In this episode…
One listener asked us:
What checklist of activities does an importer need to perform when ending business relationships with a Chinese contract manufacturer?
So, in this episode, Renaud explains what the process of leaving your current Chinese supplier looks like, including plenty of best practices to follow to make sure that your transition goes as smoothly as possible.
Just hit the play button to start listening..!
Listen to the episode right here 👇👇👇
00:00 – Greetings & Introduction
01:47 – Why can starting the process to leave your Chinese supplier be tricky?
Transparency and communication aren’t great with many manufacturers so you may be missing lots of information you need. There’s a tendency for them to take a customer leaving them personally, too, leading to them being awkward and making it hard for you to move on. Certain actions you take like requesting to pull out your injection mold tooling, for example, alert the supplier to your intentions and can cause them to start being difficult so planning and confidentiality are important.
06:29 – Reasons why you might decide to leave a supplier.
- Poor quality – if the manufacturer has been doing well, maybe the relationship can be saved, but if it’s your first order that’s a red flag.
- Prices keep rising – if it is avoidable and your supplier is taking advantage of you, moving to a cheaper supplier with fair pricing might be a good idea. Some materials are getting a lot more expensive, though, so if that’s the case, redesigning the product to avoid them, for example, might be a better move than ditching the supplier.
- They keep making unauthorized changes – this could be outsourcing to a factory you haven’t agreed on that causes many quality, safety, and compliance issues, as someone who hasn’t been audited and vetted and who you may not even know is making your products, perhaps not even to your quality standard and specifications.
- They’re in financial difficulty – an unstable supplier who closes down is a supply chain risk and damages your business, especially if they’re supplying critical components. If they owe money to their own supplier that’s bad as those suppliers may provide poor quality materials or components to them until they get paid (if they supply anything at all). Beware of leaving expensive tooling with them, as it may be sold off to make some fast money.
- They break social, ethical, and environmental rules – a supplier like this has a negative impact on your brand image and could be shit down by their own government.
- You simply find a better manufacturer – this is self-explanatory and it’s natural that sometimes it happens.
19:49 – Why the difficulty of doing business with Chinese suppliers these days may force some businesses to move away from even good suppliers.
The Covid pandemic has made access to China more difficult and it is prompting some businesses with good Chinese suppliers to look elsewhere, also. There are 2 factors:
How hard it is to work with them – the inability to see them and communicate can lead to results getting worse.
Risk to your supply chain – American companies, for example, are affected by the relationship between the two countries and might be better served by at least having some of their supply chains outside of China.
21:26 – How to manage the process of moving production out of one factory in China to another?
You need to start planning for the move far in advance of the time you want to switch, and plan carefully. There are 3 key points to consider about your old manufacturer:
- Make it very clear who owns the product in an enforceable and signed agreement with the supplier. Assure that you have all the latest versions of the design files, BOM, etc, otherwise moving will be a lot more difficult.
- Do you have some kind of contract that has allowances for you to remove your tooling, etc? An enforceable contract that outlines what will happen at the end of the relationship will be very valuable in future.
- You need to communicate your requirements (quality standard etc) to the supplier and provide them with KPIs etc. If they then don’t reach them and you decide to leave, they have less reason to be difficult.
27:31 – How to onboard your new manufacturer?
How are you going to help onboard them? Do you have information about the manufacturing process/es, your BOM, etc? If not, they have a lot to work out from scratch to source new sub-suppliers and set up the supply chain. This could even put them off working with you.
30:09 – What to do about your tooling?
Tooling can be casting, extrusion, compression molding, etc, but it’s most commonly for plastic injection molding. Tooling also includes jogs, fixtures, testing stations, and other valuable hardware. Can you get this from your current supplier? An enforceable manufacturing agreement should state that you own it all and have the right to remove it, otherwise an annoyed former supplier may try to keep it. Getting the supplier used to you removing tooling between productions from the start is a good way to prepare for the end (and we help customers do this at Sofeast by securely storing their tooling in our own facility).
36:21 – Lying to a supplier to ease a move. Yes, or no?
It may be necessary to bend the truth in order to persuade a supplier to release your tooling, for example, if you have no control over the project. But needing to lie (which is neither ideal nor ethical) can be avoided by preparing properly at the start of the relationship by putting in place contracts etc that give you control. If not, the supplier has more control and can hold your tooling etc to ransom. Learn what to negotiate in this episode of the podcast.
38:39 – What activities should we plan to do when transferring production from one supplier to a new one?
- Plan for the move.
- Gather info from your current supplier (manufacturing processes, BOM, tooling status etc)
- Gather info from your side (quality standard, past issues to avoid in future, samples to demonstrate defects, etc)
- Find out the gap between your old and new supplier to start working successfully (does the new supplier need to do sourcing work, staff training, product development, etc)
- Prepare for the move (build up inventory, check that the new supplier has everything they need, start your relationship properly with enforceable contracts, etc)
40:57 – Wrapping up.
- 7 Reasons To Switch To A New Chinese Manufacturer
- Tips to Manage the Transfer of Production To Another Chinese Factory
- How To Plan for Transferring Production To a New Factory: 45 Point Checklist
- Get help to find a good manufacturer in China with this free eBook
- When a relationship turns sour with a Chinese supplier
- How To Switch To A Newer, Better Chinese Manufacturer? [eBook]
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