7 Smart Ways to Source from China

7Smart Tips to Successful Sourcingfrom China

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Anyone who has been operating in China for more than a few years will be long on horror stories. These accounts have a way of feeding China’s less than favorable reputation as a trading partner. China con-sistently scores poorly in corruption surveys, includ-ing those that comprise Transparency International’s Corruption Perception Index, an aggregate indicator that ranks countries in terms of the degree to which corruption is perceived to exist. But corruption is really only a very small part of the risk profile related to sourcing from China. By incorporating these seven insider tips to sourcing, you can significantly reduce, if not eliminate, a large number of the pitfalls that trip up so many orders.


Sertus is a leading provider of value-added procurement and logistics services. We offer our partners product, inventory manage-ment, logistics and custom-made solutions to meet real client needs. With bridges to thousands of factories, Sertus is able to help our partners build profitable brands by sourcing the best products while minimizing costs. We also offer our partners access to certain well known, international brands that are part of the Sertus portfolio.

Our offices in the US, Canada, China, and Latin America work together to find the best sourcing alternative for all of the critical components and processes in the supply chain. Sertus backs its geographic scope with a full range of services including: product design, product development, procurement management, purchasing management, manufacturing control, forwarder consolida-tion, shipping control, customs clearance, local forwarding consolidation and so much more. Unlike most trading companies that intermediate a buyer and a manufacturer, Sertus provides comprehensive turnkey services that cover every need of sourcing.

Sourcing successfully from China is achievable.

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Overview


http://www.transparency.org/policy_research/surveys_indices/cpi/2010/results

http://www.transparency.org/policy_research/surveys_indices/cpi/2010/results

Simply stated, larger, more experienced factories that have grown sales for specific products over time have a higher probability of being able to meet the specific standards you require. Look to source from companies that do a large volume of business in the products you seek and that have experience in trading with the markets where you operate. This is not a sole determining factor in assuring qual-ity, but don’t underestimate the economies of experi-ence that accompany scale. It is true that often, for smaller orders, it is difficult to get the attention of large manufacturers. Minimums may be prohibitive or simply the pricing offered for smaller quantities can exceed what may be quotes from a smaller, less experienced manufacturer who is hungry for the busi-ness. It can be tempting to yield to the lower-priced supplier and to subordinate your concerns for risk or quality to the savings from the lower sales price. But beware, many businesses have been undone by such temptations unless they are willing to spend money on the front and back ends to ensure on-time delivery and quality. Finding a qualified intermediary that can provide on-the-ground support is often the safest and best way to obtain the security offered by large manufacturers and the price advantage of a smaller supplier. You can leverage off of your inter-mediary’s network and relationships while orders are under production with the larger manufactur-ers and simultaneously get the smaller suppliers up to speed. There are low-risk ways to integrate these smaller suppliers into your business model, but it should be done over time, and preferably with an ‘A’ supplier already in place.

1 BIGGER is often better



The more work that is done in advance of placing your order, the fewer problems you will have later on in the process. It is critically important that all speci-fications are clearly stipulated. Including a Product Spec Sheet with your request for quote is good sourcing practice. But at a minimum, make sure any critical specifications, standards, materials, finish, packaging, and packouts are clearly stipulated to the manufacturer when you request your quote. Even if you are not completely sure of all critical specifica-tions, make sure that the supplier lists all relevant specs on quote sheets. This will be imperative information to transfer to your Purchase Order once you are ready to move forward. Also make sure to ask the supplier to provide you with a sample before placing your order. Many companies will tell you that they are able to manufacture your goods but will not make a sample for you because they do not have any in stock. Be wary of this scenario. While this may be the case for uncommon, irregular or highly customized requests, any major supplier that has experience in manufacturing your products should be able to get you a sample before production. Clear specifications and detailed sample labeling can save you big headaches later on in the process.


2 Do your heavy lifting up front


In any successful trade, it is paramount that the controls are in place to ensure quality from the outset of and throughout any order. Understanding the production milestones and critical risk factors will help you to set QC procedures throughout the production process. There are many QC companies in China that will charge you anywhere between $300-$500 per QC man day for inspections, and you can expect most inspections can be completed over two days. However, the problem with the ma-jority of QC companies is that they will only inspect according to the criteria that are set for them, plac-ing the responsibility squarely on the buyer to identify in advance what must be done. Worse yet, if there are any problems, these QC companies or agents are often not equipped to provide any solutions – only to identify that there was a problem. Inspections are only as detailed as the protocols you lay out for those inspections. Look at your product history and list out everything that can go wrong. Make sure that you have a competent part-ner handling these inspections for you, and make sure that all possible product pitfalls are built into the QC process. Find a QC partner who will be able to provide reports that include containing, corrective and preventative recommendations when problems arise. This proactive approach can save you a lot of unnecessary expenses and headaches down the road, and is essential if you are going to be placing multiple orders.


