Establishing effective supplier relationships in China is crucial for successful product import. Building strong, long-term partnerships enhances business growth and ensures smooth supply chain management. Valuing supplier relationships fosters efficient dealings and boosts overall business performance.
Understanding and implementation of purchasing and supplier management principles is key to optimizing import operations and overcoming inevitable challenges. China offers diverse, cost-effective product options of high quality, making it a viable sourcing hub.
Whether you are a novice or a seasoned importer, navigating these relationships requires openness and strategic management to foster mutual trust and achieve operational excellence. You will need a well-documented purchasing and supplier management strategy to streamline the procurement processes. It also paves the way for sustainable business growth through reliable partnerships with Chinese suppliers.
While dealing with Chinese suppliers, you may face the following issues:
- Delay in shipments.
- Difficulty in communication leading to defective products.
- Suppliers raising prices suddenly at the last moment.
- Intellectual property infringement.
- Quality fades in due course of time.
When buy directly from China, adopting a strategic approach is essential. Purchasing and supplier management involves identifying trustworthy suppliers, mastering the production cycle intricacies, comprehending shipping, customs, and delivery logistics. Understanding these aspects is crucial for successful procurement from China.
Why do businesses buy from China?
Most of the importers prefer to buy from China due to the following three reasons:
1. Reduced Costs Across the Board - Reducing costs is critical for businesses. China provides substantial savings on production, labour, and assembly, easing the challenges of international procurement.
2. Rapid Production for Scalability - Time constraints may impede growth. China’s manufacturing prowess facilitates rapid, efficient scaling for diverse businesses.
3. Customization Opportunities - Expand your options beyond limits. Chinese manufacturers excel in customizing products to your specifications or developing new prototypes. You may try to connect with a few specialized factories for tailored solutions.
Why purchasing and supplier management is so important?
Nurturing a strong supplier relationship is crucial for business success. Effective supplier management involves more than contractual obligations - It requires interpersonal skills similar to people management. Businesses benefit from learning to engage effectively with suppliers to optimize performance and enhance supply chain management. The success of your business relationships with suppliers depends on the following few factors.
1. Open Discussion - Effective communication is vital in business to avoid misunderstanding. Suppliers can't anticipate your needs, so clear communication is key to achieving desired outcome. Treat suppliers as partners and maintain open, two-way communication. Discuss requirements openly to understand each other better and assess suitability for a long-term relationship. Establish mutually beneficial terms to foster a productive partnership that benefits both parties in the long run.
2. Respect - Success hinges on mutual respect. Suppliers thrive when buyers appreciate their work. Respect fosters trust, leading to improved supplier performance. Both parties must contribute to nurturing respect and trust, thereby maximizing opportunities for mutual benefit.
3. Fairness - Fairness is crucial for building long-term business relationships. Both parties must honour the contract terms to avoid supplier dissatisfaction. Address any supplier concerns promptly through open communication. Fostering fairness ensures mutual satisfaction and prevents the buyer from seeking alternatives. Uphold fairness in all dealings to maintain a positive and productive relationship with your suppliers.
4. Trust - Effective communication, mutual respect, and fairness foster trust, which is essential for cultivating and sustaining long-term relationships. Trust enables buyers and suppliers to collaborate effectively towards shared goals.
5. Flexibility - Flexibility is crucial in supplier relationship management. Success hinges on both parties adapting their methods to support each other's goals. Building a strong relationship requires mutual time and effort.
How to manage purchasing process from China
You must follow the best management practices for ensuring smooth flow of your business. Some of them are discussed below.
1. Be familiar with your products
A comprehensive understanding of your product is essential, encompassing its specifications, structure, and performance. It is crucial to delve into aspects like material technology, production processes, and market positioning. Equally important is verifying whether the product complies with all regulatory requirements in your country before importation. Familiarity with these details ensures informed decision-making and compliance with local regulations.
2. Find a reliable supplier
In China you will find the following three types of suppliers. Depending on your situation you must select the right type of suppliers for your business.
a. Factories: Chinese manufacturing factories vary widely in scale, quality, capacity, and product offerings. While many lack English-speaking staff focused on marketing, their expertise lies in production. Clear communication of technical requirements ensures they meet your product expectations effectively based on their manufacturing experience.
b. Trading companies: Trading companies specialize in specific industries or product categories, acting as intermediaries who purchase from multiple factories and resell at a markup. While this can lead to higher prices compared to direct factory purchases, trading companies offer advantages like easier communication through English-speaking staff and additional services. They can also facilitate smaller Minimum Order Quantities (MOQs. and provide access to a broader range of products sourced from multiple factories, streamlining procurement for importers.
c. Sourcing companies: Unlike trading companies, sourcing companies operate without earning commissions. They act as the customer's representatives, managing imports, quality control, and essentially functioning as the customer's office in China. They possess extensive industry knowledge, manage the entire import process, and customize purchases based on customer specifications. Sourcing companies don't maintain product catalogues or price lists but handle disputes on behalf of customers. However, their services are costly due to extensive human resource requirements.
