I remember a Canadian buyer who told me, 3 years ago, that Chinese factories should produce in advance. It would be much more convenient for importers, who would be able to replenish their inventory faster. It would mean two benefits: reducing the costs of excessive inventory, and increasing sales by being out-of-stock less frequently
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He saw it as the future of China sourcing, at least for the types of products that don’t need any customization. I thought about this from the perspective of the factory, and I wasn’t feeling optimistic about this forecast for three reasons:
- Factories would have to pay for the materials and make the products, without any buyer lined up (yet)? Unlikely.
- Buyers would be able to compare prices and drive them down? Factories would have to refuse low-ball offers and wait for a reasonable importer, all the while paying interest on the capital immobilized in that inventory? Even less probable.
- Buyers would be able to check quality immediately on site, and ask for a discount? No way.
It seems like Alibaba found a solution to make this work with AliExpress, though. Foreign buyers can purchase small quantities (way below the usual minimum order quantities, which means the goods are produced in advance or taken from a running production). Then they pay after shipment is delivered. Seems like a good idea, doesn’t it?
(This is not an advertisement for Alibaba, but it seems fair after the nasty article I wrote about the recent Alibaba fraud).
Now, let’s say you visit a factory and the salesperson proposes some stock products to you. Doesn’t this seem like an unbelievable stroke of luck?
Not always. As SmartChinaSourcing puts it in a recent article (Sourcing excess stock in China):
Low prices, fixed quantities and short lead times? Chances are, the manufacturer is trying to dispose excess stock.
Although China suppliers take measures to ensure all export output is shipped out, there are some instances when products do not leave the warehouse. In certain cases, this is because the order was canceled when the company was unable to meet the delivery schedule or the buyer pulled out at the last minute. Most of the time, however, these are lots that failed physical and performance tests.
Is there a way to guess the truth?
Suppliers that are trying to resell good-quality surplus stock are generally upfront about product specifications, available quantities and where such items were supposed to be exported. Those offering slightly defective models, however, may not be so forthcoming.
Right. And sometimes 95% of the products are defective. They will send you a sample taken out of the nice ones.
My advice is to ALWAYS have these products inspected by your team or a QC firm. You can never be sure about the quantity and the quality of the goods you are buying in such cases.
The exception is when the products are already in a customs area. There is no easy way of checking them. But the supplier is usually ready to give a discount to get rid of them, and in general they are stuck because of a defaulting buyer rather than a quality disaster.
Has anybody got good advice about products in stock?
I would suggest that there are 2 different situations.
In my company’s “normal” course of business, we are purchasing a product specifically for our use, to our drawings. I don’t want the factory to have excess stock of this material. I don’t want them to have the opportunity to sell it elsewhere! In fact, we are working with several of our more cooperative suppliers to (a) move to reduce work in process inventory – many of them carry weeks’ of WIP stock, even for simple products; and (b) move our own ordering to a continuous “replenishment” process– each week, we tell them what we’ve sold, and have them produce that much, of those products. This is a big change but is in line with current lean thinking. One exception: we have asked factories to keep 1 – 2 crates (10% of a container load) of our highest volume part number (“A”) on hand as finished goods in case another product is delayed. If a crate of product “C” is delayed, they have my standing direction to put an extra crate of “A” and get the container to port. Our goods are very heavy compared to sales value, and we can’t afford to send containers that are partially loaded. But neither can we afford delays. So we tolerate a little excess shipment of product “A” to keep the pipeline flowing.
On the other hand, we purchase a few “commodity” items to the supplier’s designs, where quantities or margins don’t merit tooling our own version. In these, if the supplier has some inventory that’s OK, because I usually want far less quantity than an efficient production lot size.
In either case I want the goods inspected by the same procedures… and inspected at the “last minute”, so that aging, rust, “shelf wear”, etc., can be caught.
Food for thought, your mileage may vary.
Brad
Hi Brad,
Thanks a lot for sharing your experience. You are way ahead of most importers when it comes to optimizing the “global system” (rather than optimizing some local areas, such as transport costs). Very interesting.
I may re-use what you wrote above in a future article. Thanks!
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Great advice. Buyers should always have someone inspect their items to ensure consistent quality of the products they have ordered. With that said, just because item are available doesn’t mean that they are defective, excess stock, or surplus–JMWant interfaces with many factories that can produce on demand with no MOQ.