China has become a more desirable destination for sourcing because of its extensive industrial capabilities and affordable labour. It does, however, come with difficulties, mainly in selecting among thousands of possibilities to locate the ideal supplier.
Businesses must conduct thorough research, including checking references and verifying certifications, and ideally conducting on-site visits. Additionally, navigating cultural and language barriers can complicate communication.
Understanding Chinese customs and hiring local sourcing agents or interpreters can facilitate smoother interactions with suppliers. Overall, successful China sourcing hinges on careful planning, comprehensive research, and adaptability to the unique business environment in China.
This approach helps businesses mitigate risks and build strong, reliable partnerships in the manufacturing landscape. The following is the step-by-step procedure to procure from China.
1. Define your sourcing needs
To start with, it is essential to know what you will purchase from China. So, you must take the following steps to define your sourcing needs.
a. Product specification
- Identify the product: Depending on market demand or your business, you must decide which product to procure from China. You should choose your product, keeping your target customers in mind.
- Create a specification document: If you are already selling the product that you intend to buy from China, then you must have a readily available specification with you. However, if you intend to buy another product, then it is necessary that you prepare detailed technical specifications for the product.
b. Volume and frequency
- Estimate order quantity: Now, decide what quantity of product you intend to buy and at what frequency you will place your order.
- Consider lead time: Now, you have to reasonably estimate the frequency at which you need your product, considering the shipping time needed to import it from China.
2. Market research
Before you go for any sourcing procurement and purchasing from a country like China, you need to do thorough research about your market and prospective Chinese suppliers.
a. Supplier identification
- Online platforms: The following websites will offer you several names of Chinese suppliers:
i. Alibaba
ii. Made in China
iii. Global Sources.
- Trade shows: You may personally pay a visit to the following events organized every year:
i. China Import and Export Fair
ii. Canton Fair.
Here, you will get the chance to meet the suppliers personally.
b. Competitor analysis
- Analyse competitors: To stay ahead in the market, check which products your other business competitors are procuring from China to get an idea about their pricing and quality.
c. Quality standards
- Research regulations: Based on your above research, you will be able to decide what quality and safety standards are needed by your target customers for the products that you intend to procure from China.
3. Supplier evaluation
After you have shortlisted a few Chinese suppliers for your product, try to assess them so that you are confident enough to consider them as your prospective suppliers.
a. Background checks
- Company verification: A few important details about the Chinese suppliers, such as their registration details, license number, and when the business started, must be gathered from Alibaba.
- Reviews and ratings: You can check the reliability of your selected Chinese suppliers by checking their customer reviews and ratings online.
b. Request for quotations (RFQs)
- Clarify terms: In your request for quotes, be sure to include questions regarding lead times, payment arrangements, and MOQs (minimum order quantities).
- Send RFQs: Sending your RFQ to each of the chosen Chinese suppliers you have so far shortlisted will allow you to compare their rates.
c. Samples
- Request samples: It is also essential to request a product sample to evaluate its quality parameters.
- Test the samples: When you receive a few samples from the supplier, make sure that you thoroughly evaluate their specifications at your place.
4. Negotiation
After studying their offer, it is now time to discuss with your supplier and do a negotiation on price and other terms and conditions.
a. Pricing
- Discuss price: You must know the product's market price before you discuss the price. Also, consider the total procurement price, which includes shipping and insurance costs.
- Consider payment terms: It is also essential to clarify the payment terms, such as whether the supplier needs an upfront payment/deposit or payment upon delivery.
b. Lead times
- Confirm production times: Evaluate the realistic delivery time together with your supplier after negotiation and discussion.
- Establish penalties/incentives: Decide on some late delivery fines and/or timely delivery rewards after talking it over and coming to an agreement.
c. Quality assurance
- Set quality standards: It is very important to specify your quality parameters clearly and ensure that you and your suppliers are on the same page.
- Include inspection protocols: Specify how and when inspections will occur.
5. Finalizing contracts
After the above step, it is time to develop a legal contract between you and your supplier so that the interests of both parties are protected.
a. Written agreements
- Draft a contract: A lawyer experienced in Chinese company laws could be able to assist you with drafting your contract, which needs to specify all of the following:
i. Pricing
ii. Delivery
iii. Quality
iv. Terms of payment.
b. Non-Disclosure Agreements (NDAs)
- Protect intellectual property: While sourcing procurement and purchasing from a country like China, you must be extra careful to protect your IP rights. You may apply for your own patent in China and also sign a non-disclosure agreement with your Chinese supplier.
6. Placing orders
After all the above steps are successfully executed along with your Chinese supplier, now you must place an order after considering the following.
a. Order placement
- Place your order: In your order letter, you must include your product details and specifications with quality requirements, quantity that you need, delivery schedule, and clearly about penalties/incentives.
