"China Wasn’t Working"
Lulled by a history of success, the leader in an appliances industry was in danger of falling behind.

Its European and U.S. competitors had begun to switch their sourcing operations towards China as much as 10 years ago, but its own China sourcing efforts were a shambles. A single representative was based in China and was cut off from the head office.

Frustrated suppliers were tired of 6 month delays in sample testing and subsequent failure reports sent in a foreign language. The only technical component that ever qualified was replaced by a successor part before the pilot production run started.

The home office was convinced that "China wasn‘t working".

Stage 1. Kick-starting the Process
A change of ownership led to a new management team that realized that they needed to quickly correct their problems with global sourcing, and they decided to focus on China. Within 3 weeks, they sent suppliers - both old ones and some new candidates - a request for quotation (RFQ) for the twenty most important parts matched to their product range and an invitation from the CEO to the first "supplier day" in Shanghai.

The local McKinsey team did the necessary market research, identified and interviewed qualified suppliers, and helped organized "supplier day." As a result, more than 100 supplier representatives listened to the new deal proposed by the CEO and the heads of several departments, including R&D, quality assurance, and procurement. The plan was to raise the share of China sourcing volume from less than 1 percent to 30 percent of total volume within 3 years, install technical and quality support on the ground, and build up a competent local procurement team.

Stage 2. Meeting the Suppliers
Two groups of buyers and engineers accompanied the management team on a visit to 20 suppliers in 1 week, presenting samples, answering questions about the RFQs, and convincing themselves of the capabilities of the Chinese suppliers. McKinsey meanwhile worked with top management to locate qualified candidates and helped interview five executive candidates for the new position of Director of Asia Sourcing. The client hired the one with the most experience in their industry.

Stage 3. Handling the Most Important Tasks
Since it could take up to 6 weeks for the director to start, waiting was not an option. Time was critical. The local McKinsey group came together with the client teams and immediately set out to work on three important tasks: First, it had to follow up on the RFQs, conduct the first rounds of negotiations, and award tool orders; second, it had to establish efficient auditing, testing, and inspection processes with the suppliers; and third, it had to attract more talent to the team. These tasks were only achievable thanks to constant interaction with the head office.

Within 6 weeks of the end of "supplier day", the first tool orders were signed. Savings had already averaged more than 40 percent. The local team had grown from one person to five highly-qualified people and were interviewing more, reflecting a constant focus on recruiting by top management.

Stage 4. Growing by Bounds
The success of the first wave of negotiations led to RFQ volume increasing rapidly. Six months after the project started, the first mass produced parts were being shipped to Europe.

Since then, more than 10 percent of total production material volume has been placed with Chinese suppliers, more than 300 tool orders have been signed, and the new organization in Shanghai and Shenzhen employs 15 people.