3 China Sourcing Traps to Avoid

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China industrial sourcing has its many challenges. Most of them are a result of the Chinese  business environment and the fast pace of the country.

But some problems are self inflicted by buyers and are not related to  suppliers. The three main traps I have seen buyers fall in are:

  1. Buyer improvises a project and launches ill prepared sourcing missions  because they cannot secure the right expertise
  2. Buyer gets the first steps right but then hesitate for long time because of  the complexity of the project or because of internal conflicts
  3. Buyer has been waiting for a long time and suddenly gets impatient and makes  hurried decisions

This is how these three sourcing traps play out. I am sure you will be able  to relate at least to one of them, even if the cases below are a little of a  caricature.

1. Improvise

Someone decides that it is time to source goods from  China. The company has no experience but management wants to get the ball  rolling and get things done. “We need to improve our margins. Our competitors  produce in China. We are late in the game and we need to catch up. This is a  question of survival.”

A few people are put together and assigned to a special sourcing team. The  new China sourcing initiative is launched.

Often, the team will embark in on of the failing approach we described in “5 China sourcing strategies that do not work.”

The sooner or the later, trouble starts:

  • The team cannot identify a suitable supplier;
  • First samples are substandard and cannot be accepted;
  • Or worse, quality problems rise after a few initial deliveries.

No one in his right mind will proceed with these suppliers. It seems that the  sourcing initiative has stalled and that all is to be done again from  scratch.

2. Hesitate

Three years ago a company launched a China sourcing project for  sub-assemblies to be assembled into its main product. For the initial steps, the  project team has done pretty well. They have brought in all the relevant  expertise from within and have also seeked assistance where they needed.

Within 12 months, they identified seven suppliers that displayed the right  capabilities, offered interesting pricing and were willing to move forward. The  company COO visited all suppliers during an intensive tour and was impressed  both by what he saw on the shop floor and by the attitude of the suppliers’ management.

Then things started to slow down. Every time the China sourcing topics comes  on a company management meeting’s agenda, participants raise many questions such  as:

  • Are the suppliers really as good as we think?
  • Will our customers push down our prices if they know we are making these  parts in China?
  • We are far from China. how do we manage these suppliers from this  far?

The projects cannot proceed as no one takes the decisions for the next  step.

None of these questions is a new issue. They were there already at the outset  of the project. But now that the prospect of sourcing from China is real, they  come up in the discussion all the time without being resolved.

It seems that the sourcing initiative has stalled and that it will take  either serious strategic thinking or a strong push by the top management to  start again.

3. Hurry

The company has considered China sourcing for several years. A couple of  people from purchasing have even visited factories they had discovered at  various industrial trade shows. But business is so hard these days with the  economic crises and no one really got the time to seriously go through the  sourcing process.

The wake up call came one month ago at a tender postmortem meeting. “We lost  mainly because the winner was able to go down in price,” says the sales manager.  He continues, “They could do this because they buy all their peripheral  equipment in China and also source some motors and control systems assemblies  there.”

“We gotta move now!,” says the GM. “We started exploring China suppliers at  least three years ago. How come I still have not seen a single order from them.  I need this… now.”

Pressure is high. Purchasing department goes back to the files built  throughout the last few years. They reactivate the suppliers they had met then.  They send RFQ and request samples. The technical department makes a first  analysis. It does not looks bad.

Before the engineers can make deeper tests and confirm how the product really  performs when put in the full system, the company is invited to a large tender  in Turkey. Normally a very competitive market. It is decided to use some of the  Chinese suppliers to reduce the total cost and protect margins.

The tender is won. Everyone is very excited about it… until project  implementation:

  • Supplier had misunderstood some key requirement in the RFQ and has quoted a  substandard product
  • Supplier can meet the requirement but it will be more expensive
  • Delivery is delayed three weeks because of the rework
  • Export is trouble too: supplier sells CIF and has selected a cheap forwarder  and custom agent with poor service.

The company managed to keep the final customer immune of all this and no  damage is done to the reputation. But the total cost of the project proves to be  higher than what it would have been with traditional suppliers. And no one is  keen about working with China.

It seems that the sourcing initiative has stalled and that it will take lots  of work and convincing to restart it.

Conclusion

None of the difficulties faced by buyers of industrial goods in China are  simple. No decision is uni-dimensional.

  • The cheapest suppliers may be a good marketer with poor quality.
  • A good prospect supplier may expect much more business than the buyer is  able to generate.
  • This supplier met 2 years ago was only average, but it may have tremendously  improved in the meantime.

Successful China industrial sourcing is both about expertise AND about  process. When so many things can go wrong success lies for a large extent in  how these aspects are evaluated and addressed. And this takes knowledge, a  rigorous approach and time.

Some of the keys to success in China industrial sourcing are:

  • Get well prepared.
  • Go through each step thoroughly.
  • Make clear go/no go decisions, avoid half measures.

By Etienne Charlier, founder of procurAsia that assists companies in sourcing industrial  equipment and parts from China.

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