The New Zealand-China Free Trade Agreement has reduced tariffs on some imports from China and has further increased its appeal as a sourcing option. Having said that, dealing with Chinese suppliers is not an easy task.
Here are some tips that will help you negotiate and deal with your Chinese suppliers:
Tip 1. Always visit the factory or get somebody trusted to do it
What you see on a supplier’s website may have nothing to do with reality. Although you may get lucky, quite often those suppliers are nothing but intermediaries pretending to be manufacturers. Often too, they do not really have the capability to produce the product you are looking for but will assure you otherwise- hoping to crack it on time or hoping to find somebody to subcontract it.
The good news is that even if you do not have somebody based in China, there are still plenty of agents and inspection companies that can do this job for you (get a good one, though!). You may spend a few hundred dollars doing so, but it may save you a lot of money later.
Tip 2. Sign a well drafted contract
We are not talking purchase orders here but a good contract that can be legally enforced and specifies all the obligations for both parties: price, payment terms, product detail specifications, delivery times, quality control procedures, etc.
Although a good contract will not save you from headaches, it will definitely help you deal with any disputes that may arise. Without a contract you are powerless. If there are production delays, guess which customer they will leave behind in the queue- the one with no bargaining power.
If they want to ask for price increases, guess who is a likely victim… same answer.
So, if you want to diminish your chances of seeing yourself on the losing side of a supplier’s dispute, make sure you have signed a good contract before entering into the relationship.
Tip 3. The negotiation process never ends
If you believe that after the deal is signed the negotiation has finished, then I’m sorry to burst your bubble: that does not hold true for Chinese negotiations. Your Chinese supplier sees the agreement just as the beginning of the relationship… And especially if you have managed to get a tight quote, you will sure be hearing the sentence “I need to increase the price” soon.
Tip #2 would have given you a tool to try to prevent it, and tip #4 will help you decide how to go about it for the sake of future orders.
Tip 4. Understand your supplier’s cost structure and track commodity prices that are required to manufacture your product
You need to understand your supplier’s cost ( labour cost, materials costs -each material individually, mark-up, etc.).
You also need to track commodity prices that are key components in your product costs.
These two “precautionary measures” will help you deal with unexpected price increase demands, as they will allow you to:
- assess if there is a valid reason behind the request
- estimate what the fair impact on the cost will be
- objectively decide if you should give in (hopefully in future orders… not for this one!)
Tip 5. “Never relax! Quality Control is key, even with good established suppliers.
When it comes to sourcing from China, probably one of the best pieces of advice you can receive is “never relax,… even with good suppliers”.
Production monitoring and quality control are critical even when you work with your most trusted suppliers. Our perception of what “acceptable” means is quite different from your supplier’s (I know you have specifications and approved samples, but still!). It is quite common for suppliers to candidly approach buyers questioning why they can’t take a product which is not meeting specifications if it still serves the purpose.
Here I will revert to something I already suggested for tip #1. If you are not based in China and you cannot do your quality control directly, there are inspection companies and agents that will do the job at very reasonable prices.
I hope you find these tips useful. And I would love to hear about your experiences with your Chinese suppliers.