How to Source Products from China. Part 1. 11/11/2010

Sourcing from Chinese manufacturers can be a daunting task.  Many companies, both big and small, don’t know how they should go about sourcing products from China.  To help you get started, I’ve compiled a list of tips, cautions, resources and recommendations below.

Starting the China Sourcing Process

The first thing you need to do is figure out which products you want to source and make sure that it makes financial and logistical sense.    Long are the days when you could source just about anything in China and save a significant amount of money.   Rising logistics costs and the valuation of the Chinese RMB have all had an impact on the China Sourcing projects, and you have to make sure that your products are appropriate for sending to overseas manufacturers.  If your products are large in volume for example, you may end up spending every dollar you save on increased logistics costs.  Another thing to take into consideration is lead times.  The average number of days it takes for goods to get from a manufacturer in China to a Customer here in the United States is 28 days, so you have to ask yourself…”will my customers be able to accept this increase in lead times?”

One great way to determine if it makes sense to source from China is to check out what other companies in your industry are doing.  If no one is sourcing in China, there might be a good reason why.  On the other hand, maybe you can be the first one there!

Finding China Suppliers

After you have determined that your products may be a good fit for China sourcing, the next step is to find suppliers.   There are many ways to find suppliers.  Online search engines like Panjiva.com, Alibaba.com, Made-In-China.com, and GlobalSources.com all offer access to hundreds of thousands of Chinese suppliers.  Another way to search for suppliers is by attending trade shows in China that are specific to your industry – this option will give you a much better feel for the types of products in your particular industry that Chinese manufacturers are able to provide, but does require getting on a long haul flight to China and you will need a China Business Visa.  While there are a handful of China Sourcing Trade Shows in the United States every year, you will find trade shows in China to be much larger and will have a significantly larger pool of suppliers to meet with.

Another option is to find and contact a company that specializes in sourcing products from China.  These companies come in all shapes and sizes ans typically follow one of two business models.  Some will identify a Chinese manufacturer, buy the parts and resell them to you (at a profit of course).  This “middle-man” business model has been the most common, but as China sourcing costs have crept higher in recent years, many  companies have been looking to eliminate the middle men and go directly to the suppliers themselves.  Our company charges a fee to establish a source of supply and you can be sure that you are getting the “true” price.  Firms like ours are fewer and far between compared to the companies that use the “broker” approach, but is a preferred option for some.

CAUTION: Make sure you conduct supplier due diligence.

No matter which method you use to identify your suppliers, be sure to do your homework.  Conducting due diligence on your potential manufacturers in China can save you a lot of money.  I have heard countless horror stories about companies sending payment in advance and never receiving goods, receiving 100% defective parts, etc.  Just as with every other part of your business, you are only as strong as your weakest link.  So be sure to research the suppliers with all the resources available to you.  I recommend always asking for references.  Ask the Chinese supplier for references based in your area or your industry.  Use tools like Panjiva.com to validate the customer base that the suppliers claims to have.  And, if this supplier is critical to your business, its probably worth going to China to meet with management, tour the factory and continue to validate the suppliers claims.  If traveling to China doesn’t seem like your cup of tea or if you are inexperienced conducting factory audits, it might be a good idea to solicit the help of a 3rd party audit firm.  There are many of these firms in China, and you can even find firms with offices in the United States.  Our company recently launched a website – FactoryAudits.com –  while we are certainly not the only provider of such services, taking a look at our site will give you a good idea of pricing for audit services.

Ill continue this post over the next few weeks.  Appreciate all your feedback and comments!

Other posts that might interest you:

6 steps to a successful strategic sourcing program

China Manufacturers:  Factory Inspections

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