Getting Your First Product from China: A Crash Course in Supply Chain Management.

Now that you have decided to do some business in China, it is important that your supply chain is properly managed.

Supply chain management, simply means getting your order from your supplier to you.

It is a relatively simple concept, and “Supply Chain Management” sounds a lot better than “Getting the Product to You Management”.

Some might argue that I am oversimplifying the issue. I am not.

This article is not addressing the global supply chain of British Petroleum, but that of a relatively small business new to buying product in China, and getting the product to their country.

Also, in most cases, a third party will be managing the more important components of your supply chain for you, so it is often more important to choose the correct third party. These are mentioned further on in the article.

A more official definition of supply chain management, is given here. But essentially all it means is getting your order from the supplier to your warehouse, or any other final location you choose. It is worth reading the link, but as mentioned it goes into more detail than is really required for our purposes.

As a business new to supply chain management it is best to keep things simple. We will only look at the three key areas of your supply chain.

There are essentially only three.

·        The supplier in China.

·        Quality control.

·        Shipping.

Your supplier

I have made one assumption here. It is that your supplier will organize and procure all the materials for your order. This is often the case, especially for new buyers.

Besides getting your order ready on time, there are other requirements your supplier has to meet to ensure your order gets to its destination. Probably the most important of these other requirements is documentation. When the goods are ready to go, you supplier should supply the following documents(Please keep in mind documentation differs from one product category to the next, and from country to country, so you will need to do some homework here. You supplier or shipping company can advise you in this regard.)

§ Commercial Invoice. Example

§ Packing slips. Example

§ Certificate of Origin. (Not always required) Example

§ A bill of lading/Air waybill. Bill of ladingAir waybill

§ Any additional documents required for the specific product and country of import.

These documents need to be checked for errors, as the information can be incorrect, or the format can be wrong. As a rule, double check all documents.

These documents will be needed to clear customs, both in China and the destination country.

Your shipping company will advise you if the documentation is correct or not, as incorrect documentation will be a problem for them.

They will have customs issues, either exiting China or entering the importing country.

Do not wait for them to notify you of incorrect documentation, as this often causes delays and additional costs.

Be proactive here, and ask for copies of documentation in advance for checking.

 

Quality control

Quality control is an important part of supply chain management for obvious reasons. You need to ensure that your product meets not only your quality requirements, but also the requirements of your country, or the country the goods are being imported into. Quality control deals with more than physical quality of an item, but also regulatory quality requirements.

As an example, children’s clothing has certain statutory requirements for import into the USA. These might not be something you have considered, or are even aware of. You cannot rely on your supplier to ensure these are met. Essentially the supplier is under no obligation to meet these requirements unless they are specified as part of the order.

Choosing a good third-party inspection agency can ensure all of these issues are dealt with. If you are new to this, you should spend time with a representative of the inspection agency to discuss both your requirements, and any regulatory ones.

This is why I always advise dealing with a well known and respected agency, such as Intertek or SGS.

Many others have popped up over the years, and might offer benefits to your business that others do not. However, if you are going to deal with the lesser known agencies, do your homework.

Ask for client references of previous clients that have imported the same product category into the same country as you are. Also do your homework with regard to regulations.

 

Shipping

Choosing a good shipping company is extremely important. Do not just look at the cost element, as this can be misleading. You need to consider the following, as they also have cost and time implications.

§ Does the shipping company have an office/warehouse located in close proximity to your supplier, or do they contract out to a local agent?

§ If you are shipping by air, does your shipping company have dedicated/guaranteed space on the major airlines. Some, like DHL , Cargolux, and FedEx have their own planes.

§ If you are shipping by sea, what date does stacking close? You need to ensure your goods are with the shipping company before this date.

§ Transit times.

Do not be afraid to ask the representative of the shipping company any questions you might have.

 

Another important aspect, that I feel I need to mention is the INCOTERM. The INCOTERM used has an important relationship to shipping. The INCOTERM is also chosen when you place an order with the supplier, and this could be six months before your goods are ready to be shipped.

For example, FOB, requires the supplier to deliver the order to the shipper’s warehouse, at the supplier’s cost. They therefor use their own transport, and usually go for the cheapest option. I have heard the excuse that part of my order “fell” off truck taking it to Tuticorin Port in India, and was lost.

With Ex Works, you control and are responsible for the transport of goods to the shipping company’s warehouse. You can organize your own transport, but usually the shipping company will. The bigger shipping companies usually have their own trucks, while the smaller ones may need to sub contract this.

