How To Evaluate Your Chinese Supplier

Date: 2009-08-10 08:10:44

By Jane Dawson

As competition becomes fiercer in these days of online bargain hunters, one of the best ways to gain a competitive advantage is to lower the price of your product by lowering its manufacturing cost to you.

More and more business owners are reaping the advantages of lower cost of living conditions in emerging economies by outsourcing manufacturing to those countries. But, it can be difficult to organize a transition to out-of-country manufacturing.

There are language barriers, importation issues, quality concerns and worries about the business relationship itself. Each of these topics deserves a full discussion, which is not possible in this article. So let us focus on ways to evaluate a potential manufacturing partner, with some emphasis on doing business with China, the most popular destination for outsourced manufacturing these days.

Once you have identified one or more potential manufacturers, you need to vet those companies. Here are some techniques for doing that.

- Every Chinese company with a website must have and display an ICP number on the home page. You can use that number to determine website ownership and check whether there have been any complaints about the supplier.

- Ask for references from companies that the manufacturer works with in your country. Do not accept a cannot violate confidentiality response. At a minimum, ask them to tell you about some of their products that are on the shelves in your country so you can take a look at them.

- Ask about the availability of translation services. If you are not planning to use a trade agent (which you should seriously think about ) who can translate or be sure translation is accomplished, you will need to be sure that someone on the manufacturers end can translate your emails successfully enough to make the relationship work.

- Ask if the company will submit to product testing. For example, if the company is going to produce electronics for you, you need to be sure that those electronics will pass your countrys standards. The manufacturer may have already gone through this process and can supply you with testing results for similar products or certifications from an independent testing lab. If so, that is terrific. If they foot drag or do not seem completely forthcoming, do not proceed. You cannot afford to pay for defective products.

- Verify that the company will submit to verification inspection. A verification inspector goes to the shipping location and verifies that the products that have been packed for shipment to you are of the same quality as the products that you received from a sample manufacturing run. Again, do not proceed unless the manufacturer is willing to agree to these quality assurance measures.

- You might ask a potential manufacturer if they have any thoughts about alternative materials or processes that would reduce the cost of producing your product. You are already planning to reduce the cost by moving to a country where manufacturing costs are lower but if there are also ways that the manufacturer can do even better by substituting one material over another or using a different manufacturing process, that is terrific. It is also a good way for the manufacturer to show that they are on board with you and your goals.

- Ask about minimum order quantities. If the manufacturer only operates in 50,000 piece batches and you only buy in 1,000 piece batches, there is no point in discussion. You may want to differentiate a test run from a usual order. You certainly want to purchase only a limited test run, recognizing you may have to pay more per piece for that run and then, once you have determined that the product and relationship work, begin ordering in a more usual quantity. The point is, have that discussion early.

- What is the lead time for an order? You will need this information for planning your orders and managing your inventory.

- What are their policies for replacement of defective products? You need to expect some defective product but, beyond that 1-2% (or whatever is typical in your industry), there should be a mechanism for the manufacturer to assume the cost of replacement.

- How will payment be made? Stick with methods that protect you (documentary draft, for example) until your relationship is well established.

- Which shipping terms are they willing to use? If you are not already familiar with Incoterms, this is the time to understand the difference between FOB (The seller quotes the buyer a price that covers all costs up to and including delivery of goods aboard a vessel at a port.) and DDP (seller pays for all transportation costs and bears all risk until the goods have been delivered and pays the duty.). Sounds like an alien language? Go to the incoterms section on iccwbo and start reading!

- Be sure you know when the factory is closed. In some countries there is a long hiatus in the summer or around Christmas. In Asian countries, the Lunar New Year in February can shut down a factory for several weeks.

Once you have completed your due diligence, be sure that you place all important points of understanding in writing, although you need to understand that in countries like China, contracts are not nearly as important as they are in the United States. Putting agreements in writing is more for clarity than for enforcement.


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