We see time and again buyers who are new to outsourcing their manufacturing to Asian suppliers in China, India, Vietnam, and elsewhere making these damaging sourcing mistakes. Here are the 10 most common ones waiting to trip you up…but the good news is if you avoid these, you’re far more likely to develop trusting relationships with your suppliers and benefit from good quality products that are delivered on schedule.
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Exploring the top sourcing mistakes that new buyers make when buying from suppliers in China and other Asian countries.
Renaud wrote this list of sourcing mistakes in 2011, but it’s still relevant today!
1. Always pushing for the lowest price.
Selecting the lowest cost when there are multiple options for many consumer products isn’t the smartest strategy. In fact, it’s high risk. The ‘cheapest’ suppliers usually fit into 3 cases:
- They don’t know what they’re doing and are careless.
- They’re aggressive on the cost to the point where they can’t make money because it wins them your business, but when you start working with them they soon come up with excuses to increase the price to put them back into profit.
- They always intend to cheapen the product without telling you and deliver something substandard in order to make a profit.
Many Chinese suppliers believe that if you push them hard to lower prices it is reasonable to follow one of the above approaches because the buyer can’t expect ‘top quality’ for that cost. This kind of situation is less common in India, Vietnam, and other Asian countries that tend to be more conservative. (05:55)
2. Agreeing to crazy payment terms with a supplier.
Sometimes suppliers will push for a 100% upfront payment! Of course, they want this, as the money is in their pocket sooner. But then there’s no incentive for them to do a good job or maybe even ship your products at all. Will they follow your quality standard? Will they delay your order in favor of a more lucrative order? You will have very little leverage over them to force them to make changes if you end up dissatisfied. (12:37)
3. Failing to inspect product quality before shipment.
In this situation, you hope for the best when the container arrives. After paying the supplier, shipping, import duties, logistics, etc, you may find yourself sorting out a high percentage of defective products that you can’t sell. All of this wasted time and money could be avoided by inspecting quality during production on-site at your supplier’s factory. A good rule of thumb is to closely inspect the first three or four productions, with a special emphasis on providing detailed feedback to the supplier after the first inspection. If the supplier proves to be reliable and trustworthy, then you may choose to randomly inspect one-in-three in future to keep them on their toes. This also goes for starting to produce a new product with an existing supplier (even if you trust them), because the same quality risks may occur. (16:16)
4. Failing to realize that pre-production samples are often merely selling tools.
A supplier may come to you with what they call a final prototype and ask if they can go into production as they are ready. New buyers may make the assumption that the supplier will now mass-produce the products at that same standard, but when the first batch is inspected they find out that there are 5, 10, or more per cent of bad products. How come they’re not the same as the final prototype? The supplier may argue that prototypes made by hand carefully by engineers are ‘obviously’ not going to be the same as those made on a production line. You need to accept that Chinese suppliers will use pre-production samples to sell a project to buyers and may not replicate their quality in mass production unless very specifically instructed to do so by the buyer with a clear specification sheet and quality standard. (19:07)
5. Not trusting your supplier at all and being obvious about it.
Being careful and protecting yourself isn’t the same as openly mistrusting suppliers and questioning their intentions all of the time. The suppliers will dislike you and won’t want to work with you, or at least will not respond to you quickly. Find a balance between trusting them too much and paying 100% in advance and not trusting them at all and ruining your relationship. (21:40)
6. Not keeping 2-3 weeks of padding in the shipment schedule.
When working with a new supplier you need to plan ahead for delays and assume that things may go wrong. For example, if a key component comes to them late it delays the whole project, as will rework required from your quality inspection. Buyers often don’t give the supplier approval, maybe because they’re waiting for one from their own customers, so, in that case, the buyer is the cause of the delay. This can easily cause several weeks of delays, so if you have not budgeted for that in your schedule, you may have some awkward conversations with your customers coming up. (24:47)
7. Having no visibility over your supply chain.
Some suppliers are not transparent about the supply chain, especially trading companies. They may not tell you where they obtain key components, for example, as this is a ‘business secret’ and it keeps you locked into working with them. It also means you can’t troubleshoot issues and you have lost control of your project. Sometimes the only option is to start again from scratch with a new supplier if you’re dissatisfied. (27:44)
8. You forget to describe and document an important product feature or your packaging requirements.
If the supplier isn’t made aware of an important point they won’t know or care about it, so how can they be blamed if your finishing, say, isn’t as expected because they were not told? All of your expectations need to be documented clearly and given to them in good time. Not clarifying which packaging you need and leaving it to the supplier is also a problem, because they’re likely to select the cheapest option by default which could lead to product damage during transit. (29:27)
9. Hoping that an unsatisfactory manufacturer will get better over time.
If their first production isn’t up to your standard, keeping ordering from the same supplier is a mistake, even if they offer you a discount on your next order. Only proceed with another order if they agree to do a proper pre-production pilot run to qualify that their production process is capable, with a corrective action plan to check what went wrong and fix it, and you have someone there to check it has been fixed. Otherwise, if they’re proven to be unreliable, why will they just magically improve? So you’re only throwing money away by placing more orders! Nurturing a backup supplier you can switch to is a more sensible approach. (32:47)
10. Not registering your trademark in China when buying from China.
China operates a first-to-file system for trademarks. Companies that aren’t well-known in China should register their trademark there to prevent ‘trademark squatting,’ where someone in China registers it and can then extort you in order to relinquish it, create products with your brand, or even request that customs prevent you from exporting your products (as they show ‘their trademarks’). Even if you don’t plan to sell in China, this is a useful IP protection step. For example, if your supplier makes your branded products behind your back to sell to others, you can use your Chinese trademark to put pressure on them to stop doing so. (37:45)
Extra content on some of these sourcing mistakes…
- DIY Sourcing From China Part 2: Negotiations, Terms, Leverage, & Quality Standards [Podcast]
- See Sofeast’s range of product inspections
- How To Get Transparency And Control Over Your Supply Chain? [podcast]
- How To Switch To A Newer, Better Chinese Manufacturer? [eBook]
- IP Protection in China when Developing Your New Product [Importer’s Guide]
- Read the original post about sourcing mistakes this topic was taken from here.