Pandablog

Locking clients in with ‘special order’ items and MOQ stock purchase

A regular and effective business trick of Chinese manufacturers is to convince the purchaser that a material used is a ‘special’ one and needs to be ordered in advance and more often than not, the minimum order quantity (MOQ) is above your required amount, prompting them to explain that they need to order more, but they can use this on the next order.

It is also difficult for you to get the supplier information about this component and this helps the supplier ‘lock’ you into future business. If you need to look for another supplier, then the whole process of tracking down this ‘special’ order material begins again and the new supplier has an item they can use as leverage against you. At least this material will not appreciate in price, if you can afford to buy more than your order requirement. If the supplier buys it, you really have no idea how much is being used until the next time it is ordered and the price has risen yet again.

There are 2 different options the supplier normally presents you with:

1. You purchase a quantity to last a certain amount of orders – You bear the cost and are effectively locked in until it runs out.
2. The supplier purchases a quantity to last a certain amount of orders – You guarantee the supplier this business.
Both situations seem to satisfy the client whether you are financially constrained or not but actually they satisfy the supplier even more, with both eventualities leading to more business with them. A long and good working relationship is indeed an advantage between both parties however if these types of concessions are being made where you as the client are buying into a longer term contract with the supplier, you have to be convinced you are getting the best possible product out of them.

A 3rd party quality control service can, over the long term, assist you on a daily basis to maintain and increase the quality of your product locally.
 
For more information on dealing with your production in China, please visit the official ETP website.

Protecting your IPR with small and large factories alike is always an issue in China. You can be assured that most of these factories only do business with foreign entities and foreign markets but a sample of your product will more than likely end up in their showroom as an example of their work.

There are no strong legal frameworks as yet in China to protect your brand from being picked up by others and produced by the factory for sale in other territories and markets. We have all heard stories of similar SME produced products being sold under a different brand in another country unbeknownst to the original purchaser/customer. It is your brand, your design and it should remain in your hands which territories your designs and products go to. You need to stay in control of all relevant production documentation in order to prevent this.

A good working relationship with the production facility can help build trust and confidence. However there is still nothing stopping your product from ‘falling off the back of a truck’ or leaving through the back door. In this case, the saying ‘imitation is the best form of flattery’ is untrue. You want to be in control of your product and brand development and it’s no-one else’s place to take your designs.

As mentioned in previous articles there is no strong legal framework yet in China to protect you from copyright infringement, especially if it is a new market product. Getting components made in several different places and assembled in another is a solution many adopt but this can get very expensive.

An NDA doesn’t hold strong between an International client and a Chinese supplier but having one certainly doesn’t hurt. Having a 3rd party representing you on the ground in China looking out for your product and brand, applying pressure on the manufacturer and supplier to keep your product trade secrets under wraps can help eliminate and reduce the chances of copyright infringement.

For more information on protecting your brand and products, visit our official website for a free sourcing and IPR protection quote.

Small Chinese factories offer lots of pros and cons, and it is important to weigh these up before taking a leap with a supplier. They can give you the attention that a large factory can’t. They can spend extra attention to detail on your products, but smaller factories cannot turn an order around as fast as a large factory and they cannot produce very large orders in a short time.

They will also have a higher overhead overall and their stock material purchasing prices will be higher due to the smaller facility/smaller storage. If product and component prices are cheaper than a larger factory, then it’s worth looking closely to the quality of the purchased materials and ultimately the end product.

If you are an SME or on a budget it’s tempting to use a smaller Chinese factory if you are satisfied with their product. There is that level of personability that makes them easier to deal with and a willingness to work with you in order to grow their business.

If you choose to go with a smaller production facility make sure you have and control of all your product drawings, samples details. This will allow you to more easily move to new or additional facilities if the need arises due to order demand or better prices. It is also a useful leverage tool. Knowing that you have relevant information to do with as you please, the supplier will be more incentivised to keep you happy and keep you from talking to their competition.

For more conclusive advice on how to manage your order in China, visit our website for a free sourcing and manufacturing consultation and quotation.

Some buyers don’t worry so much about the production schedule in China and instead only pressure for the products to be finished in time for the shipping date. In my opinion, this is risky and is partly the cause of generally low quality and defective products in western markets. If the onus is on production and logistics department to rush its workers to finish on a deadline, quality measures can be easily ignored. Your order will not be considered crucial and may be pushed down the production list to be completed at the last minute.

Many Chinese factories employ migrant workers because they are cheap. They are generally low skilled, low paid and the factory rarely offers proper training. We don’t expect the workers to care too much about the finer details of your product at 9pm on a night shift and you shouldn’t expect them too either. It is the responsibility of the facility and department heads to push this agenda and in turn your responsibility to push them. Bringing in a 3^rd party to view the quality of production and push the agenda of quality on the factory floor can let you know how well the production department functions.

Once the product is completed it is very difficult to pinpoint where exactly a quality issue arose from and so outlining quality control measures from the start and maintaining this is crucial to having the best product. Constant 3^rd party monitoring of the manufacturer and product is one of the only ways to ensure this. As a buyer/client it is important always to press the quality requirements with the factory from the start and maintain a good communication with them. If this is done through a 3^rd party then you can always have an objective view and while continuing to operate your day-to-day business.

Checking the quality of your product after it has arrived in the destination country is too late and not worth the risk. Current payment methods with Chinese manufacturers do not favour the buyer. More often than not it involves a 30% down payment before any work has begun and then the final 70% to be paid once the shipment/container is loaded and on the sea. This means that your product could be fully paid for without you being able to appraise the final production quality. For many buyers this is a difficult situation, but one they must accept and pressure the production facility from afar using emails and phone calls and perhaps a site visit which entails international travel and company expense of both time and money. A quality control company can represent you at a fraction of the cost of travelling to the facility whilst having invaluable knowledge of local manufacturing and the local market.

