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Choosing your Chinese Suppliers

4 January, 2008

To be able to correctly identify and qualify Chinese suppliers is one of the major matters for each foreign company that imports its goods from China. Seen the high number of potential suppliers for each sector of activity, and seen the unequal technical progress or quality of service that they show one compared to the other, how to choose the right local partners with whom you’re about to cooperate in order to efficiently supply the western market and increase the performance of your company ?

 

From Suppliers Identification to Suppliers Qualification

More and more buyers worldwide are rushing to China to benefit from the local market opportunities. In example, the bi-annual Canton Fair (CIEF) attracts a growing number of visitors (last october, it reached 210′000 persons over 15 days of exhibition) but also an important number of suppliers (about 13’000 in octobre 2007). This fair – currently considered as the world biggest commercial fair in size – also is a place in which all participants can get a real introduction about the issues that foreign buyers must face when buying in China ; their questions in regards to manufacturers always are the same : « how to be sure we choose the right supplier ? » or « who can we really trust ? » or et « how to make an efficient choice when there are so many offers ? » Indeed, many buyers who are not trained enough or not informed at all, will have to face from day One some minor obstacles which, added-up one to the other, will quickly become majors issues if a rigorous working system is not arranged.  

 

The practice of performing techniques of Sourcing is an absolute condition to the good and secure progress within the process of suppliers qualification in China. Because of more and more severe regulations in the West on the products safety norms, it is no longer good enough to work with a supplier who only is able to provide a good price and deliver on time. Times are gone when China was allowed to provide low cost and low quality products. More and more, foreign companies who are willing to purchase in China must cautiously study who their Chinese contacts are, and the effective capacities they are able to prove in order to produce goods to be exported on western markets, in accordance with the norms. Moreover, whether you are a big Group or a SME that starts, you’ll show the suppliers a bigger credibility if your purchasing organization is well structured and shows rigour.

 

For that matter, what are the best practices to efficiently source in China ? How to combine goods safety and performance of the importers ?  

 

Between Technical Anticipation and Relationships Management

First of all, it is absolutely necessary to constantly keep in mind that the two golden rules of a successful sourcing are Anticipation and Communication. In China more than in other countries, linguistic and cultural barriers being makor obstacles to the good progress of commercial operations, it is necessary on one hand to think, plan and act minimum three to five weeks ahead of your schedule. Buyers most common mistale is often to estimate that a massive number of workers on the production lines will create a natural gain of tome on the general schedule; but this is without counting on the weaknesses of the Chinese working way. China is still a country where commerce presents difficulties, and not all companies succeed. Nevertheless, one is on a right path when one understands that he must systematically foresee all issues before they occur and that extra time must be arranged in advance to solve them (as there never is a zero risk). It is on the other hand a necessity to constantly communicate with the Chinese by systematically insisting on all smallest details, even not significative for you, so that you make sure all is understood and nothing is left aside – as the Chinese have an esay tendancy to consider a new information cancels the previous information if the buyer doesn’t repeat it all. Being verbally active at each step and being generous in written instructions if possible, it means for the buyer that he has understood that certain major cultural differences can have a strong impact, and that efforts from his side are necessary to reduce them at most.

 

Rigour in the Process and Accurate Analysis

Technically speaking, how to start the first phase of the Sourcing process ? This first phase consists in getting a full package of theoretical informations about products and their manufacturers,therefore it is recommended to :

-          Establish standard documents that are complete questionnaires, in English and in Chinese when it is possible

-          inform manufacturers about the exact product you are looking for

-          require a quotation of the product

-          start a pre-audit of the contacted suppliers

-          and get a first estimation of the cost of international freight .

The goal of this first step is to be able to filter 4 to 6 factories who will sound better than all the other factories firstly identified. It is more important than anything else to provide extremely precise requests so that the information received in return is the most reliable, and that no time is wasted from the beginning of the project. If you remain vague from the start, the answers you’ll get will be as vague. The Chinese integrate the principle that you bring in the relationship a knowledge and a know-how, a form of science that they may not have masterized. If they ask you to complete the information, in their culture they make you loose face, because it would mean that the great scientist that you are has not been able to give all necessary information for the good progress of the project. If your request only contains partial information, the manufacturer will consider that you have good reasons to do so and that extra details might be left to their own will and decision.

Then you shall proceed to the analysis of the received answers. Watch out, this analysis is important but do not draw conclusions too fast ! Always keep in mind that suppliers only provide you with written answers, and that all must be physically checked afterwards :

-   products specifications will be visually verified when receiving the first samples

-          if specifications are not correct, you may foresee a change on the price during the second step  

-          the speed of answers from suppliers can also be a criteria for selection, however, respond fast but wrong can become a criteria of disqualification.

-          The volume of the product with its packaging must also be checked, in order to be able to calculate the potential number of pieces in a container. Other calculations can be taken into account in regards to this result.

-          Finally, informations in regards to the suppliers identity, structure and production capacities will be checked out, then confirmed or not when auditing the pre-selected factories.

-           

 

Pré-Selection, Audit & Sampling before final negotiation

How to close off this first step of Sourcing ? From analysis to comparative tables, via charts overviews, you finish your first phase by a ranking of the suppliers, and by the selection of 4 to 6 factories that you think have the best capacities to respond to your needs in terms of production and goods delivery.

 

This selection will constitute what we will call you first short-list. Inform suppliers that are part of this short-list that they have been selected, and kindly encourage them. The Chinese love to be publicly congratulated, and it is an excellent way of beginning to build the human side of the relationship with your potential suppliers. About one third to half of your chances to have a happy cooperation with your final Chinese supplier is based on the quality of your human relationship

 

The next step is about reducing more the short-list, down to 2 or 3 actors. You are then going to audit each of the 4 to 6 factories that you have pre-selected, according to an extremely rigorous process, next you write down a new short-list by eliminating factories that are not enough qualified, and finally start sampling. The sampling phase is now of heavy weigh in the final decision, because it is :

-          time to proove that product specifications are in accordance to what had been offered in the first place

-          a good opportunity to verify how accurate and minutious each supplier is

-          the necessary step to test te capacity (or not) of suppliers to technically develope the initial sample…

-          … and at the same time their potential capacity to develope in a near future a new range of products, using the same technology than the product you currently work on.

 

According to the results, then you’ll come up with a thrid short-list. With the last 2 or 3 suppliers, it is time to start the final negotiations, using 3 specific methods. Finally you’ll made-up the last comparative charts with the sum-up of all steps results, and you’ll be able to select the most qualified supplier.

 
 

Selection of the Appropriate Manufacturer  

It is important to notify that it is not always the supplier who makes the cheapest offer who will be your final choice. Keep in mind as well that it is very recommended to maintain good relationships with the other two suppliers that have not been chosen this time, because they could be used as back-up suppliers in case of big issue with the main manufacturer. Another good reason to this is that in the meantime those two are going to develope new products as they might intend to be ranked in a better position next time and maybe win the competition when you’ll look for them within the scope of a new Sourcing project !

 

Next topic : Sign a contract with a Chinese company

Sophie Rebibo - Consultante Objectif Chine - sophie.rebibo@objectif-chine.com

 

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