If you are considering sourcing from China, the following guide can help you avoid costly errors and make the process run much more smoothly. From finding a supplier to making payment and clearing customs, learn each step before making any commitments.
Types of suppliers
Some suppliers will pretend to represent a factory when they do not. The major types of suppliers include:
- Trading companies: These companies will handle everything from finding the manufacturer to payment. While this is the easiest way and often best for small orders, the commissions taken on every order will increase costs.
- Through a third party provider: For a onetime fee, this provider works for the buyer and will help find and screen suppliers.
- Factory direct: This may not be an option for smaller orders and requires the most work to set up and monitor. However, it provides the greatest degree of control and lowest costs in the long run when done correctly.
Finding a supplier
Finding the right supplier is the first and most important step. Going directly to China or trade fairs are always options, but there are also a number of sites that connect Chinese suppliers with buyers. These websites offer numerous ways to evaluate the qualifications of suppliers before meeting with them or investing anything. Some of these sites include:
Selecting the right factory
There are number of factors to look at to ensure you have the right supplier.
- References: Any good factory should be able to supply at least a few references from previous customers.
- Communication skills: Although the general level of English ability leaves something to be desired in most parts of China, any good supplier with experience in the overseas market should have people that can communicate well in English.
- Quality control: Ensuring quality is often the single biggest hurtle to successful sourcing from China. Make sure the supplier has an established system of ensuring quality control.
- Product line: The supplier should have a product line of related products they can present.
- Inspect factory: If at all possible, inspect the factory where the goods will be produced. Keep in mind that some factories will actually outsource what they do not have the knowhow or space to produce. Ask to see exactly where the production will take place to ensure the factory-direct price.
Labor costs have risen significantly in many areas of China, and the price advantage is not what it used to be. Still, China has the relatively low costs and the infrastructure that makes it the best place to manufacture many products. Keep in mind that manufacturers outside the more established areas will have lower costs. It is necessary to check with different suppliers to get a good idea of what the market price generally is. Negotiate for the best prices but be wary of suppliers who give significantly lower quotes than everyone else. There is a good chance anyone coming in much cheaper than the market average will not be reliable.
To get the most attention and best quotes from suppliers, present your organization and the order size to look as large as possible.
In addition, keep in mind the price effects of VAT and China Sourcing.
Start with a sample
As is explained in sampling it is crucial to make sure the factory proves it knows exactly what it needs to produce by first producing a good sample. The sample needs to be the baseline established before placing any orders.
Start with smaller orders
Although larger orders will have lower unit costs, this is discussed more in production runs, it is advisable to start with smaller production runs until the factory can demonstrate its abilities and trustworthiness.
Making the deal
Everything needs to be carefully spelled out in a contract. Some points that need to be covered are:
- Quality control: Assuring quality control is arguably the single most important factor. The specifications for the products need to be clearly spelled out in addition to how quality will be assured.
- Defects: How defects are handled and replaced must be clearly laid out. This includes the time frames for replacements and how shipping will be handled and paid for.
- Arbitration: Specify how and where any disputes will be handled.
- Payment: A percentage is usually paid up front with the remainder paid when the goods are shipped or on arrival as is the case if a commercial letter of credit is taken out.
Some type of inspection needs to be performed before any goods are shipped. The surest, but most costly, way to ensure quality is to have someone at the factory inspecting products as they are made. At other times, the products are inspected before they are shipped from China. While this is cheaper and reduces the danger of the inspectors being bribed or compromised in some way since they are not at the factory, there may be problems with getting the supplier to replace the goods if production is already complete.
One good way to inspect goods at a lower cost is to find a professional third party inspection service.
If at all possible, order by full container load (FCL). This will significantly reduce the unit costs of shipping and lessen the likelihood of damage or other losses in shipment. When this is not practical and your merchandise makes up a less than full container load (LCL), it will be combined with other shipments. This and other important points about transporting goods is explained in more detail in shipping.
If buying from a factory that does not have an export license, keep in mind that a third party will need to be paid to export the goods. The points laid out in the following articles on tariffs, customs clearance, customs brokers and freight forwarders should be understood before the goods are ever shipped.
Doing business in China is a valuable reference to prepare anyone not familiar with Chinese business practices on how carry out any kind of business there.