Can you be TOO trusting with your Chinese factory in the name of being partners?

Some Western buyers who outsource their manufacturing (and product development in some cases) to Chinese suppliers think that offering a partnership where each side strives to be as friendly as possible and accommodate each other perhaps above and beyond usual is a good way to build a long-lasting relationship. This even extends to not requiring that they sign an enforceable manufacturing contract for fear of upsetting them and not being in the spirit of being a partner. While it’s good to form supplier relationships that will last for the medium to long term for your own sake of having a stable supply chain, forgetting the basics such as protecting your own business and making your requirements clear in the hope that in time you can just ‘talk through’ any issues that arise is not a sustainable approach and is a flawed intention as you’ll see…

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Why no manufacturing contract is a recipe for trouble.

Ambiguity leading to the supplier providing products that don’t reach your quality and or reliability standards, for example, could be avoided with an enforceable manufacturing contract, but not all Chinese suppliers want to sign one as this reduces their control over ‘their product IP’ and indeed you, the buyer. But some Western buyers don’t want to ‘scare off’ a potentially good long-term supplier by requesting them to sign a contract as they misguidedly see this as an unfriendly action that might upset them and means that you don’t have a partnership which is built on trust and amicability.

In fact, Chinese suppliers are quite used to signing manufacturing contracts today and don’t see it as an insult and it’s standard practice for many foreign businesses who manufacture in China via suppliers there (and probably should be for even more).

It’s better to be upfront with new suppliers at the start of your cooperation and make it clear that you work in this way, require a contract, have the specific requirements listed, etc. This helps build the relationship on a sound footing where everyone knows where they stand from the start and the buyer doesn’t need to feel pressure to accommodate them later in the name of ‘being partners’ as they have accepted your terms already. Assuming that the supplier will feel the same way as you do about being close partners who are very friendly and help each other through thick and thin in, say, 6 months or even a year or more’s time is a very big assumption. It’s clear that having everything agreed in a contract at the start instead is a must as opposed to following a Western ‘win-win mindset’ over doing the basics to p[protect your interests and ensure a smooth relationship.

Activities you can take as a buyer that will help to build a good relationship with your supplier.

If a supplier sees that you are following up regularly, are engaged with them, and visit China on a fairly regular basis to check in on them and see the factory and products, they’re more likely to see you as a good buyer and respect and be willing to assist where needed, regardless of whether you request them to sign a manufacturing contract.

Sourcing a contract manufacturer, like our own Agilian Technology, instead of an OEM or ODM also means that you’re more likely to be able to work with them under the terms of a contract because their business model is set up exactly for this approach.

Finding out how the supplier works and understanding their peak and low seasons are and placing orders when they’re less busy and avoiding pressuring them too hard when they are is also a good way for buyers to enhance the relationship, furthermore, you will be able to bargain for better pricing, for example, if you do give them orders in the middle of their low season, as this really supports their business.

By not following responsible purchasing practices, the buyer can heap unnecessary pressures on the supplier leading to illegal overtime, staff fatigue, unauthorized subcontracting, sub-par quality and reliability, and more. For example, instead, maybe you try to level your orders throughout the year instead of piling in large ones during the supplier’s peak season. Doing this also gives the buyer leverage over the supplier if they make excuses for poor performance, especially during busy times, because you have made things easier for them by giving them the same amount of orders throughout the year, so they should be performing as agreed regardless.

Also, be mindful of fairness and try to develop a relationship with equal ‘give-and-take.’ Some examples:

Tailor your order volume to the supplier’s size and capacity, so don’t place huge orders with small suppliers, or small orders with large ones.
Make sure that you pay on time, as some factories are tight on cash, especially in low periods, and a knock-on effect of paying them late could mean that sub-suppliers are paid late by them, and then your whole production gets disrupted.
When developing a product with the supplier, validate the prototype samples they send you quickly rather than leaving them waiting for an answer for weeks. If you do so, they may be less open to moving quickly on your requests in future.
Don’t cancel shipments at the last minute, this will obviously be seen as unfair by your supplier.
Don’t play games with the supplier, such as messing them around after certain things have been agreed.
Respect their technical ability and don’t push them to do things that are outside of that as this sets them up for failure which they will not appreciate.

Be aware of your track record with suppliers, because word spreads.

If you have a history of pitting numerous suppliers against each other on price, for example, if the day comes that you want to build closer relationships with just a select few suppliers, they are far less likely to trust your intentions due to your past track record. That means that getting a trusting and mutually beneficial relationship off the ground is so much harder and may land you dealing with a lower-level employee who doesn’t communicate readily and lets problems accumulate before taking action, as opposed to a project manager or other senior figure.

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Why no manufacturing contract is a recipe for trouble.

Activities you can take as a buyer that will help to build a good relationship with your supplier.

Be aware of your track record with suppliers, because word spreads.

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