 

I hope this article has been informative.

Although I have ignored many aspects of supply chain management, the above-mentioned ones are the “nuts and bolts” of supply chain management for a new buyer. Focus on these, and you should have no problems with your supply chain.

Good luck with your first production in China.

From Zero to Hero. Sourcing in China (Or anywhere else, for that matter.)

So, you have weighed the pros and cons, and have decided you are going to manufacture your product in China. Now what?

I will make the assumption (although I could be incorrect), that you have not manufactured offshore before. I will also assume you do not have any associates that can point you in the right direction, or refer you to a manufacturer. My final assumption is that your product is a basic item.

So where do you start?

As this is a quick start guide, I will look at the quickest way to get your manufacturing going.

Just keep in mind that this does not preclude some due diligence and common sense on your part.

Firstly, no matter what your product is, do a little bit of research on manufacturing in China.

Even if you have manufactured in other countries, every country differs in many ways, so getting a feel of the place is important.

A quick Google search will bring up many results. For someone in the apparel field, a search of  apparel manufacturing in China, brings up nearly 600 000 results.

Try to pick some unbiased or neutrally sounding websites. The first two pages of the Google search, should give you a broad idea of the current situation from regulatory requirements to the exchange rate.

Once you have done a little bit of research and have an idea of what you can expect, it’s time to look at actually manufacturing in China. This seems like a daunting task, but with a bit of common sense can be done with relative ease.

The quickest way to get started is to use the internet’s multiple B2B sites.

I suggest making use of the main sourcing websites for Chinese manufacturing, such as Alibaba, Made in China, and Global Sources.

You can either search directly for potential manufacturers, or place a buying lead where manufacturers will contact you based on your lead. Either way keep in mind the following.

  • Many suppliers on all these sites are “dead”. What this means is that they are not in business anymore, or they do not make use of the site anymore. So, if you contact them via the site, you will not get a reply. Most sourcing sites have a number or percentage indicating the supplier’s response rate to enquiries. For example, Global Sources will indicate both the response rate and average response time.
  • Try to stick to verified suppliers. Whether this verification status means they are paying a fee to be on the site, or have been audited by the site, is debatable. However, it usually indicates they are active on the site.
  • Narrow down your geographic area. China is a huge country. It does however, have manufacturing clusters or hubs. These are areas that specialize in manufacturing specific products.
  • Be extremely specific as to what you are looking to produce. Give an accurate description, units per order, any required inspection levels or quality levels, required certification for both the manufacturer and the product, country that you importing to, payment terms, and Incoterms.
  • Ensure your profile is as complete as possible. All these sites require registration by buyers, and an accompanying profile. The better your profile, the more seriously manufacturers will take you.

Expect to start getting responses within ten minutes. All these sites will notify manufacturers of a buying lead as soon as it is posted or as soon as you contact a supplier through the site.

Once you get responses, and you will get plenty, you need to sort the responses. You are only looking for certain responses.

  • Ignore all responses that look generic or cut and pasted. These are easy to pick out.
  • Ignore all responses that mention any terms different to the ones you have requested. For example, if you state you are looking for 500 units, and the response from the manufacturer mentions an MOQ (Minimum Order Quantity) of 1 000 units, ignore them. If you state you pay using a Letter of Credit, and they mention a deposit and balance on delivery, ignore them.
  • Ignore all responses that are badly written, such as those with a lot of spelling or grammar mistakes. Remember, you are dealing with someone thousands of kilometers away, so you want good communication.
  • Ignore all responses three or four days after placing your lead or contacting a manufacturer. You want timely communication.

To sum this all up. You only want to deal with manufacturers that communicate well and in a timely manner, read your buying lead or enquiry properly and take note of the specifics, and take the time and effort to give a proper response.

Once you have narrowed down the manufacturers to a manageable amount, it is time to start looking at the manufacturer or manufacturers (you may need more than one), that you think are suitable.

Keep in mind that these manufacturers will usually contact you via the site’s messaging service. Once you have narrowed the manufacturers down, move outside the messaging service to email.

It is much easier as most of the messaging services are not user friendly, and require an app for a smartphone.

Now you need to send the potential manufacturers information for costing. Ensure this information is complete and laid out in a logical manner, with all specifications.

Also ensure that at this time, you re confirm all your business terms, such as lead times, sampling requirements, payment terms, Incoterms, inspection requirements, quality requirements, target prices, etc.

I suggest you have at least 5 potential factories at this stage, as some will drop out of the race for various reasons.

