Here are some solid tips for your China supply chain.
This blog article was first published on www.sourcingallies.com
Why make China your sourcing hub?
The present-day business world is defined by globalization trends that require cross-cultural and cross-border interactions between countries. With the rise of technology and the implementation of trade-friendly policies, businesses are now entering global markets with new products or profitable supply chain networks. A classic example of this would be companies that are now sourcing their supplies from across national boundaries.
The trade war between China and the United States may be pushing many companies to pull out of China because of a steep rise in tariff rates. But China’s status as a manufacturing powerhouse of global regard doesn’t waver much in the face of such economic turmoil. Companies of all types and sizes consider China as their sourcing hub, and ultimately seek the services of a sourcing agent in China.
Let’s take you through a few reasons as to why this Asian country, which is vastly populated, has become such a lucrative sourcing destination for multinational companies:
Expansive supplier base
China is one of the Asian countries where Western businesses can find a huge network of suppliers. These suppliers import raw materials, or sub-components of different products, and then give them to manufacturers to transform them into finished, ready for retail products. This is the reason why manufacturers of textiles, apparel, premuim skincare products, electronics, automobiles, toys, cutlery and machinery can save a substantial amount of money by setting up a supply chain in China.
There are many trading companies and sourcing agents in China who have the capabilities to bridge the linguistic and cultural gap between overseas buyers and Chinese suppliers. Whether you are based out of the USA, UK, or anywhere in the world, working with these individuals can prove extremely useful in reducing your overall costs.
Low cost of production
Ranging from small to large in size, several provinces of China are dotted with manufacturing units which contributes immensely towards the country’s reputation as a global production center. The country is known for its robust infrastructure, such as roads, air, railways, ports, and bridges — all of which make the transportation of goods extremely easy and convenient.
Given the well-developed infrastructure, buyers can save an enormous amount of time and cost — something that reflects in the final price of their products. Not to be overlooked, China also has a huge labor market that supplies efficient and skilled workers to different industries here. It’s apparent that this combination of competitive labor costs and efficient transportation results in overall low production cost. This naturally makes China a clear choice as a sourcing destination for multinationals.
It would be hard to deny the fact that China is one of the most technologically advanced nations in the world. Given the country’s intense technological capabilities, the production of goods on a large scale is immensely possible here. All factories in China are equipped with state of the art equipment and tools which increases efficiency and productivity, while overall reducing the total cost of production.
When it comes to supply chain management, China has already put artificial intelligence (AI), cloud computing and other modern technologies in place. These technologies have brought about a great innovation in the supply chain sector and have positioned the country as a leading sourcing hub for major global companies.
Large scale production
China has a massive supplier range that imports raw materials and components from other countries. This also occurs on a secondary level when a smaller company sources needed components from other manufacturing units within the country. This is how the factories benefit from one another; by providing each other with the needed materials which ultimately saves each other time and effort. A sourcing agent in China has connections to all these suppliers and manufacturers — which over time has proven itself to be quite advantageous for transnational corporations.
Even when Chinese suppliers have to import materials from other countries, they usually do it in bulk quantities, which contributes to an overall lower production cost. As a result, businesses that are sourcing from China can save a lot on production costs and enjoy the convenience of offsite production in China. The ability to further reduce the cost of production can be achieved when steps are taken to lower unit costs in ways such as utilizing durable and affordable packaging, and following easy-to-produce product designs.
Today’s consumers have become morally and ethically more conscious than ever before. They commonly demand goods that are in line with ecological standards, many of which will optimally minimize the much-dreaded carbon footprint. With the rise of the internet, companies are also becoming more aware of being socially responsible. Not only because it is ethically right, but also because even a small oversight can easily be blown up on social media and ultimately tarnish their reputation. Because of this, sourcing teams in China try to stay current with ecological standards which in turn helps to properly manage sustainable production and procurement practices.
China has a well-developed export industry that makes it relatively simpler to identify suppliers and manufacturers that adhere to international compliance standards. Unlike most Asian countries like Indonesia and Vietnam, workers in China are not allowed to go on a strike and disrupt the production chain. The government ensures that every worker in China gets the working conditions best suited to them. Also, the government has instilled an anti-pollution crackdown which has increased green investment in the country. This has resulted in China becoming an ideal destination for sustainable manufacturing and sourcing.
The speed of service is undoubtedly one of the major deal-breakers in the supply chain sector. While swiftness has its benefits, take caution in missing details due to haste, as it’s certainly not desirable to overlook something and end up speedily sourcing the wrong products. There’s always a need to unlock profitability by making the sourcing process more demand driven and aligned to the preferences of consumers. Doing so can reduce inventory-related issues and increase the return on investment for companies. Due to China’s long production history, finding suppliers with rapid production establishments is easier than most other countries.
One excellent way to expedite production is near-shoring, which means to bring the production unit geographically closer to the main market. It’s interesting to note that the consumption epicenter is now skewed more towards the East these days. So, companies from all sectors — apparels, textiles, technology, automobiles, etc., now consider China as their near-shoring location.
