China Supply Chain — 5 Tips
China supply chain can be tricky to manage but also add huge value to your business when you get it right. Here are 5 tips on how to maintain a healthy 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 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 of America 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 reputation doesn’t waver much in the face of such an economic turmoil. Companies of all nature and size consider China as their sourcing hub by getting the services of a sourcing agent in China.
Let’s take you through a few reasons why this Asian country, which is also hugely populous, becoming such a lucrative sourcing destination for multinational companies:
Expansive supplier base
China is one of the Asian countries where the 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 turn them into final, sellable products. This is the reason why manufacturers of textiles, apparels, electronics, automobiles, toys, cutlery and machinery can save a lot of money in setting up a supply chain in China.
There are many trading companies and sourcing agents in China who 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
Several provinces of China are dotted by small to large manufacturing components, which contribute 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 these 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 forget, China also has a huge labor market that supplies efficient and skilled workers to different industries here. The low cost of production, as seen from economical labor and efficient transportation, makes China a good sourcing destination for multinationals.
There’s no doubt in the fact that China is one of the most technologically advanced nations in the world. Given the country’s intense technological capabilities, large scale production of goods becomes a great possibility here. All factories in China are equipped with the best-of-best equipment and tools that increase efficiency and productivity while reducing the total cost of production.
When it comes to supply chain management, China has already put artificial intelligence (AI), cloud computing and other disruptive technologies in place. These technologies are brought about a great innovation in its 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 or sources it from other manufacturing units within the country. This is how the factories help each other by providing the needed materials and save each other the time and effort. A sourcing agent in China has connections to all these suppliers and manufacturers — something that proves to be abundantly beneficial for transnational corporations.
Even when Chinese suppliers have to import materials from other countries, they usually do it in bulk quantities, which lowers the 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. There’s further reduction in cost of production by reducing unit costs, using durable and affordable packaging, and following easy-to-produce product designs.
Todays’ consumers have become morally and ethically more conscious than before. They are now demanding goods that are in line with ecological standards and minimize the much-dreaded carbon footprint. With the rise of the internet, companies are also becoming more aware of being socially responsible because a wrong move can completely tarnish their reputation. So, sourcing teams of the present times in China are focusing on sustainable production and procurement practices.
China has a well-developed exports 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 anti-pollution crackdown of the government has increased green investment in the country, meaning China is an ideal destination for sustainable manufacturing and sourcing.
Speed of service is undoubtedly one of the major deal-breakers in the supply chain sector. But it’s certainly not desirable to speedily source the wrong products. There’s always a need to unlock profitability by making the sourcing process more demand-led and aligned to preferences of consumers. Doing so can reduce inventory-related issues and increase the return on investment for companies. Owing to China’s production maturity, finding suppliers with agile production establishments is easier than most countries.
One excellent way to unlock agility in 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, cosmetics, technology, automobiles, etc. — are now considering China as their near-shoring location.
Tips to follow to maintain a healthy China supply chain
The above points make it clear that China stores 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 for taking 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 face the repercussions of the trade war between China and the US. Your business won’t be able to bypass the brunt of tariff fluctuations as the result of the economic conflict between the two superpowers. So, you need to now be extra cautious while sourcing materials from China and take the right measures to avoid complications in the future.
Here are a few tips to maintain a China supply chain.
- 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 a lay businessperson located abroad to identify and strike a deal with Chinese suppliers. This is where a reliable sourcing agent in China can help them.
A sourcing agent located in China has the right network of suppliers and manufacturers in the country. They are responsible for identifying and securing the supplier base for their clients’ needs, supervise the production process and 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 detailed knowledge of the entire supply chain.
One important point that requires mention here is freight quotes. When working with a sourcing agent in China, you should allow them at least a week’s time to respond to your quote requests. Before making a final decision, you should compare several quotes once you receive them. This way, you stand a greater chance of finding a cost-effective supplier in China.
- Declare the right shipment value
It’s typically not enough to just get in touch with a reliable sourcing agent in China and rely solely on that individual’s expertise and experience. It’s important that you as an importer educate yourself of the technical nitty-gritties 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 prove penalizing if the Customs find out. 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).
Once a wrongly declared shipment value is identified by the Customs, you may be banned from further import activities and have to pay a hefty fine or associated costs — something that increases the cost of your shipment. So make sure you are declaring an accurate shipment value to avoid facing these charges and maintain a smooth-running supply chain in China.
- Keep an eye on quality control
You may have appointed a sourcing agent in China to be in-charge of monitoring the production process. But it is advised that you stay 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 provide you the assurance that you will get you what you are paying for.
You should provide clear product specifications beforehand to your supplier so that the same can 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. Usually, you may find that quality is not consistent across product batches, or the product is deviant from that of the sample you have received earlier. In either case, you have to make sure that the products don’t leave the manufacturing unit with such defects.
- Learn the language
Much of the issues in supply chain management with a foreign country comes because there’s a language gap between the two parties. When you are working with Chinese suppliers, it’s not always necessary that you will find someone who knows English. When such a communication gap occurs, it often is 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 an abundant 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. Not only will you understand what they speak but will benefit from the ability to communicate your own ideas to them more clearly. Consider checking out some online Mandarin classes before you finalize any deal with Chinese suppliers.
- Be mindful of different payment modes
Last but not the least, working with Chinese suppliers gives you a wide range of payment modes to choose from. Depending on the supplier you have partnered with, you get assurance of getting your money back in case the supplier fails to comply with your terms and conditions. Some instances when you can claim your money back are 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 China supply chain. 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. By initiating your game plan with a robust China wholesale sourcing strategy and then connecting with the right suppliers, you should be able to take your business to new heights of success.