Some of these manufacturers may have been audited by third parties or by customers. Ask if they have been audited and for copies of the reports.

You can also get a third-party inspection agency to do an audit on your behalf. An audit is usually in the range of US $ 250 to US $ 350. Intertek and SGS are the biggest and most well-known of these third-party inspection agencies.

Also ask for factory profiles. A professional factory should have a profile giving information on the factory’s product, machinery, in house peripheral services, customers, and any certification.

 

Once prices start coming back, lay them out in a spreadsheet to get a comparison. Some will be ridiculously high, while some may be very low.

Resist the urge to take the lowest prices. A simple average of the prices you get back, should give a decent idea of the market price you should be paying.

A common tactic to look out for, is manufacturers who give a low price for the first production run, and then hiking this by 20% or more for the next production run. They will all give you the same reason when this is queried. “You were a new customer, so we gave you a special price.” There logic is that it will cost you more to find a new supplier, than to pay them extra. However, once you give in to this it will continue.

I personally mention this to manufacturers, and tell them I am aware of this tactic, so they must not try it, when I send items for pricing. Do not be afraid to be direct, as long as you keep it professional.

Also keep in mind that there is room to negotiate in all these prices. No manufacturer will give their best price first, in the same way the target price you gave them is not your best price.

When you are costing, remember that the manufacturers price is not the price you are concerned with. You need to calculate your landed price. This is the price of getting the product to your door, in your local currency. You can usually work this out using a factor, relatively easily.

I suggest you try to narrow down your suppliers to a primary manufacturer and a back-up manufacturer, in case things go wrong with the primary. It happens.

If your product can be counter sampled, get your primary manufacturer to do so. This might have a cost. Ensure you agree that this cost will be deducted from the cost of the confirmed order. They may also have samples based on product similar to yours that they can send you.

Once you have confirmed all the prices and you are happy with the counter samples, an order can be placed, and your China manufacturing journey has begun.

Good luck.

Beyond Alibaba!

If you have sourced in China before, I bet the first thing that comes to mind is Alibaba.

This is a perfectly normal reaction. Alibaba is a very useful and convenient sourcing platform.

Post a buying lead, and you will have dozens of responses within a few hours. Even some in a few minutes. You can just sit back and relax while suppliers come to you. To most this is ideal. Put in minimal effort, for maximum returns.

But have you ever asked yourself whether there are alternatives to Alibaba? The answer is a resounding “Yes”. And many might be better suited to your needs.

Before we look at a few alternatives beyond Alibaba, you might want to know why you should look any further, if Alibaba has worked for you.

Simple logic is that you can only judge the effectiveness of Alibaba if you have something to compare it to. If you have not looked any further than Alibaba, you have nothing to measure it against, objectively or even subjectively.

I could write about the shortcomings of Alibaba, but this is not what this article is about. A simple Google search provides enough of these.

Instead we will simply look at some alternatives you can explore.

Business Networking

A useful alternative to Alibaba is networking, both offline and online.

I am sure that you have colleagues in the same industry as you. Ask them for a supplier reference, or if they know of any good suppliers.

It is in their interest to give you these details. It might seem counter intuitive for a business to share its good suppliers with anyone else. It actually gives them a valuable tool. Leverage.

Think about it. If the supplier misbehaves with an order, it also risks the referred buyer’s order. The supplier knows the two buyers are in contact, and that they will probably discuss any misdeeds by the supplier. Therefore, the supplier risks losing more business than it would without the referral.

Make use of professional networking sites such LinkedIn . There are thousands of suppliers in every industry here, and they are connected to thousands of buyers. There are also plenty of industry specific groups that are also a good source of suppliers.

One of the best things about LinkedIn is that you can get supplier references by connecting to a supplier’s network.

If you use a supplier you have found on LinkedIn, and there are problems with your order, the supplier risks this being discussed on the site. If a supplier does a good job, you can create some goodwill by mentioning this to your network.

The main downside with LinkedIn and other professional networking sites, is that it takes time to build up a network, and use it effectively. A strong network can also take a few years to build up.Joining groups is far quicker and will result in quick references and advice.I suggest checking out the following link; LinkedIn-Beginner Tips.

Joining your local Chamber of Commerce, is also a way of networking with others. So is joining the local federation representing your industry.

Trade-Shows

There was a world before Alibaba, and many businesses sourced through trade shows, both in their native country, and abroad. There are still thousands of trade-shows every year, and they are still valuable as sourcing tools for a number of reasons.

