This is a continuation on last month’s article, Juggling Curve Balls: Electronics Manufacturing in China – Part 1.
Surprise problem delivers blow to plans
Word comes back from our engineering team that there was a miscommunication between the head engineer and the project manager. The PCBA is missing 2 little passive components that regulate the electric current, which goes to the USB port and screen – both of which are crucial functions. The problems don’t appear all the time, which is why they weren’t found on all of the units, but without these 2 components, serious problems are inevitable. Fortunately, the 2 primary suppliers did their own engineering check before producing the products and, in spite of our mistake, used the correct components. The 3 backup factories which followed our faulty BOM accounted for 80k units.
Crisis control begins. There was no precedent for handling a situation like this. Every decision was based on limited information thus the results of my decisions were uncertain, but I was certain that Bill’s faith in Hatch would be rewarded with a satisfied WM. The problem was discovered on a Wednesday. 3 containers with 30k defective units had already been shipped out and were sitting on a boat in the Kowloon, Hong Kong harbor, waiting to set sail. We figured out how to get those containers off the cargo ship, pull out the cartons with defective units (there were far more good units in those containers than defective ones), and send them back to us in China to rework. This series of requests did not follow standard protocol. Some of what we asked for hadn’t been done before by our logistics partners and had to be anticipated and coordinated by Hatch.
Problem Solving – Shenzhen Style
Once we figured out how to pull the containers off the cargo ships, and identify and remove the defective units, we needed to figure out what to do with them. Mainland China has a blanket 17% tax (Hong Kong has no import tax) on all imported goods, plus additional import taxes on specific products, so bringing the products back to the original factories in mainland China to get repaired, the ideal situation, wasn’t the economically favorable option. Setting up a repair facility in Hong Kong, which is where the goods were pulled from the containers, also wasn’t practical since all the devices and human capital needed for the repair were in Shenzhen, and couldn’t go back and forth to Hong Kong.
The closest thing we could do to bringing the goods back to Shenzhen was to use space in a nearby Free Trade Zone (‘FTZ’), which is a designated area, in Mainland China, where goods could be held tax-free before official importation into the Mainland. On Thursday, Hatch’s logistics staff started contacting companies in the Futian FTZ to a place where we could setup a makeshift work space to store thousands of units and station 30 laborers to cut open the sealed packaging, open up each MP3 player, hand solder two baby ant size components on the PCB (usually done by a precision SMT machine), re-assemble the MP3 players, and repackage them which required Hatch to find a heat sealing machine for sealing the plastic. Success required overcoming unique challenges and needed to begin on Monday, giving Hatch 4 short days to put together.
Those challenges included finding a facility which had the means of supporting this kind of operation, both from the space and license standpoint (most FTZ warehouses don’t allow or have permission to allow this kind of work). After confirming a location, we needed to send the goods into the FTZ warehouse before customs closed on the weekend, find a phone booth size heat sealing machine to ‘import’ into the FTZ, and arrange soldering irons, seats, and an assembly line for the workers. On Friday, we set out to find an unemployed supervisor to manage the project, pull together 30 workers who could dedicate 2 weeks of their lives to fix this mess, housing for the workers, their transportation, and 2 meals a day. When there’s no choice about what needs to happen obstacles become less visible.
My team and I called everyone we knew looking for someone to fill this role. One of our industry friends was able to introduce a guy who used to manage a production line in an electronics factory. Why he wasn’t employed during September, the busiest time of the year for consumer electronics manufacturers, remains a mystery, but the chance of finding someone to manage this operation overshadowed any questions I had. We didn’t have the luxury of reviewing resumes; fairy dust and empty promises would have gotten anyone a job at that point. I don’t remember the supervisor’s name, so let’s call him Charlie. Charlie became the foundation this task force developed around. Over the course of a weekend Charlie, along with staff contributions from nearly all of the 5 assembly plants producing for this order, helped put together the Baddest News Bears line up of workers I’ve ever seen. It looked like the most important positions, component soldering, were filled by ex-convict gang members with weird tattoos and shaved heads. The group of unskilled laborers consisted of farm girls who appeared completely lost. Everyone in between doing the semi-skilled work like opening and closing cases were veteran factory workers who knew it was their time to shine. Our elite task force was divided into 3 groups like Nintendo’s first ice hockey video game from the early 90s with fat, fit, and skinny players, where each profile represented a different skill set.
When Monday arrived, the team showed up to the warehouse to prepare the space for magic to happen. They created a production line and work area to cut packages. For 2 weeks straight, my key staff and I averaged 16 hour work days filled with stress and high pressure problem-solving, dealing with the repair team, unforeseen logistics and supply chain issues, and whatever else was thrown our way. The 50k units that were still at the factories needed the same treatment as those in the FTZ, but in a factory, this was much easier to manage. Fixing this mistake cost Hatch over $200k to cover logistics, material, warehouse, labor, and whatever other costs there were. A few weeks after this happened, when all the goods had already been shipped out via sea and air, I traveled from Shenzhen to Oklahoma for a surprise visit to see Bill and his team. I wanted to explain in person what had happened, what we did about it, and to come up with a solution for handling customer service issues since some faulty units were shipped out.
In typical Mach Speed style, Bill and his team acknowledged the problem and stayed focused on solutions. Rumor has it that the 300k units sold out about 5 minutes after doors opened for Black Friday. Reality is that the defect rate and amount of customer inquiries on Hatch’s shipment were lower than average for this model and the following year Mach Speed earned the honor of becoming an official long term supplier to WM.