After you have selected your source, you must also ensure that you have done due diligence on your suppliers. Even if there are a lot of trustworthy Chinese vendors, mishaps may occur, it is crucial to exercise caution as a part of your purchasing and supplier management strategy. There are several methods that you can go about it as mentioned below:
- Company Verification Report: Verifying the company's existence and legality is the most fundamental step to take.
- Factory Audit: A third-party company can be hired to assist you in finishing this. Evaluate the factory's general state, compliance, and capabilities.
- Visit Supplier in Person: You can observe the products as they are being made in this process, and it also has the benefit of allowing you to speak with the supplier directly to resolve issues.
3. Quality control
Purchasing product samples is crucial for quality control. It allows verification of design, function, and overall quality before mass production, as well as assessment of the supplier's capability to meet standards and deliver acceptable products. The following are a few aspects of quality that you should know:
- Know the Products Well: To effectively resolve quality issues, thorough knowledge of the product and a clear understanding of expectations are essential. Understanding the production process and potential defects enables the creation of a comprehensive Quality Control (QC. Checklist). This proactive approach ensures that all aspects of product quality are monitored and addressed systematically.
- Develop a Checklist: Implementing a robust QC checklist ensures rigorous inspection of products against predefined standards. This approach mitigates quality issues caused by suppliers misunderstanding requirements or taking shortcuts in production, significantly reducing the likelihood of defects or substandard products.
- Hire a QC Team: Employing a third-party inspection before shipment is prudent. If a factory resists this, it is a red flag, consider changing suppliers. Conducting inspection before final payment is crucial. This allows for issue resolution before goods ship. Post-payment, suppliers may be less responsive.
Once goods reach the destination, costly return shipping complicates repairs. Mitigate risks by ensuring inspections are conducted timely, and supplier cooperation aligns with maintaining product quality and meeting expectations.
4. Create your Acceptable Quality Level (AQL)
In product inspections, encountering defective items is inevitable and should be anticipated. Achieving zero defects in consumer products is extremely challenging and costly. It is pragmatic to expect defects and manage them through returns or exchanges, which is typically more cost-effective than striving for perfection.
The law of diminishing returns applies in Chinese factories due to varying work methods, economies of scale, and worker mentality. Pursuing perfection often exceeds the cost of normal production. However, defect rates must remain within acceptable limits, typically evaluated using the AQL. It helps to set the standard by balancing quality with practical production realities.
- Critical Defects (0%): Critical defects could be harmful in some way, making the importer accountable for damages or in charge of a product recall.
- Major Defects (1.5%): Major defects that in the opinion of most users, are unacceptable because they increase the risk of a product malfunctioning or breaking parts.
- Minor Defects (4.0%): Theoretically, the user might not see flaws like scratches and other surface damage on the goods. The user experience should not be considerably impacted by these.
5. Transport and payment terms
You must first understand the primary shipping routes as well as the benefits and drawbacks associated with each. Next, decide which delivery option best suits your needs. These are the three primary ways to get around:
- Sea Freight: For shipping, FCL and LCL are available. If you order a whole container for your goods separately, you can do it as FCL. If you only use a portion of the container, then you can pack it with the goods of other people in the same container. Sea transportation has the lowest cost and highest volume of transportation. There is a certain floating amount, and the weight limitations are not too rigorous. But the risk is also the highest because shipping takes the longest and is most impacted by the environment. The shipment schedule and cost are also erratic, and the procedures are complex.
- Air Freight: This is the safest and fastest method to transport, however, this mode can be quite expensive, too. In this mode, the supplier will ship the products to nearest airport, which will reach to warehouse of the airport in your country. You have to pick them from there, after clearing from custom authority. In many areas, there are limited routes, and there are stringent rules regarding the weight and size of the packaging. Air transportation is generally appropriate for valuable products that require a certain amount of time for transit.
- Express delivery: Express delivery differs from standard door-to-door air service in that it is non-traditional. The package is picked up by the courier service and delivered right to the customer's door. The formalities are straightforward, and the expedited delivery is made on time. Nevertheless, the expense of transportation is the greatest, and there are stringent limitations on the items' size and weight in addition to limitations on their worth.
It is crucial to talk to your supplier about the conditions of payment. Suppliers usually want a 30% down payment at the time of agreement, with the remaining amount required when the products are prepared for shipping.
6. Make contracts with suppliers
A good contract must be as detailed as possible in the following aspects:
- Product specifications: Write as many details about your product as possible.
- Payment terms: What is the total amount, and when will the money be transferred? This section's specifics are crucial because they offer the best assurance against falling for dishonest vendors.
- Inspection standards: Describe the criteria that will be used for the goods inspection, the person conducting the inspection, and the problems that will be discovered.
- Dispute settlement: How should a disagreement be settled if one exists? What are each party's rights and obligations?
- Compensation and punishment: In the event that the items fail inspection, or the delivery is delayed, what should you do? Naturally, different items will call for different contracts to satisfy your demands. These should be made clear based on your products and the terms of your supplier discussions.
Conclusion
Purchasing and supplier management is crucial for business growth, optimizing performance, and achieving larger goals through strong supplier relationships. Finally, all the steps that have been discussed must be strictly followed if you want to succeed in your business while you are sourcing products from China.
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