- Confirm receipt: Make sure that your supplier has received your order and acknowledged it in writing through email.
b. Payment
- Choose payment methods: You must select a proper method for making your payment, and that should be acceptable to your Chinese supplier. Usually, Chinese suppliers are ready to accept payment through either of the following:
i. Letter of credit (LC)
ii. PayPal
iii. Wire transfer.
Each of these methods has its own limitations, so choose the one that you are most comfortable with.
- Secure payments: To protect your interests, negotiate with your supplier about payment stages and avoid making the complete payment at one time.
7. Production monitoring
It is crucial to keep an eye on the production process after you place your purchase to make sure your products will arrive on schedule. You can develop backup plans in case something goes wrong.
a. Regular updates
- Request updates: You must regularly communicate with your supplier to know the current status of production while your order is being executed in China.
- Adjust as necessary: In case you anticipate any delay, then you must adjust the commitment that you must have given to your customers or look for an alternate.
b. Quality control
- Implement quality inspections: You have two options for quality inspection:
i. Sending a quality team to inspect things in China
ii. Hire a reputable third-party quality inspection team in China.
- Final inspection: To make sure everything meets your standards, it is crucial to carry out quality checks on your products right before shipping in addition to during production.
8. Shipping and Logistics
Now that one of the important phases of sourcing procurement and purchasing from China is completed, the next phase is all about shipping your consignment from China to your own country. This is also an equally complicated activity, such as monitoring the production.
Follow these steps to ensure the smooth shipping of the goods from China to your country.
a. Choose a shipping method
- Select shipping mode: Choose your mode of shipping based on how urgent your requirement is. Each method incurs a different expense. For instance, choosing air or expedited shipping will result in a quicker delivery time but a greater cost. Sea freight, on the other hand will be more affordable but require more time.
- Understand incoterms: There are a lot of specialized phrases used frequently in the shipping industry that are easily understood by professionals. It is important that you also get familiarized with these terms so that you can understand the actual shipping status.
b. Customs clearance
- Prepare documentation: Many different types of papers and documentation are needed to clear your goods from the customs department in both China and your own country. Get acquainted with all those documents and prepare them in advance before your goods arrive at the port.
- Hire a customs broker: Most companies prefer to hire the services of any custom broker, who will take care of all these complex activities so that your goods arrive smoothly.
9. Receiving goods
Now, you are at the last stage of sourcing procurement and purchasing from China. Nevertheless, it is also important to know this process for the success of your endeavour.
a. Inspection
- Check for damage: You must get IQC (Inward Quality Control) done for the product that you received from China. Make sure that they all are totally undamaged, and their quality is the same as that you ordered.
- Report issues: If you did not find any discrepancy in the entire consignment, thank the supplier and release the balance payment if you had agreed to pay after receiving the goods without any issues. However, if there is any issue, which is worth complaining then you must immediately report it to your supplier.
b. Inventory management
- Store goods properly: Once you find the IQC done in the above step, make sure that you store those products in a safe manner in your store in the right environment needed for safe storage. This will ensure that your product will remain safe and the quality will be maintained as required by your customers.
- Update inventory systems: Last but not least, it is important that you must store all your inventories in a professional manner so that you can easily track their location whenever, you get an order from your customers.
10. Supplier relationship management
If you regularly need sourcing procurement and purchasing products from the Chinese supplier and are satisfied with your dealings with them, you should endeavour to build a long-term commercial relationship with them. This will help you to get their constant attention in your future dealings.
a. Regular communication
- Maintain contact: You must thank your supplier in case you have got a good service from your supplier, which will help you to get a favourable response when you deal with them in the future. Even if there were any small issues in the dealing that can be resolved if you remain in regular touch with the supplier.
- Feedback: Offer a good customer review and especially mention the product quality and service that you received from your supplier. Your constructive feedback on their product quality will help you to build a long-term relationship.
b. Long-term partnerships
- Consider long-term contracts: You should work to establish a long-term business relationship with the Chinese supplier if you frequently need to source products from them and are happy with your interactions with them. This will help you to obtain a good price and also a regular attention of your needs in the future.
- Collaborate on product development: Work together on future product developments or improvements.
Conclusion
Sourcing procurement and purchasing from China is a popular strategy for businesses seeking cost savings, quality, and diverse product options. However, a strategic long-term approach is essential. Companies should prioritize suppliers with industry expertise to ensure a smooth supply chain.
Diversification is also crucial for resilience while China offers significant advantages, sourcing from other countries can help mitigate risks. Understanding the legal and regulatory landscape in China is vital, and collaborating with a reputable sourcing agent or legal counsel can aid in compliance.
Overall, with careful planning and experienced partnerships, businesses can effectively leverage China sourcing to enhance competitiveness in the global marketplace while minimizing associated risks and challenges.
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