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back to index backGLOBALtalk March,  2016


How to reduce corruption in your China factory

How do your stamp out corruption in your purchasing department?

You can't! But you can take steps to reduce it until it's insignificant.

5 STEPS TO REDUCING CORRUPTION IN A CHINA FACILITY

I'm often asked how to handle the various difficult situations that might arise while running a Chinese factory; fake resumes, violence among the workers, sexual harassment, customs documentation, quality problems, etc. But the one question I'm most asked goes something like this:

"I can't prove it, but I suspect my purchasing manager is corrupt. What should I do?"

Here’s the answer.

1. Stop waiting for proof! Just act (ethically)

You don't have to wait for evidence of an individual's wrong-doing  and then take action against that individual. You can assume that some amount of corruption is going on with respect to purchasing, and then take actions that make corruption more difficult, riskier and less profitable.

Any sizable factory in China has some corruption, and the purchasing manager is the usual suspect. While any corruption is undesirable-- and overt 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. You will always assume, correctly, that cockroaches are out there. Somewhere. What you can do-- all you can do--  is to contain the population to a size and geography that allows you to to on with your life as if there were no more cockroaches. Once you are pretty sure they are not in your bedroom or your fridge, you're pretty much done until evidence to the contrary arises. As it is with cockroaches in your apartment, so it is with corruption in your factory. You cannot really eliminate it, but you can take steps to contain it so that it remains immaterial.

2. Take action on big-ticket material/component items before you suspect anyone.

To take action, you don't have to prove that anyone is corrupt. In fact, you don't even have to suspect it. For baseball fans, think of this as a pitcher "dusting off the plate" with a high, inside pitch. You have to put in place vendor qualification procedures that let everyone know that you are watching the purchasing decision-making processes-- that you care.

Some things you can do:

- 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 of the purchasing manager, not the boss. Let your purchasing manager know that you will now be looking at other large-ticket items, at random, 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

3. Jump right in.

Sometimes, unexpectedly, you can jump in yourself, find a new vendor for a big-ticket item, and put them through the qualification procedure. If their pricing is competitive, make it known that you expect your Purchasing team to get these types of results without them. Repeat this every once in a while.

4. Make a list.

Once you've made big-ticket corruption a little more difficult and less attractive, move on to smaller or administrative purchases. Of course you don't want to spend too much time on these, so here are some lazy-man's strategies to controlling this kind of corruption.  First, get a list of vendors for all smaller, administrative and facility procurement. Make sure the list includes vendor name, location, and items purchased. For good luck, make sure you have a copy of the business licenses, and some copies of PO's also. You goal is to look for suspicious vendor choices. Here's what you're looking for.

- Chinese company names often indicate the business scope of the company. Look for vendors that don't make sense. Are you buying stationary from a hardware store? Are hand-tools, toilet paper, fixtures, and printer consumables all bought from the same all-purpose vendor? If so, they are suspicious.
- Match vendor names with commercial invoices, purchase orders and commercial invoices. If they don't match, they are suspicious.
- Look for vendors that are located far away. Are you trucking in sundries from a small shop 50 km away?  Why? If so, find closer alternatives.
- Look for overly generalist suppliers. Do you find one small supplier selling everything from toilet paper  and cleaning supplies to hydraulic systems components? If so, it could be a purchasing "front", used to kick-back to your employees.

5. Take action.

- In a meeting, ask clearly about the vendors that don't make sense. Why choose them? Why? Why? Why? If you get strange-sounding resistance to switching vendors, keep pushing.
- For all possible purchases, move them to large brick and mortar retailers, like Walmart, or on-line retailers like JD.com, Grainger.cn, etc. Some of these may be a tad more expensive, but you will be able to assure that invoices are real and that the items are not fake.
- For all purchases that can't be moved to large retailers or e-tailers, demand an immediate source that makes sense regarding business scope, documentation, location, etc. Get progress updates often until the suspicious vendors have been abandoned.

Source: David Levy via LinkedIn
- GAI





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