Managing Chinese suppliers: how to maintain your authority

Supplier ManagementSome of my clients are great at managing their Chinese suppliers and finding quick solutions to any issue that arises. But other importers consistently let factories force their hands–it seems they have no authority at all!

For example, last month an export company wanted to schedule a final random inspection on the ex-factory date–meaning that the importer (in Canada) would not have time to stop the shipment if we found a disaster. I explained the situation to my client, who put pressure his supplier–unsuccessfully.

What did the supplier do? Their manager sent an email to her employee (who was following our case), CC to the purchaser and to me: “If they keep pushing for an earlier inspection date, tell them that we will cancel the order and we will sell the goods to another importer. Do not let them bother you”. I was amazed…

So, how is it possible for a buyer to be constantly bullied by his suppliers?

It comes down to three things:

  1. How the relationship was structured, and how much power the buyer kept in his hands;
  2. The amount of freedom of the buyer in his supply chain;
  3. Past behavior and other interpersonal issues.

Don’t get me wrong. I am not suggesting that importers should dictate everything. It won’t work, except for a Wal-Mart or a Target, and you will pay for it in the long term. My point is that many importers have no authority whatsoever over their Chinese suppliers, and I am going to explore ways to avoid getting in that situation.

Let’s study each aspect of the buyer-seller relationship:

1. How the relationship was structured

If you respect these guidelines, you will keep a lot of power in your hands:

  • When you select suppliers, make sure they are small enough to care about your business.
  • Start doing QC inspections from the first order, and put in place a quality control plan.
  • Negotiate to pay either with a letter of credit, or by bank wire with certain conditions (most importantly: transfer money only after quality is confirmed).
  • An OEM contract can help, especially if the above solution was not accepted.
  • Try to customize your products in such a way that a factory cannot easily resell them to another buyer.

See my previous article about these issues for more details: how to control a supplier.

2. The amount of freedom of the buyer in his supply chain

I first came into contact with China when working for an importer of garments, in France. I was amazed at how badly we were treating the suppliers. It was frequent to write “if you don’t do this, we’ll cancel the order”, even after production was well under way.

How was that possible? First, we were paying with letters of credit that were full of “soft terms” (it was easy to create discrepancies). But, more importantly, we were getting the products in stock. Only a small portion of the quantity was pre-sold.

Why is this crucial? If your supplier knows that you have already sold the shipment to a big customer of yours, he knows you are hooked! Western businesspeople usually prefer to incur losses on an order rather than lose a customer. The factories know this very well, and can take advantage of it.

I wrote that some products were pre-sold. But we could convince the few domestic purchasers to accept a very similar style that was also in stock, in case the shipment was canceled. We only needed to say “we noticed some quality problems that cannot be repaired perfectly, so we prefer to abort production”.

Some buyers have a lot of freedom, like in this example. They have a reasonable alternative (cancel the order), and the suppliers know it. Other importers don’t have this luxury, which means they have much, much less authority over a factory.

Unfortunately, there is only so much you can do to increase your freedom. Inventory helps, but it is costly and risky. Avoiding customer-specific orders would also be a step in the right direction, but it is often not an option.

3. Past behavior and other interpersonal issues

From my observation point, on the side, I have seen how tens of importers deal with their Chinese suppliers. I am going to compare the “styles” of two purchaser stereotypes:

Purchaser A takes her time when a supplier announces another delay, or when quality issues are discovered. First she asks for an explanation. Then she says “I will talk about it with my manager” (meaning there is room for negotiation), and she waits until the following Monday. The issue drags on and on, and she usually ends up writing “I don’t agree, but it seems I have no choice”.

Purchaser A tries to be right, rather than trying to be effective. If a bad news is due to the supplier, it’s not her fault. She won’t look bad to her boss. Most of the time, the factory will see its unreasonable demands satisfied… And will have other such demands in the future.

Purchaser B, on the contrary, immediately gets in motion when an obstacle is in sight. She asks more information by email, she calls the Chinese salesperson to speed up the process, and generally speaking does not accept anything easily.

Purchaser B also makes it a point to meet every supplier at least twice a year, and to spend as much time as possible with the key people to get to know them better. She knows that interpersonal feelings count a lot in China.

I call their relationship “tough love”: don’t be afraid to be straight to the point and nearly brutal, but at the same time show that you care about your counterparts.

The main point, it seems, is that purchaser B openly looks for a way to make both parties happy, while purchaser A sees her job as “us versus them”.

I wrote about Chinese suppliers’ short-term view and why they don’t care about partnerships, but they sure notice when a buyer makes efforts to help them!

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Comments

  1. says

    Renaud,

    Great article! A thousands pearls of wisdom here. We have one buyer who is Type A, and another one who is Type B. It’s actually hard to do business with the Type A because you never really know when they recieved something they weren’t happy with. They don’t tell you up front that there was a mistake.
    We also have a Type B that goes overboard everytime there is a small problem. At least we know when there is a problem, but everytime there’s a small issue, we are afraid we are going to lose the order.

    It’s a delicate balance, but I think I’d prefer a Type A.

    I think your last paragraph really sums it up. The way to maintain your authority is to show that you care.

  2. Renaud Anjoran says

    Danny,
    Thanks a lot for sharing your experience. There is no ideal buyer, but some are definitely better than others.