3 Conduct detailed QC throughout the production process


Because of inconsistencies in the manner in which con-tracts are drafted, enforcement in China is not a simple and straightforward pursuit. Many contracts in China are simply unenforceable because they are not writ-ten in Chinese, not governed by Chinese law or they are explicitly enforceable outside of China. However, if structured properly, contracts can allow for effective action by the courts and enforceability is far less of a concern. The IFC/World Bank, which publishes its Doing Business rankings each year, places China 15 out of 181 countries in terms of contract enforceabil-ity. This makes China one of the best systems in the world for the enforcement of contracts, as long as they are drafted appropriately. You are far better off having a contract than not having one to protect your legal position when doing business. Equally as important, it will force the buyer to think through the important elements of the order that need to be protected and, in turn to open a dialogue on the expectations of both parties (e.g. contract price, ship to party, return policies, specifications, delivery dates, price protection, payment terms, holdbacks for final acceptance, damages for late deliveries, technical support, confidentiality, to name a few). Keep in mind that it is almost impossible to cover everything in a sourcing contract but you should strive to cover the most important elements every time: price, delivery dates, and quality. Make sure the contract is chopped (official company seal) or it is worthless. The chop represents or validates a company towards third parties and is the only required “signature” to certify any contract. Any company legally registered to do business in China is required to have a Com-pany Chop, which has to be registered with the Public Security Bureau (PSB). In those instances where a contract is not going to provide necessary protection, have a local intermediary in place that is helping you with the supplier relationship. If you are in the unenvi-able situation of having to request returns or file claims against suppliers, the outcome is generally much more favorable when you have some local ‘friendly’ relation-ships in place – after all, one of the most important distinguishing factors to doing business in China is the importance they place on strong relationships versus transactions.


4 Make sure everything is documented in a purchase contract


http://www.china-briefing.com/news/2010/09/24/use-of-company-chops-in-china.html

The more moving parts there are to any order, the higher the probability that something could go wrong. That is why it is essential that every order be boiled down to the most basic requirements. Use your supplier’s sub-suppliers for all product accessories, packaging, and printing, as often as possible. Try and stay within your supplier’s com-fort zone not only with sub-suppliers, but also with product features. Suppliers will be fast to tell you that they can handle your requests, but don’t count on it. Cultural and language differences only scratch the surface with regards to ways com-munication can go wrong. If something can go wrong, it often will, so strive to keep it simple and straightforward. At times, the nature of the trade is such that there is no way to simplify things without sacrificing the integrity of the order. In these in-stances, it is critical that you have a trusted partner on the ground that can manage the dynamic for you and catch any possible problems before they become costly ones. Look for a trusted party who has solid, long-term relationships, as well as expe-rience in working with multiple suppliers to act as your agent on the ground in China.


5 Keep it simple


Low price is not always the low cost alternative – in fact, the lowest price is very rarely the lowest cost op-tion. This is simply because most items sourced out of China offer little competitive advantage that could account for large differences in price for the same item. The most obvious justification is that the quotes being compared are not in fact for the same item. Analyze quotes, analyze spec, and analyze samples to keep clarity on cost differences between suppliers. There may be other critical costs that are not being included in the quote that extends beyond the materi-als or spec of the item. Are they cutting out costs from QC? Are they allocating far less managerial overhead? Are they intentionally undercutting the competition to get the business but with the intent of hiking price after your first order? All of these aforementioned possibili-ties can lead to problems down the road. Make sure you (or someone on the ground) is doing thorough due diligence. Ask the right questions. Do the right analy-sis. Keep in mind that often with a low-price alterna-tive there is more than meets the untrained eye. Make sure you have the right people on the ground, ask-ing the right questions.


6 Make sure you are comparing apples to apples


You can have the best contract in the world, but if your counterpart is deceptive or misleading, then what value does that contract have? Know your counterpart. This is a universal truth in business, re-gardless of location, but in doing business in China, there are deeply ingrained cultural aspects to the ‘business deal’ that can lead to misunderstandings and possibly severe financial repercussions. Unlike many Western cultures, doing business in China is often not transaction or project oriented, but tends to be more relationship based. This can mean doing business only with people who are personally known, liked and respected. Developing Guanxi in China can be very demanding on time and resources and requires, before anything else, a sound understand-ing of Chinese culture. Find a partner with offices in China that is well-established, with the local experi-ence and cultural disposition that you need. These intermediaries perform much more than simply a bridge to your supplier, they provide you with a network. Find an partner on the ground that will not only educate you on these cultural requirements, but at the same time will open up much of their own Guanxi to you and your business, so that you can benefit from the relationships they have formed and nurtured, and in turn create the circumstances for successful sourcing in China.

For more information on successful sourcing from China and for help with China supply chain solutions, contact us at [email protected] or visit us online at www.thechinasourcingexperts.com.

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7 Find a trusted partner

Applying these simple, basic tactics to get you on the right path to successful sourcing can save you time, hassle and ultimately money. These tips are not meant to be exhaustive. Sourcing from China is a dynamic and complex activity that requires cultural and practical experience. But the most important takeaway for both experienced and inexperienced buyers is that your own organization’s preparation and your choice of supplier and a local partner will make the greatest impact on assuring quality and avoiding problems.

Summary

http://en.wikipedia.org/wiki/Guanxi

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