Value addition

I am happy to see that some of the manufacturers that I have discussed the importance of value addition with, are seeing dividends in terms of satisfied customers and increasing orders. I also see many suppliers, who do not see any value in the concept of value addition, losing business. It is such a simple concept, but the mentality with too many is that they would rather save $1 today, than make $10 tomorrow

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.

Email only, please.

People often ask me why I refuse to use any of the instant messaging services (Line, What’s App, We Chat, etc) for business.
I always reply, that today, email is also an instant messaging service. Everyone has their email app on their phone.
What is important to me, is that it creates a chronological paper trail that cannot be disputed, accessable through any computer or smartphone.

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

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.

The Commercial Decision

This has been something I have meant to write about for a while. It will be short and sweet. I was reminded of it by a client of mine, who has come to this crossroads.
In apparel manufacturing, mistakes are often made, and in some cases they cannot be rectified, without delaying your shipment.
Thus a decision needs to be made as to whether or not to accept the mistake. Will the mistake have material impact on sales? This is what I define as the commercial decision, and have faced it numerous times.
A recent example was for yarn dyed shirts. As these were what is known as “engineered”, it means when the front panels are sewn to the back panels, the stripes need to line up. Buyers pay a higher price for these items, as there is more wastage, than if the stripes did not have to line up.
On seeing the final product, I noticed that the stripes did not line up. Decision time. I decided that a 0.5 cm deviance, was commercially acceptable. Most items fell into this. The supplier breathed a sigh of relief. This was short lived, as I then required a 30% discount, or would cancel outright. “But why?” bleated my supplier. Answer; “You did not show the correct care when manufacturing my order, and you cocked it up. You need a reminder, not to do it again”.
He took the hit.
Never accept something a manufacturer does, that is incorrect, even if it will not have a material impact on your business. There has to be a penalty involved. Otherwise you are setting a dangerous precedent, for two reasons.
Firstly, the supplier will see you will accept sub par goods, and he will see $ signs, knowing he can cut the corner on purpose next time, and you will accept.
Secondly, if it does happen again, he has the “But it is minor problem, and last time you accepted it.” argument.
You also set the precedent that you are serious, and not to be trifled with. Manufacturers love to cut corners, and the only way to penalize.
Whether it was a genuine mistake (I always give the manufacturer the benefit of the doubt), or not, it is neither here nor there. A mistake was made, and someone needs to take responsibility. In this case the factory owner, for not showing proper care.
As a buyer there is pressure to buckle if the mistake is not material, as you are under time pressure. Do not try to negotiate a discount, as the manufacturer knows you are under pressure. State your terms and walk. If the manufacturer comes with a counter offer you feel is fair, accept. But, do not waste time in protracted negotiations, over this. The only thing you need to say is “no”, until an acceptable settlement is reached.
If it destroys your relationship with the manufacturer, you have back ups for your next orders (if you followed my previous advice, that is).
Such is the nature of this beast.
Till next time.