You can meet suppliers face to face. This goes a long way to establishing a relationship. It is far better than an “email” introduction.

Face to face meetings usually result in clearer communication. Important points can be stressed.

Face to face meetings give you the ability to “feel out” suppliers before doing business.

The supplier will have physical samples of its products.

There will be multiple suppliers in one venue.

Business deals can be done immediately at a trade-show if you so desire.

 

Here is a link to the important annual trade shows in China. China Trade Shows.

Many Chinese suppliers will also exhibit at local trade shows in your country. A good example is Magic in Las Vegas every February.

There will be plenty of trade shows in your country, too. An internet search is a good start.

 

Other B2B Websites

Although Alibaba is the biggest and most well-known B2B site, there are many more. Some of these tend to offer a better user experience. I personally prefer the interface (less clutter) and ease of Global Sources. You can also check out Made in China.

Another advantage of alternative sites, is the lack/reduction of spam. I can honestly say, out of the numerous sites I use, Alibaba creates the most spam. They are also extremely pushy in their mails trying to sell me Gold Member status, which I do not appreciate. It often borders on unprofessional behaviour

A Web Search

An old-fashioned internet search often leads to good results. Not all suppliers have Alibaba membership, for a multitude of reasons. An internet search often gives you more detailed and accurate information about a supplier than Alibaba. It is not in Alibaba’s interests to police poor performing suppliers, as they risk losing these fee-paying suppliers. The internet is not as kind.

 

A simple Google search of Ningbo, China apparel factories nets a lot of options. There are the usual suspects such as Alibaba and Made in China caught in the search. It also gives some other B2B sites, as well as direct supplier websites.

Another good thing is that peripheral information is caught up in the search, such as advice in finding factories and other useful articles. Some of this makes interesting reading.

In conclusion, a sound sourcing strategy requires that multiple channels are explored.

Being prudent and ensuring all possible channels are explored will not only improve your sourcing ability, but will give you access to new connections, up to date information, and industry news that can directly affect your business.

Beware the needle! 

A colleague recently showed me some garments that had needle damage.
When I asked him if he discussed needle policy with his supplier, he mentioned that he did not.
Obviously needles need to be replaced at certain intervals by a sewing factory, and very often the factory does not have a good (if any real) needle policy.
However, it is still important for the factory to know, that you know about the importance of a needle policy.

It indicates that you know your business, and indicates to them that this is something you will possibly specifically look for.

Prices, prices, prices! 

Never be reluctant to ask a supplier about a price quoted for a garment, or anything for that matter.
Some people often seem reluctant, especially if the price is good. 
They think questioning it will somehow let it slip, that its a good price. 
But, keep in mind, it could be a mistake on the suppliers part, and when the supplier realises it, you could be in for a shock.
Always double check what a quoted price includes.
Is it for your Incoterm specified? 

Does is include all raw materials and inputs? 

If you have a nominated supplier for trims etc, does it include this cost? 

Does it take into account your payment terms? 

What is the validity of the price? 

How will any exchange rate or commodity price fluctuations impact the price? 

Does it include all sampling required once the order is confirmed? 
I am sure you can think of some more questions, but never be afraid to double check every detail.
#correctcosting

#rightfirsttime

See it for yourself! 

Never trust what you see in an apparel factory’s showroom.
See what they are actually making on their line, or what is in finishing, final inspection, or packed in the warehouse. Open a few boxes if neccesary.
On quite a few occasions I have found items in showrooms that were definitely on made by that particular factory. 
In one case a merchandiser from a factory I did business with, opened his own factory, and invited me to visit.
When I commented that he had a lot of garments in his showroom, considering the factory only opened a week before, he admitted with a smile, that the vast majority were store bought. He just needed items to fill his showroom for buyers.
I even once found a sample I sent to a factory to cost, but they never actually produced, at their booth at the Canton fair! 

I am sure many of you have similar stories? 
#seeitwithyourowneyes

Excuses anyone? 

Everytime I visit a factory that is not busy, I get the same answer, without even asking the question.”This is our quiet period. In a month, we’ll be full.”
The strange thing is that, I get the same answer no matter what time of the year I visit.
From January to December, I get the same story from about every factory, working well below capacity.

Now we know a lot of business is seasonal, to the extent that there are usually specific times during a year when brands place their bulk orders. 

But, a lot of business is not, where buyers are placing orders throughout the year.
That’s why it was refreshing to get a mail from a Chinese supplier, asking for suggestions to increase business, due to so many buyers moving to lower cost countries, and/or countries with import duty benefits.