The pressure is of course on the production facility to produce your goods in a decent quality to ensure repeat business from you. What if your order/shipment arrives with part of the product having a heavy defect? Who will pay for the return cost? Who will pay for reworking? What are the business implications of having unsellable/unusable stock? You can negotiate with the supplier for a discount on the next order but is it worth it in the short term to your business to let that happen?

Why take chances with your products and your business? Eliminate these issues before they occur.

For a free consultation and quote for quality control and delivery services, visit the ETP official website .

Production Drawings and Samples

Every purchaser/buyer whether they are developing new or producing existing products should have a detailed set of drawings and samples of their product to ensure that no changes creep into it over time. We have all heard nightmare stories of manufacturers over a period substituting cheaper, lower quality components to increase their profit margin. A local eye on the materials used and manufacturing process will help to eliminate the chances of this happening to your product. Moving forward with your production partner, you need to be sure that the quality is maintained so your product’s integrity is never called into question.

We all know why the manufacturers will attempt to substitute components and elements of the product for substandard and cheaper parts. They do this as inflation rises in China, raw materials increase in price, local wages rise, tax increases and the only place where they can squeeze extra revenue and margin from is the products they produce. Having understood this it is most important that you are represented during production runs and your product guidelines and rules are fully adhered to.

Make sure you maintain control of all documentation at all times. When an SME finds a manufacturer to develop new products it is very tempting just to use the manufacturer’s designs (as seen on a trade show or factory/showroom visit) and to place your logo or label on it. This item is part of your brand now. You should request all details of the item including;

- Material type and specification

- Material samples

- Technical drawings, inc. tolerances and weights

- Notes on production

- Product samples

If you have this information, you will be better prepared and find it easier to source your items from other factories if the need arises. ISO9001:14001 states that all the above can and should be provided by the manufacturer so there is no reason not to have it. This is also a useful leverage tool. Knowing that you have relevant information, the supplier will be more incentivised to keep you happy.

For a free quotation and consultation, visit our official China sourcing and quality control website.

As we have all experienced, once it is in the hands of the production facility more often than not there is a lot of confusion over what the production schedule actually is. This is usually due to a breakdown in communication between departments.

The production schedule the sales department agree with you will often be a different date to the actual production department’s. If you’d planned to visit you might find out that your order is not scheduled when you were told it was. The disconnect in many factories is between the production department and whomever your contact is there. If you want a realistic picture of your production and a 3^rd party to identify possible issues during the production process, a quality control service is very useful.

Factories can promise quality control and introduce you to their QC department but these departments are not incentivised to protect and look after your product during production. Most workers in factories are paid per item; this means that the more they produce, the more they will be paid. They are not incentivised to find any differences between your guidelines and the product being produced. Of course they are manufacturing the item ordered but there are those fine details that make a quality product. This is where a 3^rd party can be brought in to look after your product at a fraction of the cost it would be for your company to visit.

It’s useful to get to know the production department heads for a little extra information. This allows you to know how closely the sales/logistics and production departments work together.

For a free quotation and consultation on managing your order, please visit the ETP official website.

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.

For those of us who are attempting to or have already created a brand, we know the many challenges involved in getting it recognized and noticed. There are numerous marketing, advertising and promotion techniques and many pieces of literature that can help inform you of the best ways to build your brand. They may not all be relevant but you will find ideas that you would be willing to try in order to build a stronger and more recognizable brand.

Of all these options, I believe the best and most reliable route towards a stronger brand is in fact the most fundamental; make sure you have the best product in your class. The best product may mean the most durable. It may mean the finest materials or the latest design. It may mean the best price in its category. Whatever the criteria, it all stems from one thing; manufacture and fabrication.

I have been sourcing in China for 10 years. I have visited countless factories and have been in countless situations revolving around the quality of a product. It’s true what they say, that you ‘get what you pay for’, but first it is vital to know exactly what you are paying for. Making informed decisions on suppliers and manufacturers coupled with correct management of your orders throughout the process will enable you to find that extra value.

For example, you can be told that a manufacturer produces 200-500 containers a year or that the ‘laoban’ (big boss) made 500million dollars last year. Both seem impressive and may sway you to use them as a supplier. But these ‘facts’ are precisely the ones that need to be looked beyond and instead concentrate on the pride in which the sales department and department-heads take in their jobs.

They will always pay special attention to you for the first and second orders. But soon enough, you’ll find yourself just another client and the preferential treatment you used to get will wane.

It’s a good idea never to have, ‘all your eggs in one basket’ with regards to producing your goods. If your production needs are large enough it is a good idea to split them over 2 or more facilities. A backup is incredibly useful. It gives you leverage over each manufacturer as the threat of losing an order will always be there. You will notice the question, ‘do you manufacture these anywhere else?’ is always one of the first to come up.

Another advantage of splitting your production across facilities is it allows you to manage your individual orders and overall production schedule with greater effectiveness. Communication is a massive issue when dealing with facilities, and expecting an informed or honest response when asking a mid-level employee about the production schedule of a large number of products is problematic at best. Being able to limit your enquiries to a few direct questions with the key people can streamline the process on both ends. This ultimately allows you to apply pressure in the right areas to ensure production that meets your schedule.

On hand factory and manufacture experience can help you overcome these problems and assist your fabrication of a better product and ultimately a better brand.

For advice on managing your product development in China, visit the official ETP website: www.enterthepanda.com