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Sameworld.net is the networking blog for Supply Chain Specialists interested in creating channel partners around the globe.

A key essence for success in a new market is to identify the ‘Right Partner’. We appreciate the huge importance of this aspect and are willing to invest the necessary time and effort to get it right. There is NO substitute for "Grunt Work" and it is essential to meet the prospective partner, understand their technical capabilities, visit their manufacturing unit and assess the management team. With the partners who add to this blog we hope to achieve that. Mark Kennedy Same World Trading

Wednesday, 19 May 2010

.... 10 ways to avoid the Pitfalls of Sourcing from China . . ..Part 2/3 of 10

2. Have you considered China for the right reasons?

So once you’re satisfied that your intellectual property is safe, you should then consider exactly why you want to source from China.
Obviously sourcing from China should reduce your costs - but only on certain kinds of products!
The whole basis of sourcing from China relies on the simple but huge differential below

Typical Cost of Employment (£/hour) UK = £9.00 China = 1.70p

So it follows that the products and components that require a very high degree of labour intensity, or man hours to produce, will be the ones that offer the greatest opportunities to reduce costs.

So analyse your own product. .

How many man hours from start to finish does it take to produce it?

Does it require hand assembling, filling, or packing off?

Is lots of manual finishing involved?

I began sourcing cosmetic component assemblies from China to supply to UK fillers, when fully assembled products from China became available, landed in the UK, with selling prices lower than the cost price of local unassembled component parts.
For example, a Make Up Compact, with Mirror, of the kind carried in a lady’s hand bag, unless produced by automation in the millions, would be assembled by 6 UK workers at rates similar to those in the table above.

In other words a UK purchaser can purchase a local product that has a labour content based on £54/hour, or source from China at £10.20/hour.

However, it’s advisable to check that the manufacturer has the right type of labour force.

For example:

Are they experienced in the processes or products you require?

Are they ethically employed?

Are they well trained?

These may sound like strange questions to ask, but when you consider that the larger factories often have thousands of workers living in site dormitories, there is some variation in how they are treated, and an unethical set up will never be a sound long term business relationship.

Will your product fit the Chinese labour market?

3. Do you have sufficient economies of scale?

There’s no doubt that the larger manufacturers in China prefer larger manufacturing runs and to manufacture in bulk.
That’s not to say that you won’t find a manufacturer that will process smaller MOQs. After all, if you look hard enough, and for long enough, you can source anything in China.

Once your goods have been produced, you still have to have them shipped back to the UK (see Part 8. on shipping coming soon), and if you’re shipping your goods in half empty containers, you’ll be paying a huge premium, and wiping out your original cost savings.

Not only that you’ll find that manufacturers, hauliers, shipping agents will take you much more seriously and give you a much better level of service if you’re able to place bulk business with them.

So in summary bulk orders are a must when sourcing from China.
However, with every rule there are always exceptions, and there are sometimes ways around this.

When we first started sourcing products from China, we realised that savings were being seriously eroded by the fact we had little purchasing power with freight forwarders, and low container utilisation.

We got around this by partnering with a local Company that shipped unrelated goods to the UK.

This allowed us to gain economies of scope and suddenly, not only we shipping in full containers by sharing capacity with our local partner, but we were also taken more seriously by freight forward companies.
Our shipping costs tumbled, as did our partners, and our margins improved dramatically.

If you have a smaller requirements from China, and by that I mean 1 to 5 pallets of goods per shipment, you’ll probably need to trade off the back on someone else’s trade relationships to make it worth your while.

Struggling making your project work in China, due to insufficient order sizes etc.
Contact me at www.sameworldtrading.com - we might be able to find you a trade partner to help.

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