Up until now, I have written advice that is targeted at certain types of importers. I call them the “hands-on buyers”, and I know them well because many of them are our clients. They tend to follow their production closely.
However, let’s not overlook a good half of the buyers — the “hands-off buyers”.
My point here is really this: there is no one set of “best practices”. As far as importers are concerned, there are at least two types of buying strategies that can make sense.
First, let’s examine what hands-off buyers do, and why it makes sense in their situation.
1. The hands-off buyer
Let’s take an example. You purchase promotional goods that are then given away.
One day a customer will ask for a bottle opener. The next, you will need to look for caps. Then paper bags, and then pens, and so on.
All these products are made in different factories. As your business grows, you end up with tens of suppliers and tens of products!
It means you can’t get familiar with all your suppliers. You can’t become an expert in every product category.
(By the way, promo item buyers are not the only ones in this situation. Think of mail-order companies or retail chains that deal with thousands of SKUs!)
2. Why it can make sense to be ‘hands-off’
Buyers who place one-shot orders are forced to take high risks. They can only focus on a few risk mitigation strategies.
If we revisit the advice I gave you since the first part of these series, here is the typical hands-off buyer’s sourcing strategy:
- Supplier identification and screening: Buyer becomes expert at completing this stage efficiently.
- Factory verification: Very light. Buyer is not building a long-term supply base.
- Cultivating backup suppliers: Only possible with off-the-shelf items.
- Negotiating the right terms: Very important for the purchaser to get this right.
- Keeping leverage in your hands: Buyer becomes expert at managing financial risks.
- Writing detailed specifications: Not realistic. Buyer has insufficient product expertise and little time.
- Following up on production schedules: Always a challenge, especially with small suppliers.
- Checking product quality early: Only realistic if the amount is very high or if the customer cannot be disappointed.
- Checking every shipment in the factory: A must. The manufacturer is not trusted at all.
- Building good rapport with suppliers: Not realistic. Relationships are often adversarial.
3. When does it make sense to be hands-on?
If you can work with a few manufacturers, it makes sense to spend more time and effort in developing the relationship. You can spend more time in the due diligence phase, to ensure you work with good partners.
It reduces your risks in two ways:
- You work with better-qualified suppliers who understand the relationship might span five or ten years.
- You probably deal with one or two product categories, so you know your product and its production processes better. It allows you to distinguish good manufacturers more easily, and to understand what might go wrong in the manufacturing stage.
4. What do ‘hands-on’ buyers do that is special?
Being hands-on is the only option for buyers who need bespoke or heavily customized products. It forces you to work more closely with the supplier and to commit to longer-term business.
There is a risk to watch out for. You might get “locked” in a relationship with one manufacturer, who knows it will take you 6 months to ramp up another source and get good products. They might become less serious about quality or deadlines, or they might increase prices too fast.
This is why a backup manufacturer is so important. It allows you to keep the pressure on your current supply base, and it gives you a good option out if required.
Another special characteristic of hands-on buyers is that they push their suppliers to improve. And, in most cases, they are frustrated by the resistance to their suggestions.
For many importing companies, pushing key suppliers to improve has become more critical over the past 5 years. And this trend will only get stronger. After all, if they don’t become more efficient or if they don’t improve their quality, most Chinese factories will have to close!
That’s why I will cover this topic in the next 3 parts of this series.
>> Move on to the next post in this series. Read it here: Sourcing from China 101, Part 13: Developing a Chinese Supplier <<
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