times, requiring less safety stock to maintain. Russian suppliers get the 18% VAT refunded to them when their production goes to export, another price advantage on the bottom line.
Over all, you just should not argue with reality....but many Western managers just do.
The truth of the matter is that this is a well crafted PR illusion that China has nourished for two decades and that most American managers, directors and VPs accept on blind faith. One sr. director of mine would repeat "I can't believe that Russia is cheaper than China" over and over at the start of every weekly meeting, even as we poured resources into establishing Russian suppliers. The facts were right there in front of him and with quite a bit of personal push we were moving in the right direction, but some part of him could no believe it.
He even had other supply chain managers demand that the Chinese forge shops give him the same prices as our Russian suppliers. To his credit, they did. Unfortunately for the company, that only lasted long enough for the company to invest in dies and samples and then the Chinese bumped their prices straight back up.
But why is this so and in what steel goods?
True, in open die forgings, the Chinese are kings and for good reason. Open die forgings are low technology, no engineering efforts pushing out blocks and round bar. You can easily dump minimally trained employees on to these efforts and the equipment does not need to be to high tech.
However, the Chinese quickly loose all advantages when faced with manufacturing details that are complex and thus engineering and machine driven. Closed die forgings, detailed machining, coatings and assemblies are all such items and in all such items, the Chinese are not cost compatible, not if a real analysis is done, and when TCO costing models are used, it gets even worse.
Russian suppliers, in these categories, tend to be 10-40% CHEAPER than the Chinese. Yes, that's not a misprint. No its not 1-4% it is 10-40% and with the ruble devaluation, things have gotten even better.
Furthermore, taking into account TCO (Total Cost of Ownership), things only get worse. Considering that once producing at high quality, Russian manufacturers will remain true to the course and take great pride in manufacturing quality. Chinese suppliers tend to take great pride in maximizing profits and that tends to come at the cost of quality. Any shortcuts even potentially deadly ones will be observed over time with most Chinese suppliers.
We experienced several cases where we were forced to scrap up to half the Chinese production, which was still considered a good buy because of the per piece cost (on paper). Well, dear fellows, when you scrap half, the base price just doubled and that is before you count holding inventory costs, logistics, replacement (usually out of desperation at the highest spot prices) and lost business and contractual fines.
Furthermore, Russia is better placed to service Europe and the US logistically, with shorter routes and thus quicker times, requiring less safety stock to maintain. Russian suppliers get the 18% VAT refunded to them when their production goes to export, another price advantage on the bottom line.
Over all, you just should not argue with reality....but many Western managers just do.
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