By now I’ll assume that you have verified a few manufacturers.
One of them will be your first choice, and hopefully you will have a couple of “backups”.
We are going to think of the best way to handle them. We’ll also touch on the unfortunate situation where your “first choice” disappoints you.
1. Cultivate your “second choices”
With a bit of luck, you have found and verified a supplier that seems quite promising. If you want to reduce your risks of long delays, I strongly encourage you to keep communication open with a few more suppliers.
I even believe you should spend the time and the money to verify at least one more supplier, and to start working on pre-production samples with that supplier, even though they are not your first choice.
Why? Isn’t it a huge waste of energy from your side?
Maybe, or maybe not. Depending on the industry and depending on your quality standard, the probability that your “first choice” lets you down is around 50%, I would guess.
It can happen for a variety of reasons:
- Maybe they have misquoted your product, and they increase the price by 35% after you issue the purchase order. Or, worse, they subcontract production to a small workshop that delivers terrible quality which is not acceptable.
- Maybe they are very busy and don’t value your business much. They keep “bumping” your order behind higher-priority jobs.
- Maybe the salesperson leaves, and you have no other good contact there.
- Maybe they just can’t (or won’t make the effort to) reach your quality standard.
In any case, starting development with a backup manufacturer is a good idea. If you need to start development from scratch with a second supplier, it will take you as long as it took you the first time!
2. Those “never again” suppliers
As I wrote above, some suppliers will prove to be untrustworthy. The worst scenario, which happens every day, is that they ship bad products to you and that you only notice this upon delivery in your warehouse – or, even worse, in your customer’s warehouse!
At that point, there is basically nothing you can do. Chances are, you have already paid the supplier in full, and taking action against the supplier is usually a dead end.
The manufacturer will only offer you a discount on future purchases, as compensation. But the last thing you want is to take risks with them again.
So, what should you do? It depends on your situation.
# The case of the isolated order (you had only one order placed with them)
Drop that supplier as soon as possible because they will (very) probably do it again. In this case, you will be happy to have a backup factory ready to “hit the ground running”.
But should you say “never again”, and burn bridges?
Not necessarily, for two reasons.
- A good production manager can be the difference between satisfactory shipments and late deliveries of substandard products. Maybe a lapse in quality is only temporary. Do not draw definitive conclusions.
- You should care about your image. Do not try to give them a hard lesson, because other manufacturers in the same area might hear about you and refuse your business when you contact them.
# The case of the complex relationship
Dropping a supplier suddenly is close to impossible once you have a regular flow of business with them. At any point in time, they have your deposits for several orders, and you count on them to deliver products that you need!
You need to be aware that this type of relationship can be very fruitful, but risks are pretty high too. As Jack Perkowski wrote:
I was always struck by the way in which a dispute in one area with a partner, customer or colleague affects all aspects of the relationship in China. In the United States, we’re used to “compartmentalizing,” not letting a disagreement in one area affect the overall relationship. In China it’s different. You either have a good relationship or you don’t.
Make sure that one accident does not throw the whole relationship off balance. I have seen this happen many times in China.
3. Protecting yourself from bad surprises
An ounce of prevention is worth a pound of cure, isn’t it?
Here are two simple pieces of advice.
First, make sure you check quality before shipment. Quality assurance agencies can help you with this. We’ll explore this topic in more depth in the next few emails.
Second, if you keep re-ordering the same products, you will need a safety stock, to avoid depending too much on your current supplier. How much exactly? It depends on the time it would take you to launch production in another factory.
(If you have no backup solution and if it takes 6 months to bring a new manufacturer up to speed, you will need a lot of stock… or maybe a good manufacturer in your own country. Depending on your product category and on your margins, this might be a good backup solution.)
PS: This course concludes the series about sourcing. The next topic we’ll cover is negotiations, and more specifically the terms you’ll need to discuss with potential suppliers.
PPS: From now on, we will reduce the frequency of emails to 2 per week.