Tips to follow to maintain a healthy China supply chain
The above points make it clear that China has a strong foundation to ensure tremendous sourcing opportunities for businesses all around the globe. When it comes to total supply chain solutions, businesses can trust China in terms of its low cost of production, workforce maturity and talent pool. This is the reason why businesses should create a China wholesale sourcing strategy to help launch their business venture to new heights of success.
However, it’s not always easy to start a China supply chain from a different country. If you are in the United States, you will most likely have to endure the effects of the trade war between China and the US. Your business won’t be able to fully avoid the increased tariff fluctuations that are a direct result of the economic conflict between the two superpowers. Now more than ever, is the time to seek out guidance while sourcing materials from China and to also make certain to take the right measures to avoid complications in the future.
Here are a few tips for maintaining a China supply chain.
1. Get in touch with a reliable sourcing agent in China
Given the huge supplier base, there are many individuals who have started a sourcing business to aid foreign businesses. These sourcing agents perform a vital function of bridging the gap between material buyers and suppliers/manufacturers in China. Since China has a large number of suppliers and manufacturers, it’s not always possible for an unqualified businessperson located abroad to identify and strike a deal with Chinese suppliers. This is where an experienced, China based sourcing agent can help them.
A China sourcing agent has a solid network of suppliers and manufacturers in the country. They are responsible for identifying the supplier based on their clients’ needs. They can supervise the production process, up to shipping the order to the clients’ destination. They can save businesses both time and money by sparing them the hassle of having to visit each and every supplier in person. However, it’s important to identify a sourcing agent in China who has a good track record and possesses detailed knowledge of the entire supply chain.
One important point that requires mention here is freight quotes. When working with a China sourcing agent, you should give them at least a week’s time to respond to your quote requests. Before making a final decision, you should compare several quotes if possible. This way, you stand a greater chance of finding a cost-effective supplier in China.
2. Declare the right shipment value
It’s not always enough to get in touch with a reliable sourcing agent in China. It also wouldn’t be prudent to rely solely on that individual’s knowledge and experience. You, as an importer, also need to become aware of the intricacy of the supply chain process. One of the most crucial aspects to consider while importing from China is the shipment value. Declaring an inaccurate shipment value can translate to hefty fines if discovered during a Customs inspection.
Once a wrongly declared shipment value is identified by Customs agents, you may be banned from further import activities and more commonly you will have to pay a sizable fine or associated cost. Ultimately, this increases the cost of your shipment. Avoid this costly mistake and make sure you are declaring an accurate shipment value. In doing so you can maintain a smooth-running supply chain in China.
3. Keep an eye on quality control
You may have acquired a sourcing agent in China who will be in charge of monitoring the production process. But it would be best if you stay actively involved in the process too. First and foremost, you need to ensure that you are working with the right factory in China. The manufacturing unit should give you the assurance that you will get what you are paying for.
From the start, you should provide clear product specifications to your supplier so that they can then properly be communicated to the factory. Once produced, you need to ask for a quality control report to ensure that the final product is in line with your specifications. It is not uncommon that you may find that the quality is not consistent across product batches, or the product is deviant from the original sample. In either case, you have to make sure that the products don’t leave the manufacturing unit with such defects.
4. Learn the language
Much of the issues in supply chain management with a foreign country come because there’s a linguistic gap between the two parties. When you are working with Chinese suppliers, it’s not always possible that you will find someone who knows English. When such a communication gap occurs, it proves difficult to explain your specifications to the other person. This leads to quality issues, design issues, and loss of time because there’s double-work involved in correcting mistakes.
To maintain a highly effective supply chain in China, you should consider learning to speak in Mandarin to avoid miscommunication. Even if you are working with a sourcing agent in China, knowing the local language would be an added advantage for you. You can understand what they speak and also communicate your own ideas to them more clearly. Consider checking out some online Mandarin classes before you finalize any deal with Chinese suppliers. It’s also important for you to know incoterms, which are standard freight terms commonly used in international trades. Some examples of these terms include CIF (Cost, Insurance and Freight), FCA (Free to Carrier), EXW (Ex Works), and FOB (Free on Board).
5. Be mindful of different payment modes
Last but not least, working with Chinese suppliers gives you a wide range of supplier payment modes to choose from. Depending on the supplier you have partnered with, you get the assurance of getting your money back in case the supplier fails to comply with your terms and conditions. There are certain situations when you can claim your money back. This would include excessive delays in delivery and quantity and quality discrepancies. It is important to be aware of different payment methods available to you and the terms and conditions that define your monetary transactions.
Most Chinese suppliers accept credit card payments through trusted credit card companies. These companies usually arrange a refund of your money in case the supplier fails to meet the terms and conditions of your contract. PayPal and Western Union are two popular modes of payment that you can consider while working with a sourcing agent in China or directly with suppliers.
The above are some of the tips that you should keep in mind while starting and maintaining a supply chain in China. The China-US trade war and the COVID-19 pandemic may have slowed down China’s economy, but the country continues to maintain its position as a global manufacturing and sourcing hub. Once you are well-versed with the steps involved, you are sure to be a part of a well-established supply chain network in Asia that’s driving global businesses. So, make sure you come up with a robust wholesale sourcing strategy for China and connect with the right suppliers to take your business to new heights of success.