What is the consequence of rising prices in China? Some buyers relocate their production in other countries, right? Yes for textile products, but this is not really true for most hard lines.
One of the biggest consequences, I feel, is the acceleration of the elimination of intermediaries in the supply chain.
Many wholesalers and retail chains used to buy everything through importers (or middlemen of some kind). But now the economic equation doesn’t work any more.
It means many new companies are starting to buy directly, rather than indirectly, from China. There is nothing new in this phenomenon, but it might actually be accelerating.
(Not all of them can do this. Many can’t reach the Chinese manufacturers’ minimum order quantities. And others can increase their prices without losing any business. But I am writing for those that are ready to jump into the China sourcing game.)
So, what should these new-to-China importers know before placing their first order?
1. Come with the right expectations
There will be lots of hidden costs. Don’t focus only on the supplier’s FOB price. You should know how to calculate your landed cost (i.e. the fully-burdened cost of your goods after shipment, duties…).
Also, never trust what untested suppliers tell you. Don’t be afraid to check the reality from time to time (“it’s not personal, it’s what my boss asks me to do”). Don’t tell them openly that you don’t trust them.
2. Spend the time to find the right suppliers
This is the single most critical success factor. The right supplier already produces for an export market that is similar to yours in terms of quality requirements. The right supplier is also not too small and not too big. They are properly organized for their size. And the top managers are excited to start working for you.
If you want to see many suppliers at once and ask them a bunch of questions, you can come to trade shows. (See at the bottom of this article).
3. Start small with a new supplier
Do not give a large deposit to an untested supplier, and don’t expect their products to be shipped on time. A good practice is to open a letter of credit for the first order, and to add 3 weeks of safety padding to the promised schedule.
If an order is not managed well, change the supplier now. If you are satisfied, increase order size slowly and regularly.
4. Good quality management is essential
You will need a quality department for defining specifications, approving development and production samples, and taking decisions after QC inspections. You need at least one person who knows the products you are buying (technically speaking) and your market’s expectations (what you can deliver and what won’t be accepted).
You will also need to organize QC inspections. I wrote some tips about this: see the 4 steps to start doing QC.
5. Don’t jump right away in China
Start placing one order, then another one, and so on until you feel confident you have nailed it.
You just can’t think of everything before you take the first step. I remember one of my clients was forced to re-build the delivery area in their warehouse, because the 40 feet containers just couldn’t be unloaded conveniently.
If you want to cover the basics regarding quality assurance…
You can read the e-book I wrote on this subject. It puts the most important concepts together in a simple way.