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Developing your products with existing Chinese manufacturers

Nobody wants the aggravation of moving production facility to a new supplier but your business should always have a backup plan in place. You need to be prepared for every eventuality. Raw material prices, wages and taxes are always on the rise and everyone finds their profits squeezed at some point. If there are manufacturers with better connections, facilities and experience that can alleviate the pressure you are facing in your market then they need to be investigated and considered. Even if you don’t need to make a change at the present, as a research exercise you can feel confident knowing you truly have the best deal.

I recall a client who had completed a lengthy search finding the right manufacturer and finally developing and sourcing a product that ‘worked’ for them, suddenly found themselves under pressure from their retailer to reduce their production costs. They had found the right balance of a good product for a price they were willing to pay. Afterwards, somewhere higher up in the supply chain, a decision was made to reduce the cost of the item to make it more competitive/increase profits in their home markets.

The client carried on as instructed, removing this bit and that bit, adding cheaper materials and cheaper packaging. To no surprise, the first draft of the cheaper product worked out a little more expensive than the current item. This was blamed on rising material costs, labour costs, tax rates, shipping, etc.

The process of reengineering a product put the whole deal back on the table with the manufacturer who used the opportunity to renegotiate their prices. If the client later reverted back to the original product and decide the whole cost cutting exercise was a waste of time, the manufacturer can simply use the excuses made during most recent pricing process to push the cost up of the original product.

As it happens, their original product increased in demand but they didn’t have any in stock to sell because they had decided to stop all production in favour of finding that hallowed “cheaper alternative”. What started as an exercise in saving some money, turned into a loss of profit over their busiest time of year.

It would have made more tactical sense to go to a new manufacturer and ask them to produce a cheaper product using cheaper materials. This way the client would have a cheaper development product in process, while maintaining the option of the superior product at a previously agreed price.

A local and on the ground knowledge of business attitudes and production in China can help your organisation make the right strategic decisions.

For a free, no strings consultation and quotation, visit the ETP official sourcing and quality control China website.

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