In this episode…
You’ll love this episode as it contains loads of helpful tips for buyers from China who’re operating on a smaller budget from Sofeast’s CEO Renaud and this week’s guest, sourcing expert, Rico Ngoma from Source Find Asia.
They talk you through what you really need to do and some ways to lower costs where possible, so, hopefully, you can start budgeting for what’s essential and handle some things yourself. For instance, it’s possible to do some due diligence on potential suppliers yourself, and product development costs can be reduced by choosing an off-the-shelf product, to begin with, but auditing the supplier’s factory and conducting product quality inspections are a must.
If you enjoyed this topic, sign up for Rico’s new manufacturing program that’s been created to help entrepreneurs and SMEs get ahead when starting to manufacture in Asia on a low budget: The SFA digital summit!
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✅ Introducing our guest: Rico Ngoma. Rico is the CEO of Source Find Asia, a Guangzhou-based sourcing agency that specializes in helping SMEs find the right suppliers for their needs. Canadian Rico has 15+ years of experience in manufacturing and sourcing in China, so it’s great to get his knowledge here!
✅ Introduction to Rico’s new event, the SourceFinda Asia Digital Summit. The SFA digital summit is a free manufacturing program for entrepreneurs and businesses on a low budget who want to get started with manufacturing that brings together around 16 expert presenters from Rico’s network to present specific areas that new manufacturers need to understand at an early stage, such as market research, QC, DFM, and selling the product to name a few. Renaud himself presents the section on Design For Manufacturing!
To echo the SFA digital summit, in this episode we’ll go through some of the topics that new manufacturers need to understand.
The assumption here is that they are a new company that wants to buy products from an Asian supplier. They know what product they need and what market it will be sold in. They want to start with manufacturing but do it on a low budget as they can’t afford consultancy fees.
✅ How to develop a new product on a low budget? In this case, many entrepreneurs or businesses start off by choosing off-the-shelf products which require no or minimal development. This allows them to start selling it to a certain market and gain valuable knowledge about the market and distribution without having to put a lot of money and effort into creating product designs. The designs, prototyping, etc, are time-consuming and expensive, so Rico often suggests to new manufacturers to avoid new product development the first time around, or, potentially, go into crowdfunding (although this requires a good-size budget to create a prototype and get a professional digital marketing campaign created, plus advertising costs, etc). Basically, low budget = too many unknowns when developing a new product.
✅ The stair-step approach. You find an existing product that you can sell to your market and you can obtain fairly inexpensively. You might add your logo and have bespoke packaging, but there are only minor differences. Now you start distributing that product. Then, over time as you get to know your Chinese manufacturer and market better you might further customize the product, and, eventually, develop a totally unique product. This takes the process step-by-step which is better for low budgets.
✅ Sourcing & vetting suppliers. A bad supplier gives poor results most of the time. Many clients of Rico’s initial intention is to get the best quality goods at the lowest price, but it doesn’t work like that in China. It’s worth spending time and money to source and vet suppliers to find a good supplier with who you have a good relationship. Aside from price, a good supplier may actively suggest improvements, be patient, and more.
✅ Sourcing tips when on a low budget. You can start by finding suppliers online (Alibaba or GlobalSources, for example), but avoid pushing for the best price immediately as the best suppliers won’t respond and you’ll be left with poor suppliers or scammers.
Paying a little more for higher-quality products has benefits, such as fewer returns, more satisfied customers, and you can build from there.
Be aware that sourcing platforms’ assurances that a supplier is legitimate are not to be trusted implicitly, you will need to vet the suppliers once you have found them.
Take advantage of the various online resources and reach out to peers on Facebook groups with questions before you take the plunge (here at Sofeast we’re always happy to answer questions you may have about manufacturing in Asia, so contact us).
✅ What are the basic terms you’ll need to set with the supplier you select? Payment terms (usually pretty standard, if you can the remainder after shipment this is a bonus). Clarify your expectations – what happens if they are late or a certain percentage of defectives? An enforceable contract manufacturing contract is a plus. Lock in that you will perform QC inspections during or after production. In Rico’s experience, the biggest thing that suppliers push back on is the buyer’s QC standards (agreeing on AQL, major and minor defects, etc). Having an agreement in place can help bring a supplier into line without any need for litigation if there are issues as they can be reminded of it and will usually comply after that.
✅ The need to take responsibility for your own product approval process. If you purchase children’s clothes and tell a supplier that you need three sizes for 6, 8, and 10-year-olds, but then you don’t check and approve samples before production that’s a big risk and it’s on you if you receive sizes you weren’t expecting. The manufacturer needs to be guided by your very specific expectations and you need to check for them accordingly by requesting samples and green lighting production based on a final agreed PP sample and it goes for packaging, too. If you document strictly what you consider critical defects to be, for example, and the process you expect if even one is found, such as re-inspecting 100% of the batch, the supplier will know you’re serious about quality. Make sure that you agree on these things with management, not just a salesperson who may not have the authority to agree but do so anyway in order to get the order.
✅ What to do before you start production? Inspect the supplier’s facilities, be active in communications with them, do an inspection during production and at the end of production for original products (just at the end may be enough for off-the-shelf products), get the salesperson to actively update you on the production process with photos where possible. Many customers don’t manage their orders very proactively, so if you make yourself heard regularly a supplier is likely to pay more attention to your order and needs.
Even buyers on a low budget should budget for product inspections. If you cannot afford that then buying from Asia probably isn’t for you. You can do some due diligence on suppliers yourself by cross-checking online information to see if everything is consistent, although paying for specialist background checks when vetting suppliers isn’t so expensive and is very worthwhile. Without visiting the factory in person or sending an auditor it’s very hard to truly understand their quality systems and processes, therefore budgeting for a factory audit is also worthwhile and is proven to lead to better quality results during subsequent inspections versus productions that went ahead without a factory audit being performed first.
✅ Why very technical products aren’t a good fit for first-time manufacturers on a tight budget. Higher-tech products often have more issues during development, more prototypes are required, technical experts need to be involved, they require compliance with specific certifications, several suppliers may be involved at one time, and more. All of this costs more money (and time).
✅ How adherence to compliance regulations can be expensive. Certain products will have stringent compliance regulations, such as children’s products, food contact products, medical devices, etc. Even off-the-shelf products may need to be tested for compliance with your market’s safety regulations, because, unlike products you develop, you don’t necessarily know what is in these. Therefore, manufacturers need to budget for compliance testing, but this could be expensive for low budgets. Therefore, initial product choice comes into play here.
You should be aware of your market’s compliance regulations and what you have to do to comply (labelling, declaration of conformity, testing required, etc). To reduce your risks, compliance can be expensive.
Rico gives an interesting example of compliance testing for PVC toys for the N American markets and what it took to become compliant.
✅ Packaging compliance. You need to make sure that your packaging adheres to your market’s regulations. For instance, in Canada, it’s required to have both French and English labelling on packaging. This is another example of where you, the buyer, need to proactively inform your supplier of what’s required, not wait for or trust in them to tell you what you need to do.
✅ Shipping & Logistics. The high costs at the moment are difficult for everyone, especially small buyers. Get multiple quotes and compare them to find the best option. Move quickly as prices are rising so quickly. Minimizing packaging size could help lower costs, but choose enough protection for the products while they’re in transit.
- Sign up for the SFA digital summit for free!
- Listen to Rico’s podcast: Made In China Podcast
- If you are starting to manufacture a new product soon, read our guide: An Importer’s Guide to New Product Manufacturing in China
- Listen to our podcast series on how to vet Chinese suppliers
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