Aaron Muir, a director of Argus Tracking.
How did you come to start outsourcing your manufacturing offshore?
We originally sourced our first generation tracking hardware from a niche supplier in Canada who was recommended to us, but eventually their security of supply, price, turnaround times and functionality didn't meet our expectations so we decided to look elsewhere.
We asked ourselves what a larger business would do and as a result became much more proactive, searching for a new hardware manufacturer who would produce to our design and meet our delivery expectations. We searched locally and then offshore for a manufacturer and we finally settled on a supplier in China. Their price was half what we were quoted locally and they had a lot of the tooling already in place, reducing our upfront costs.
How did you initially assess whether that supplier in China was going to meet your needs?
We settled on that manufacturer after a lot of research and reference checking. Also, before we placed our first order we bought some of their off-the-shelf products and pulled them apart to see if the components in their specification were what they actually used and assessed the quality and care they'd taken in their manufacturing.
We then field-tested the hardware. All products passed with flying colours so we went ahead and sent our design and ordered the production of our second-generation device.
What were the main lessons you learned from that initial experience of outsourcing in China?
Over time the quality began to slip and failure rates on the hardware became unacceptable. Then the quality of the relationship began to slip, especially with the lack of customer service. What we learnt from this was that low price is not the only key consideration when your own clients depend on you; for us reliability is paramount.
We found from this experience that you need to have a very close working relationship with your manufacturer because they're critical to success, so you need to make your expectations for service, supply and quality very clear from the beginning.
Where did you go from there?
We moved to our current manufacturer in Taiwan after we faced the fact that our Chinese supplier no longer fitted in our model. Our current manufacturing relationship grew out of a few years of knowing who each other was and talking.
We realise now that they were playing the long game and they continually made sure we knew what they were doing for other customers. So, for example, they made us aware they were building chipsets for two very well-known global TV brands and that their customers were not having any of the issues we were experiencing with our Chinese supplier.
So what are some of the practical things you've done to ensure this current outsourcing relationship you have is successful?
We approached our current manufacturer differently than we did our earlier suppliers. Rather than talking about price up front our initial focus was on what we needed to meet our customers' needs.
We discussed quality control, quality components, robust relationships and processes with the component suppliers, the strength and knowledge of their R&D and support teams and their turnaround times. Only once we were satisfied with these did we begin to negotiate the price.
We also stressed the differences between Taiwan and New Zealand. I remember when we told them there are only 4 million people here and that we don't have mobile network coverage over 100 per cent of our country they nearly fell over.
When we stressed that quality and reliability is key, we backed that up by telling them what the direct cost to Argus Tracking is if a piece of hardware fails in a vehicle and we have to send a technician out to repair or replace it. They think about this differently in Taiwan because labour is much cheaper, and here we need to travel further to fix hardware nationwide.
We also visit each other every six months. While they're in New Zealand they can understand our requests for product changes when they see the product in use and they can suggest improvements. When we're in Taiwan we can see developments in their manufacturing techniques.
On a global scale we're a small business and we want them to think of us as special, so having a fantastic working relationship is critical. Their managing director came out with our account manager this year, and we took them to Waiheke and also the Auckland Seafood Festival.
They had a fantastic time and got to see the landscape we operate in, again reinforcing the differences between Taiwan and New Zealand. When we're in Taiwan we also try to arrange it so our products are being produced while we're there.
What advice would you have for other business owners looking to outsource offshore?
1. Email and Skype are great tools, but honestly jump on a plane and go and meet these people on the other side of the world. Your manufacturers are your business partners and when you meet and talk over challenges, people bring innovative ideas and suggest product improvements that increase customer value and reduce costs in ways you couldn't otherwise know.
2. Understand at least a little of their culture and put in the effort to speak at least some of the language; this will go a long way in building your relationship and help you bond.
3. Price is important, but don't get price and value mixed up. As our clients increasingly depend on our technology to operate effective businesses, our reliability and capability matter more. At the end of the day paying a little more for our equipment to be manufactured in Taiwan has been very good for our business - and for our clients' businesses.
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