Welcome To Same World Networking

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


Tuesday, 1 June 2010

.... 10 ways to avoid the Pitfalls of Sourcing from China . . .. Part 6/7



6. Ignore shipping at your peril

One of the most commonly overlooked areas when sourcing from China is that of shipping your goods to the UK. Often an afterthought once goods have been produced, this is an area that can cause huge delays, massively inflated costs - or even worse.. your goods disappear!

There are several areas to be aware of

1. Original costs and quotes can rise Familiarise yourself with the different terms e.g. FOB means goods are just shipped to the port in China. CIF includes shipping and insurance of goods. When negotiating, you can get a ‘door to door’ price for your shipping, so that you can ensure that you’ve covered all costs in your calculations. However, if your Chinese supplier arranges transport, he will expect to make a margin on it.

Engineering your supply lines to the UK is every bit as important as finding a Chinese supplier, and managing the manufacturing process.
All your hard work in China can come undone between the factory gates and your UK warehouse.

2. Over packaging can increase costs Be aware that goods can often arrive from China with a huge amount of packaging to protect them during transit. Whilst this ensures your goods will arrive in sound condition, the impact on your business can be significant. For example, say you receive a shipment of 100,000 components individually package, even though you didn’t request this. Now the cost of packaging these goods individually in China with labour rates of 15p per hour will have been insignificant, but you’ll need to pay your staff £8 per hour to unpack them for assembly. If a worker can unpack an average of 20 components per hour, it will cost you nearly £40,000 just to unpack your goods! As mentioned in my section on quality be sure to specify the level of packaging upfront.

3. Pest Control can damage products. Assume your products will be treated with chemicals during shipping, so their packaging must be able to withstand this process.

4. Pay attention to product descriptions Import tariffs vary according to product description, so you should make sure your products are described accurately on your shipping documentation. E.g. if you goods are components and not a finished product, you must ensure that your documents state this clearly, to avoid unwarranted costs.

5. Allow for delays You should allow 4 to 5 weeks from your goods leaving Shanghai / Hong Kong to arriving in the UK. Bureaucracy in China can sometimes add further delays of 2 weeks or more, and if your documentation is incorrect, your shipment will suffer further delays clearing UK customs.

6. Economies of scale pay dividends As already covered in section 3 of this report, you’ll find that if you’re placing repeat and bulk business with your shipping agent you’ll receive a completely different level of service than if you’re just placing occasional business with them. I have a great relationship with my shipping agents, as I’ve built up my business with them over the years, and have become a key account for them.

7. Learn a different kind of negotiation.

One of the hardest things I had to get to grips with when I first started sourcing from China was that of negotiation.

Unlike the UK, you’ll commonly find if you ask if something can be made for a certain price, the answer is always “YES”.

So that’s no problem, you’ll get exactly what you want, right?

WRONG!

Just because a manufacturer in China has said they CAN do something, it doesn’t mean they WILL do it.

To negotiate effectively you need to become a master of asking the right questions, and in many different ways.

I was once introduced to a manufacturer in China by a business contact.

The people were skilled and had excellent communication skills.

Their products were similar to those I needed to source.

Location, core competence, experience, quality systems? They had it all.

Despite running through the logistics of the project many times, I could not fault their grasp of what was involved.

I was on the point of arranging to visit their factory in Dongguan, when I decided to probe a little deeper into their financial position.
Everything checked out!

They clearly understood all financial aspects of the project. However, I could not help noticing that their Finance Director was looking a little unhappy and kept sipping, almost convulsively, at his drink.

I decided to dig deeper, almost to the “teaching Granny to suck eggs” level that would be very rude in the UK. It transpired that the working capital cycle for the project would account for 3 times the entire annual sales turnover of their company.

Of course they realised this as soon as I explained the quantities involved, but just could not make themselves say “NO” to the project.

Often a UK salesman will play the game of “first get the order and then we’ll work out how to process it”. However, I suspect the Chinese invented this game thousands of years ago, and furthermore a black belt is the minimum qualification required for a commercial person before being turned loose on customers.

If I can help with finding a manufacturer that CAN and WILL manufacture your product, just contact me via my website. www.sameworldtrading.com

Mark Kennedy

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