Sourcing Equipment in Developing Countries While Minimizing Risk

Purchasing operating equipment out-of-country can save money, but it is necessary to take the proper steps to ensure a quality product.
By Gregory T. Benz and Ling Du | July 08, 2009
The current global credit crunch has made it more difficult for biofuel producers to obtain financing for capital projects, which makes it more important than ever to look for ways to reduce capital costs. Moreover, a low capital investment is mandatory to assure a reasonable rate of return in a time when reduced travel combined with low petroleum prices places a heavy downward pressure on biofuel selling prices.

Developing countries, in general, have lower quality manufacturers than those in the developed world. However, the top 2 percent to 5 percent of suppliers in developing countries have engineering resources and product quality comparable to the U.S., Canada, Japan and the European Union. In addition, low labor rates and freedom from excessively burdensome regulations result in capital equipment costs that are up to 90 percent lower than those in the developed world. Such savings greatly reduce plant costs and increase the return on investment.

Apprehensions
There are many misconceptions about the conditions in the manufacturing facilities in developing countries. However, many of the top vendors are certified by the International Organization for Standardization (ISO), comply with U.S. Occupational Safety and Health Administration (OSHA) standards, use fully integrated CAD/CAM systems, have finite element analysis capability, numerically controlled machining and welding equipment, full x-ray analysis/documentation and clean factories. In other words, many are indistinguishable from their developed-world counterparts.

Yet many people will still have uneasiness about buying from such companies. How does one really know that a company will deliver a quality product? Some American companies, such as Cargill Inc. and CPC International Inc., have done their own investigations before buying. For most companies, it is better to enlist the help of experienced professionals who can guide you through the process of vetting new potential suppliers and recommend those they have already investigated. Such professionals can also aid you in writing specifications to modify the vendor's standard product to meet typical U.S. standards as well as your own unique requirements.

Cultural Minefields
When dealing with developing countries, miscommunication is a potential problem due to language and cultural differences. Most communication is done less directly than in
Western countries. Direct probing of a company's product quality can be taken as questioning the integrity of the company's representative. It is better to be indirect and use a list of items to be checked rather than to challenge someone directly. Business is also often conducted at a slower pace; people prefer to get to know each other before concluding any business deal. This can sometimes be infuriating for those who wish to get the business done and go home. But rushing things can offend the host and ultimately slow things down more.

There are also various protocols to be followed regarding greetings, dinners, exchanging of business cards and respect for hierarchy. Some companies have in-house people to help deal with such issues. Some are put in this position with no cultural training and learn the hard way. Others come from the host country originally and have to learn to bridge cultures. Often, it is better to enlist the aid of persons or companies that have experience in such matters to smooth communications and facilitate win-win results.

Factors for Company Evaluation
A number of factors can be investigated to properly vet a potential supplier. Among the quantitative and verifiable are:

›ISO certification as appropriate

›American Society of Mechanical Engineers code stamp or equivalent as appropriate

›Annual sales volume

›Mean time to prepare quote

›Typical manufacturing/shipping time after release to manufacture

›American Gear Manufacturers Association ratings

›Energy consumption, efficiency as appropriate for product category

Qualitative factors, which can be just as important as the above, are:

›Supplier's reputation within its industry

›Feedback from users of equipment, especially within buyer's industry

›Flexibility to make product changes and adapt to local and buyer's needs

›Specific experience in biofuel applications

›Ability to provide service and training at the customer jobsite

›Ease of communication/dedicated English-speaking account manager

Some of these are difficult to determine by the end user. For example, many users of the equipment within the biofuel industry will refuse to comment, as they may not wish to aid a competitor. Lack of familiarity with the differences between the vendor's standard products versus what the buyer has become accustomed to in the Western world may make it hard to specify what is needed. A third-party expert can aid with all of these concerns and act in effect as the main channel of communication. Such an expert or expert firm should have personnel familiar with not only with language and cultural issues but also the technical issues unique to the equipment and what the differences are between countries.

Modifying the Product
Most vendors make their products primarily for their home country. Their requirements may be very different from those in a Western developed country. The components they purchase for manufacture may be different from what is customary in the Western world. For a good result, the vendor must be flexible about making changes and the buyer must know what changes are needed. If the buyer does not know, the service of someone with experience in such matters is essential. Some examples:

›Material of construction. Some alloys readily available in the U.S. are not always available overseas. Usually, a suitable substitute may be specified.

›Gear drives. Locally manufactured gear reducers in developing countries are not usually as reliable as world-class brands. Unless the buyer wants to vet reducer manufacturers separately, gear drives supplied as part of process equipment should come from well-known brands with a proven track record of service and reliability.

›Bearings. Only world-class association member company products which are available locally near the buyer's facility should be used. Journal bearings should be avoided whenever possible.

›Rotary steam joints, mechanical seals. The buyer should specify brands that are familiar and which are readily available near the jobsite.

›Safety issues. OSHA-approved guards as required, proper size and construction of manways, ladders and other items are all things which cannot be taken for granted.

Miscellaneous issues are product-specific and require product knowledge of both the developed-world product and the developing world product

Many Products are Safe
Products that are believed to be acceptable to North American biofuel producers include: multiple effect evaporators; fluidized bed dryers; drum dryer/coolers; rotary tuber bundle dryer/coolers; reactors, tanks, heat exchangers/evaporators with special metals; dewatering screw presses; bio-reactors/fermenters; ion exchange columns; filters; high speed solids mixers, and many others.

Whatever kind of equipment, chances are that someone in a developing country makes it well and makes it for less. The key is to find the right companies.

Getting the right product at an attractive price overseas is a challenge that can pay off handsomely, but the job is not done until it's installed at your plant site. For mundane items, such as pumps, there is no particular problem shipping from manufacturer to plant site. For large items, such as vessels and dryers, attention must be paid to transportation.

Special equipment may be required for offloading the ocean vessel, and special permits and routing may be needed to get it from the arrival port to your job site. A full-service import/export company can usually help with the shipping, permits and any other logistics issues you may encounter. Some may opt to use a separate logistics company.

Sourcing equipment from developing countries has the potential to have a huge impact on your return on investment. However, to assure that operating costs are not negatively impacted by poor quality, proper vetting of the suppliers and their products is essential. This can be done in some cases by properly trained and
experienced in-house personnel, or it can be done with the aid of experienced specialists, who understand the relevant communication, cultural, equipment and
logistics issues. Properly done, such sourcing will have a positive effect on your
bottom line.

Gregory T. Benz is president of Benz Technology International, Inc. Reach him at (937) 289-4504 or benztech@mindspring.com. Ling Du is vice president of engineering at Terrace International Inc. Reach her at (630) 242-5661 or infor@terraceinternational.com.